FCC Internet Regulation Is a Recipe for Crony Capitalism

Alden Abbott —  31 March 2015

Much ink has been spilled (and with good reason) about the excessive and totally unnecessary regulatory burdens associated with the Federal Communications Commission’s (FCC) February 26 “Open Internet Order” (OIO), which imposes public utility regulation on Internet traffic.  For example, as Heritage Foundation Senior Research Fellow James Gattuso recently explained, “[d]evised for the static monopolies, public-utility regulation will be corrosive to today’s dynamic Internet. There’s a reason the phrase ‘innovative public utility’ doesn’t flows easily from the tongue. The hundreds of rules that come with public utility status are geared to keeping monopolies in line, not encouraging new or innovative ways of doing things. . . .  Even worse, by imposing burdens on big and small carriers alike, the new rules may actually stifle chances of increasing competition among broadband providers.”

Apart from its excessive and unjustifiable economic costs, the OIO has another unfortunate feature which has not yet been widely commented upon – it is an invitation to cronyism, which is an affront to the neutral application of the laws.  As Heritage Foundation President Jim DeMint and Heritage Action President Mike Needham have emphasized, well-connected businesses use lobbying and inside influence to benefit themselves by having government enact special subsidies, bailouts and complex regulations. Those special preferences undermine competition on the merits firms that lack insider status, harming the public.

But what scope is there for cronyism in the FCC’s application of its OIO?  A lotAs I explain in a March 30 Heritage Foundation Daily Signal blog posting, the FCC will provide OIO guidance through “enforcement advisories” and “advisory opinions,” and the Commission’s Enforcement Bureau can request written opinions from outside organizations.  Translating this bureaucratese into English, the FCC is saying that the inherently open-ended language that determines whether an Internet business practice is given a thumbs up or thumbs down will turn on “opinions” that will require the input of high-priced lawyers and advisers.  Smaller and emerging firms that cannot afford to pay for influence may be out of luck.  Moreover, large established companies that are experts at the “Washington game” and engage in administration-approved activities or expenditures (such as politically correct green projects or the right campaign contributions) may be given special consideration when the FCC’s sages decide whether an Internet business practice is “unreasonable” or not.  This means, for example, that firms that are willing to pay more for better Internet access to challenge such powerful firms as Netflix in video services or Google in search activities or Facebook in social networking may be out of luck, if they are less effective at playing the Washington influence game than at competing on the merits.  Those who downplay this risk should recall that the FCC has a long and sad record of using regulations to advantage powerful incumbents (for decades the FCC shielded AT&T from cellular telephony competition and the over-the-air television broadcasters from cable competition).

In short, the benefits to American consumers and the overall American economy generated by a regulation-free Internet—not to mention the ability of entrepreneurs to thrive, free from cronyism—may soon become a thing of the past, unless action is taken by Congress or the courts.  American citizens deserve better than that from their government.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.