Why Telecom Policy So Often Fails

When he first joined the staff of the Federal Communications Commission out of graduate school, the agency "would have been thrilled" if told policy could help create two competitors in the local telecom business, said George Ford, Phoenix Center chief economist. "We'd  have packed up and gone home," said Ford. 

And yet many insist there is "no" competition in local telecommunications, or "not enough." As a practical matter, promoting of competition comes down to "one more" contestant in a market, and that really is the right way to think about it, says Ford. 

Regulators always want more price competition, the outcome of which is fewer providers, Ford notes. The reality of capital-intensive businesses such as telecom is that "only a few" can actually sustain themselves. 

The point is that telecom and Internet regulators often create policies that have effects opposite of what they intended. They want more competition and then create policies that lead to less competition.

They want more investment in next-generation networks and produce less. Good intentions produce harmful policies. The 2015 debate about network neutrality was more about ideas or principles than actual policies, he says.

The net neutrality argument originated from notions about payola, where radio stations would play music because of monetary payments. They would play what they got paid for. That is what people tend to think, Ford says.

In grocery stores, product suppliers often pay for placement on shelves. But those are examples of scarcity. You can only play one song at a time. The internet does not have that kind of scarcity component. Artificial scarcity does not work. Networks do not disable themselves at a standard level so they can upsell a faster product.

Networks are in the business of selling a product. Everybody does not want a 10-gig or 1-gig service. People only buy what they believe has value. A lot of people argue everybody should have a gig, but where offered, most do not buy it, says Ford.

So 75 percent of people in the past bought a 6-Mbps connection when they could have bought much-faster service.

Was the end of mobile phone contracts pro-consumer? It is not anti-competitive to allow people to buy a phone for $200, instead of $800, in exchange for signing a two-year contract, Ford says. You can outlaw such tying of service to phone subsidies, but the policy solves nothing. It does not improve consumer welfare.