When private companies compete for market share, consumers always win; but when regulations and legislation help advantage competitors, consumers invariably lose. It is just as simple as that.
When it comes to doling out favors, special subsidies and protection from competition, there are signs that the FCC is open for business. It amounts to rent-seeking, an economic concept that built upon the path breaking work of Professor Gordon Tullock and Nobel Laureate James Buchannan – “The Calculus of Consent.” Rent-seeking describes those activities whereby private interests attempt to manipulate regulatory and legislative processes to achieve economic advantage. These activities do not increase consumer welfare; they just represent a financial transfer among competitors, and one that undermines the consumer and economic benefits from competition.
Most recently, a few wireless companies asked the FCC to give them access to two of their competitor’s mobile data networks, in order to reduce roaming charges. In explaining why the FCC should get involved, vice president of federal affairs for Sprint, Charles Mckee, said “The expectation of consumers is their smart phone is going to work wherever they go.” Hey, but did anyone bother to tell Charles that it’s Sprint’s responsibility to take care of its own customers, make its own investments and establish its own private roaming agreements? It’s not the FCC’s responsibility and it’s certainly not the responsibility of Sprint’s competitors.
Another conspicuous example of this is how a handful of web companies helped foster a grassroots-like movement to impose Net Neutrality regulations on broadband service providers. Despite the evidence that such regulations would reduce consumer welfare and despite the fact there really wasn’t any obvious threats to the market, the FCC was persuaded to order new Internet regulations – regulations that would hamper providers that invest and offer broadband services. The result – web companies successfully used the regulatory process to protect their markets and prevent competition from broadband companies.
Yet another example is when Google promised the FCC that it would bid on wireless spectrum, but only if the FCC mandated that all spectrum winners utilize an open network model suitable to Google’s business plan. So enamored was the FCC at having Google be a new wireless service competitor that they agreed to the deal. While Google did bid once, it never rebid and never won a single license. The result – Google never needed to invest in wireless broadband, but its would-be competitors would need to make its network amenable to Google’s offerings. And, just like that – the FCC gave a favor that advantaged Google at the cost of potential competitors and investors.
What is really disturbing about this rent-seeking, however, is that it suggests that the FCC is “open-for-business,” and the requests are pouring in – some competitors want artificially low prices for special access services, Netflix reportedly wants subsidized bandwidth to deliver its videos, and many are looking at new universal funding as the next big handout – even though the evidence is clear that current high-cost funding mechanism has not had much effect on declining wireline telephone penetration rates. These high-cost broadband funds will mean that money will flow from one company pocket into another, with none of these funds going directly to broadband consumers. It is just rent-seeking – plain and simple.
As we hear calls for a new roaming charge subsidy, the FCC needs to resist the temptation to hand out favors, give corporate subsidies, effect market outcomes and protect competitors, because some rent-seekers regulatory gain will ultimately mean losses for American consumers.