The Voters Wanted Growth – And They Can Have It

For many Americans, the key issue in the recent election was which path would lead to sustained growth and better incomes. That was what some candidates chose to focus on, but the issue remains central in the public’s mind. There are pragmatic approaches to fostering growth in Americans’ incomes – including repatriation of the $2 trillion of corporate earnings parked overseas, revisions to the tax code that will encourage capital investment in the US, and unshackling our economy from $2 trillion in annual regulatory drag that kills investments and is a drag on incomes.

Without action, the next victim lined up for regulatory strangulation is the evolution called “internet of things” or IoT, which could become a $1.9 trillion per year marketplace over the 2020 to 2029 period. In the IoT, “billions of sensors and processors will be built into appliances, security systems, health monitors, door locks, cars and wearables… the number of networked devices will skyrocket from about 5 billion in 2015 to 25 billion by 2020.”  Fortune Magazine studied more than “150 specific IoT applications that exist today or could be in widespread use within 10 years and estimate that they could have a total economic impact of $3.9 trillion to $11.1 trillion per year in 2025.” Most of those devices will be close enough to each other that high frequency low power wireless communications will be suited for communications between devices.

Unfortunately, there is not enough commercial spectrum available today to support the anticipated needs for IoT. That’s where 5th generation wireless or “5G” is expected to meet the needs. 5G wireless will support data speeds of up to 50 Gigabits per second over very short distances such as 200 meters – far exceeding speeds from today’s 4G networks.

The technical and economic challenges for 5G rollout and thus the viability of IoT are subject to regulatory whims of the Federal Communications Commission (FCC). The sheer scale of growth that IoT can attract to the US makes it essential that we align regulations with our mission of economic growth. That chore requires new allocations of spectrum in the 6 Gigahertz to 60 Gigahertz range, along with rules that discipline the efficient use of that spectrum.

Unfortunately, instead of accelerating innovation, the FCC has recently done economic damage by gutting the incentives for infrastructure investment and particularly in internet upgrades. The FCC’s goal has not been aligned with economic growth, but rather with enriching Internet content providers (edge providers) by hobbling network operators (core providers). In effect those who invest the most in infrastructure are restrained from innovating to provide competitive alternatives for consumers and to recover their investments. Facing a $1 trillion economic benefit by 2020, the FCC needs to get aligned with growth as its central goal.

The massive scale of FCC’s regulatory drag on the economy is documented in the recent study from the American Consumer Institute. The study illustrates the economic damage that perversely focused regulators can inflict.

The most egregious of the FCC’s new rules is the cynically named “Network Neutrality” the rule that prevents an internet service provider from offering priority services, and some say from offering free services. In addition, the FCC declared Internet Service providers to be common carriers under Title II of the Act, subjecting them to the rococo regulatory traditions of the 1934 Telecommunications Act, to the delight of an entrenched regulators. The FCC is considering blocking wireless innovations such as sponsored data that would provide consumers with free online content from potentially Hulu, ESPN and others without  affecting their data caps.

Under the guise of speeding technology transition to advanced services, the FCC’s Title II regulations now require carriers to invest in and maintain outdated copper infrastructure for voice-centric services longer than necessary. Carriers must obtain permission from regulators and from their competitors, if they want to modernize their networks. The FCC has also decided to regulate the service and prices for slow-speed copper-based business data services pricing, forever burdening incumbents with the role of providing outdated business services. Wired infrastructure is a necessary component for backhauling wireless traffic to the Internet backbone and elsewhere.

The availability of spectrum for IoT use is typically the result of an auction held by the FCC. The auction process can take many years and auction delays will stall the IoT rollout.

Future 5G services and the IoT’s impact on consumers and the general economy could be significant. The technology sector has the technical abilities to make it happen and investors are ready to proceed if they believe a regulatory quagmire can be avoided. It will take some political backbone to rein in counterproductive actions by the FCC, but the payoff for Americans is well worth the effort.

One thing is for sure — freeing the broadband providers of onerous regulations is a quick way to increase investments in services that consumer greatly demand.