FCC would be right to stay out of the business data services market

That revolution wasn’t inevitable, nor did it occur accidentally. Rather, it happened because policymakers in the early days of the commercial internet had the wisdom and humility to recognize the limits of their foresight. They embraced a light-touch, limited-government approach to Internet regulation that put market forces, rather than bureaucrats, in charge of the internet’s growth.

{mosads}Later this month, the Federal Communications Commission (FCC) will have an opportunity to reaffirm and strengthen that “hands-off” ethos. The FCC is scheduled to vote April 20th on a forward-looking proposal to roll back unnecessary rate regulation in the market for business data services (BDS) – the connectivity and bandwidth that internet providers sell to business customers. A “yes” vote on the FCC’s BDS order will constitute a huge step toward protecting the health of this vital market, and ensuring the continued growth of our nation’s broadband infrastructure.

The market for BDS itself is a case study in healthy competition. Nationwide, more than 600 providers have entered the marketplace to compete against each other, and there is no single dominant player in the market. Nine firms maintain at least a 4 percent market share, while none has a share above 17 percent. That wide-open, highly competitive ecosystem is having exactly the impact that even a first-year economics student could predict: prices are plummeting.

In fact, prices for ethernet services have fallen by roughly 50 percent over the past five years. Business customers possess more options for data services, and at significantly better prices, than ever before. 

The fierce competition within the BDS market has been a major driver of network investment. According to the Fiber To The Home Council, BDS providers have laid more than 100,000 miles of fiber since 2013, reaching more and more new customers and offering better service. 

Despite those obvious signs of a healthy, competitive marketplace, the Obama administration’s FCC signaled last year that it was considering drastic new regulatory intervention. Former FCC Chairman Tom Wheeler proposed rules that would have let FCC bureaucrats dictate prices not only for incumbent providers, but even for new entrants. That stunningly bad idea would have trampled on decades of FCC precedent, not to mention the most basic principles of free-market economics. 

Wheeler’s rate regulation plan also would have erected a giant “STOP” sign in front of private investors, dramatically slowing down the pace of deployment. 

Fortunately, Wheeler has since stepped down, and his successor Chairman Ajit Pai has a much greater appreciation for market forces. 

Pai has scrapped the ill-advised Wheeler plan, and the FCC will soon vote on a better framework that rejects “government knows best” bureaucratic planning in favor of a pro-competition, pro-investment, light-touch approach.

The benefits of Pai’s better alternative will be felt beyond the business services segment, particularly with the emergence of 5G wireless technology looming just over the horizon. The 5G era offers the promise of near-ubiquitous wireless connectivity, but the data load generated by the coming swarm of 5G-connected devices will dwarf anything we’ve seen to date. Specifically, experts predict that the total flow of data traffic across global networks may be 10,000 times greater in 2030 than in 2010. 

Current networks simply can’t support that level of exponential growth. Only by laying massive amounts of new fiber – funded by equally massive amounts of private capital investment – can we meet that challenge.

Pai’s deregulation agenda encourages private capital to continue to flow into the sector, driving more competition, increased innovation and more robust network infrastructure. 

In the Internet ecosystem, the old maxim that “The government that governs best, governs least” remains as true as ever. Business customers don’t need to be “saved” by bureaucrats from a thriving BDS marketplace marked by falling prices and growing competition.

Instead, that healthy competition should send a clear signal to the FCC to get out of the way and continue to let the market work as it has to date. Approving Chairman Pai’s BDS proposal on April 20th will be an important start.