The Dangers of Over-Regulating Competition

June 6, 2011

As a regular reader of Steve Pearlstein’s Washington Post’s business column, I was dismayed at the consistent pro-regulation frame of Sunday’s piece on the AT&T-T-Mobile acquisition: “The Revenge of the Baby Bells.

The hallmark of longstanding bipartisan competition policy has been that if market players have the freedom to succeed or fail at differentiating, innovating and investing to meet consumers’ rapidly evolving needs, market forces can maximize consumer welfare much better than FCC regulators can. 

  • Current fierce communications sector competition on multiple levels, vibrant innovation and massive private sector investment have proven Congress’ wisdom in instituting competition policy to replace economic regulation as the best framework to maximize consumer welfare in communications.
  • Without the 1996 Telecom Act replacing economic regulation with competition policy, the Internet would be a fraction of the phenomenon it it today.

Thus it is dismaying that Mr. Pearlstein crafted a false choice in his column: “…stick with the competitive, lightly-regulated model and… block a merger… or it could acknowledge… the “telephone” market is a natural oligopoly… and… requires much stronger government regulation.” 

  • First, wireless is no longer “lightly regulated” as Mr. Pearlstein assumes.
    • In April, the FCC mandated price regulation of data roaming agreements, in its Data Roaming Order, which is among the strongest regulation available to the FCC short of an outright ban of behavior.
    • And in December, the FCC Open Internet Order included wireless in part of the FCC new net neutrality regulations, and also put wireless on a slippery slope towards more net neutrality regulation in claiming the wireless market is no longer effectively competitive, despite overwhelming evidence to the contrary.
  • Second, if the acquisition does not violate antitrust law, it does not require FCC economic regulation.
    • If the DOJ finds that there are selected local markets where the combination would raise antitrust concerns, there is a well worn path available to the DOJ of divesting local market spectrum and customers to other competitors to simply and cleanly rectify the concerns.
  • Simply the acquisition should not be a pretext for more economic regulation in opposition to the competition policy law of the land.

Mr. Pearlstein reemphasizes this false choice in his conclusion: “Which arrangement — a tightly regulated oligopoly or a lightly regulated market with numerous firms… — is most likely to produce the next innovation that improves services while lowering costs?” 

  • It is a false current choice Mr. Pearlstein presents because Congress already made that fundamental policy choice for the FCC in 1996 in almost unanimously supporting competition policy over a”tightly regulated” market.
    • And after 15 years of spectacular competition policy success, which has enabled the Internet, broadband and other innovations to flourish, there is scant evidence or justification to warrant reversing Congress’ bi-partisan wisdom and success. 

With all due respect to Mr. Pearlstein, the choice the AT&T/T-Mobile transaction presents is not to regulate more or regulate even more — that more-regulation-myopic-frame ignores the real and wildly successful choice that Congress made in 1996 and still strongly supports, which is choosing competition policy over Government economic regulation.

  • The real danger of over-regulating competition is that the FCC imagines that it is somehow better at promoting innovation, competition, and economic growth than the market is.

The bottom line conceit — that the FCC can produce more innovation via regulation than the market can by having competing suppliers vie for consumers’ demands — is the presumption that regulators can centrally plan a better path for consumers than consumers can competitively choose for themselves.

 

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