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A Birthday Present The FCC Doesn't Need

Published in Investor's Business Daily
February 16, 1999
By Harold Furchtgott-Roth

It's the third anniversary of the 1996 Telecommunications Act, the vast overhaul of American communications law. As a birthday gift to the Federal Communications Commission, the White House submitted a budget asking for a breathtaking 20% hike in the FCC's budget for next year.

Thanks, but no thanks. The FCC should be doing less under the Telecommunications Act, not more.

The purpose of the 1996 law was to foster competition and reduce regulation. You can't have one without the other. Much of the law outlaws barriers to competition. But the real impetus for reform was a glaring need to correct the failures of the old regulatory regime.

For most of this century, bureaucrats - not consumers - were sovereign in communications. Across the globe, some of the best and brightest minds in government made most decisions about communications network architectures and prices to be delivered by government-owned or protected carriers.

As late as 1995, U.S. communications regulation was based largely on a law little changed since 1934 - and that law was little changed since the Interstate Commerce Act of the 1880s.

The Telecommunications Act was supposed to end outdated, invasive regulation. No longer would the FCC play the middleman and decide service offerings. Businesses and consumers would be empowered to choose among providers.

In many respects, the law has worked as intended. Competition has exploded for most telecommunications and video services. In these markets, the number of competitors, value of investments, market shares, cost structures and consumer prices are headed mostly in a competitive direction.

Investments in all areas of telecommunications have mushroomed, thanks to new and improved technologies and the deregulatory structure of the law.

No law is perfect, of course. But the Telecom Act is far better than the centralized, command-and-control regime it replaced.

Yet many observers of the American communications markets still complain about the law's implementation, and with good reason. Regulation hasn't been reduced in several areas. And for some services, regulation has actually expanded.

The FCC still keeps bookshelves full of regulations - written before the 1996 law - that have outlived their rational usefulness. These were issued without serious regard to costs and benefits. If a rule has benefits that exceed costs, it's often a lucky coincidence.

While the FCC has removed some regulatory barriers to markets, the commission continues to crank out new rules, often with little economic or legal basis.

For example, the FCC in 1997 imposed more than $ 1 billion in new annual taxes on all U.S. consumers to pay for networking computers and Internet hookups in classrooms. Also, it continues to write regulations that may cost wireless-phone customers billions of dollars in additional fees.

The FCC also seems intent on becoming the federal government's third antitrust agency. The commission eschews its explicit merger review authority, instead using its licensing authority to review mergers in a discriminatory manner, scrutinizing some mergers intensely and turning a blind eye to others. In fact, the FCC has no written rules about how to review mergers. It makes them up as it goes along.

The boom in Internet services offers a dramatic example of how a sector can flourish when it is free of excessive regulation. But the boom may be endangered if the FCC enacts some new rules now under consideration. Those rules may inadvertently expose Internet access to a wide range of regulations and restrictions, which in turn could threaten the Internet as we know it.

But such an outcome is exactly the opposite of what the Telecommunications Act intended. Deregulation is in the law. All the FCC has to do is read it. But if it doesn't now, there is little reason to believe the FCC will observe any future deregulatory mandates, either.

The FCC has made progress in the last three years to enact telecom reform. It's time to finish the job and to implement all of the Telecommunication Act's provisions and fulfill the promise of competition and deregulation. That shouldn't require a larger budget. In following the law, the FCC can give the American consumer and taxpayer a much-needed birthday present.