NCTA — The Internet & Television Association

Business Data Services Are a “Textbook Example of What Not to Regulate”

Business Data Services Are a “Textbook Example of What Not to Regulate”

Business Data Services

In previous posts we have raised a number of concerns regarding the direction of the FCC’s rulemaking proceeding regarding Business Data Services (BDS). Tomorrow NCTA will file further comments demonstrating that there is no failure in the BDS marketplace justifying massive regulatory intervention, that the costs of new rate regulation almost certainly will outweigh the benefits, and that the extensive rate regulation proposed by some parties could seriously undermine competition and investment in this crucial segment of the communications marketplace.

“Unwarranted regulation ‘can create a vicious cycle whereby investment is undermined and facilities-based competition does not develop.'”

Our filing will include a new report from economists Michael Katz – who served as Chief Economist at the FCC during the Clinton Administration – and Bryan Keating. The Katz/Keating Report finds that “the ability of regulation to improve market performance is highly uncertain in a marketplace as complex as the one for BDS, which involves a wide range of complex, rapidly evolving, and multidimensional products supplied by multiple providers at costs that vary by customer, service provider, and location.” Katz and Keating demonstrate that these features of the BDS marketplace “make it more likely that regulation will have adverse, unintended consequences such as reducing investment, harming innovation, and degrading service quality.” In the end, they conclude that the BDS industry is a “textbook example of what not to regulate.”

Katz and Keating further explain that rate regulation can harm consumers by “lowering the incentives to enter and invest.” They caution that unwarranted regulation “can create a vicious cycle whereby investment is undermined and facilities-based competition does not develop . . . thus perpetuating the market conditions that triggered regulation.” And as NCTA has noted in previous posts, Katz and Keating warn that “harm to investment and entry incentives would be especially acute if the Commission extended ex ante price regulation to BDS entrants” like cable operators.

That respected economists like Katz and Keating are alarmed about proposals to regulate the rates charged by competitive providers is hardly surprising in light of the record. While there is a robust debate as to whether, and if so how, to regulate BDS rates of incumbent telephone companies, none of the 16 economists that have filed declarations in this proceeding (including the FCC’s own hired economist) have raised any concern regarding rates charged by cable or other competitive BDS providers or even hinted that such providers possess market power.  Similarly, not a single economist has endorsed the idea that regulating BDS rates of competitive providers is a necessary or beneficial policy choice.

In the face of this complete and total lack of economic support, the Commission should reaffirm its decades-old policy of not regulating rates charged by competitors and summarily reject any proposal that includes such regulation.