The FCC’s War on Investment Targets Business Data Services
Another month, another FCC initiative to regulate companies that build networks for the benefit of those that don’t. But rather than wade into the details of Chairman Wheeler’s plan to penalize cable operators for bringing new services, fresh competition, and billions in investment to the market for business data services, we offer the following hypothetical:
Imagine a town with a single hotel, say a large Marriott. After years of having a single option for hotel rooms, Kimpton comes to town and builds a new “boutique” hotel – smaller than the Marriott but with modern amenities and cheaper rooms. In response, Marriott offers new promotions and makes plans to upgrade the rooms and common spaces in its hotel. As we know, the presence of a new facilities-based competitor results in improved services and lower prices.
Seeing all this activity, Acme Hotel expresses interest in coming to town. But Acme decides it doesn’t want to build a new hotel – too expensive, too time consuming, too risky. Instead, Acme goes to the Federal Hotel Commission (FHC) and proposes that the best way to promote competition in the hotel market is for the government to require Marriott and Kimpton to sell space in their hotels to other hotel companies, and to do so at a significant discount so that Acme can resell the rooms at prices below what Marriott and Kimpton offer.
“The only difference between the two scenarios is the hypothetical hotel scenario could never come to pass because there is no FHC.”
It should be immediately apparent that granting Acme’s request would be foolish. Why should Acme get cheap access to rooms built by Marriott and Kimpton? Wouldn’t consumers be better served if Acme built its own hotel like Kimpton did, thereby expanding the options available to consumers? Wouldn’t the requirement to sell rooms to competitors at a steep discount encourage Marriott and Kimpton to scale back continued investment in new or upgraded facilities? At the end of the day, wouldn’t this regulation just transfer wealth from companies that build hotels – an activity that creates jobs and revenue for the community – to companies that choose not to build?
If you see why Kimpton would be opposed to this hypothetical hotel regulation proposal, you will quickly understand why the cable industry is so concerned about Chairman Wheeler’s proposal to regulate the rates charged by cable operators and other new entrants in the market for business data services. Under this proposal, it appears that companies that take the risk to build and upgrade broadband networks would face extensive rate regulation, while companies like Sprint, that consistently choose not to build, would reap all the benefits.
The only difference between the two scenarios is the hypothetical hotel scenario could never come to pass because there is no FHC and companies that take the risk to build hotels are entitled to reap the rewards. With respect to data services, however, the FCC is all too real and the Chairman seems prepared to move forward with precisely such an approach. After four decades in which the bipartisan policy of the Commission has been to not regulate the rates of facilities-based entrants in order to encourage competition and investment, Chairman Wheeler now is proposing to impose price regulation on the very companies that are finally bringing competition to the marketplace for business data services. We strongly encourage the other four commissioners to tell the Chairman to remove this harmful proposal from the item to be considered later this month.