Weed Whacking the Economy

Telecom lobbyists rejoiced last month when President Trump selected Ajit Pai to lead the Federal Communications Commission. Pai, a former Verizon lawyer and first-term FCC commissioner, has vowed to take a “weed whacker” to the agency’s regulatory regime. But the FCC’s rules aren’t just a bunch of red tape—they protect consumers, foster innovation, create jobs, and serve as a vital check on the gatekeeper power of big telecommunications companies. If Pai razes the rules he’s criticized in the past, the harm to the American economy will be substantial.

Chairman Pai has made clear that he plans to reverse course from his predecessor on many issues. A closer examination of three issues before the FCC reveals just how damaging his weed-whacker approach could be.

NET NEUTRALITY. Chairman Pai’s top priority is dismantling the FCC’s 2015 net neutrality rules, which mandate nondiscriminatory access to online content and businesses. He is also committed to eliminating the FCC’s legal authority to protect net neutrality (a statute known as Title II). Axing these laws would give broadband monopolies like AT&T and Comcast unprecedented control of America’s internet economy. These companies would be free to create “fast lanes” for online traffic that are only available to the highest bidder, thereby shutting out competitors and increasing consumer prices. These pay-to-play deals would also add enormous upfront costs for startups, undermining the innovation that has made the internet one of America’s greatest engines of economic growth and job creation.

 Despite claiming to support net neutrality, Pai sought to undermine the FCC’s rules at every turn. After voting against the rules in 2015, he repeatedly asked Congress to cut off the FCC’s funding so the agency can’t enforce them. As chairman, Pai could move to repeal the rules entirely, or ask Congress to do it legislatively. Either approach would be harmful and deeply misguided. The FCC’s rules preserve free market ideals of competition and openness. Removing them would create a climate of uncertainty in Silicon Valley and chill investment on Wall Street. The FCC should not inflict this kind of economic harm on the country.

SET-TOP BOX REFORM. As commissioner, Pai thwarted efforts to fix the market for set-top boxes—the clunky, expensive devices that most Americans rent from their TV provider. The FCC has been working for two years on a proposal, dubbed “Unlock the Box,” that would create a market for third-party devices and end cable’s stranglehold on their widely-loathed boxes. The cable industry, which collects an estimated $20 billion per year in device fees, lobbied hard against the effort. Aided by Pai’s opposition, lobbyists successfully stalled a vote on the proposal last fall. Last week, in one of his first acts as chairman, Pai shelved “Unlock the Box” indefinitely.

 Killing “Unlock the Box” also kills the prospect of consumer choice and new jobs. In 1968, the FCC ordered AT&T to allow its customers to use third-party telephone equipment rather than rely on AT&T’s proprietary devices. This unleashed a wave of innovation that led to answering machines, wireless phones, and thousands of jobs. Indeed, today’s smartphone industry and app ecosystem might not exist if not for the 1968 order. A similar dynamic today could lead to better, cheaper set-top boxes—or more innovative devices that don’t yet exist. This is why retailers like Best Buy supported “Unlock the Box,” and it’s another reason Pai’s agenda is so damaging for American workers.

MERGER REVIEWS. After decades of consolidation, the telecom sector is dominated by a handful of big companies. The lack of competition is especially acute among broadband providers; most Americans have few, if any, options, and the market is almost entirely controlled by just four companies: Comcast, Charter, AT&T, and Verizon. Consumers are rightly fed up, but Pai doesn’t seem to think this is the FCC’s problem. As commissioner, he’s routinely rubber-stamped mergers and criticized the FCC’s role in reviewing deals. He even attacked the FCC for approving two big mergers—AT&T/DirecTV in 2015 and Charter/Time Warner Cable last year—because he disliked the Commission’s modest conditions to protect consumers.

 The selection of Pai to lead the FCC suggests that President Trump’s tough talk on mergers during the campaign was little more than empty rhetoric. Industry analysts regard Pai as a presumptive green light for mergers and anticipate a new wave of consolidation, including a possible Sprint takeover of T-Mobile. While these deals might be good for a handful of corporate executives, they’d be terrible for the American consumer. For example, T-Mobile has disrupted the wireless market in recent years, freeing customers from anticompetitive contracts and forcing competitors to do the same. If Pai allows a merger to effectively remove T-Mobile from the marketplace, prices will likely go up and AT&T, Verizon, and Sprint could regain cartel-like control of the wireless market.

The American people need an FCC that protects innovators and job creators rather than telecom monopolies. They need a cop on the beat that fights for consumers and small businesses. Chairman Pai could find prudent ways to make the FCC work better for consumers and industry, but these actions would likely require garden pruners, not a weed whacker. Wholesale repeal of vital consumer protections is a blunt instrument that risks destroying the internet as we know it. It’s a recipe for higher prices and lower economic growth—and a giant missed opportunity to create jobs.