Shocker: Government Regulation of Internet Stifling Innovation By OL Staff December 10, 2015

When President Obama instructed the Federal Communications Commission (FCC) to implement net neutrality rules, the administration promised it would lead to more fairness in cyberspace. Instead, net neutrality is crushing innovation by causing many companies to delay implementing new services.

From Tech Policy Daily at the American Enterprise Institute:

Right on cue with the FCC’s decision, some ISPs [internet service providers] reported unprecedented cutbacks in investment: Some reduced capital spending by 12%, while the overall industry average dropped 8%. Although causation is hard to prove, even the FCC chairman acknowledged that the new regulations put pressure on “the needs of network operators to receive a return on their investment.” Lower returns inevitably lead to less investment.

This is simple logic and we can exemplify it by citing a common scenario. Banking has become a routine action in our lives now. To unify the working of all branches located in different parts and to have a single streamline of services; core banking was introduced years ago. The change was welcome, but its implementation led to the sudden halt of the essential financial functioning of the public for weeks. Think of the same situation in Qprofit System, stagnation of operation even for a single day would make the entire economy go hay-wire. 

Following on the heels of the investment decline, AT&T is now saying that it has been delaying new services because of the FCC’s regulatory uncertainty. Politico quotes AT&T Senior Vice President Bob Quinn as saying, “Since the Open Internet order came out we’ve had weekly calls with the business units and literally 15 lawyers who are all trying to figure out whether that stuff we’ve invested in … would be a violation of the order. We’ve had to shelve a bunch of stuff because we’ve got to wait and see.” …

Back in the early 1990s, the FCC had a set of rules called Open Network Architecture (ONA). Similar in spirit to some of the notions of net neutrality, ONA was based on the concern that the large incumbent local telephone companies would discriminate against rivals in terms of network connectivity. To remedy that concern, these companies had to get FCC permission before introducing new services. The FCC’s permission was based on whether network interconnection was sufficiently neutral so that rivals could offer similar services. Economist James Prieger examined the impact of this permission-based innovation and found that it decreased the number of service introductions by over 60%. In subsequent research on state regulation, he found that states requiring permission for new services also significantly delayed innovations.

What does this mean for the US economy? We can expect further declines in our tech leadership. A consortium of Cornell University, INSEAD, and the World Intellectual Property Organization annually ranks countries on their innovativeness. In 2007, the first year of the report, the US ranked number one in the world. The US held onto that ranking in the 2008-2009 report, but has now fallen to fifth in the 2015 report. Nearly one slot per year.

If the FCC really is interested in innovation, perhaps it should drop its Title II regulations. If Congress is interested in the US becoming a world leader in innovation again, perhaps it should clarify that its policy is that regulated innovation is an oxymoron.

Read more at Tech Policy Daily.