Regulators Shut Down Cell Phones and Cable TV: Is the Internet Next?

By | August 12, 2023

Sens. Elizabeth Warren (D-Mass.) and Lindsey Graham (RS.C.) recently proposed legislation to regulate online platforms such as Amazon, Google and Meta. They claim their bill “would rein in Big Tech by establishing a new commission to regulate online platforms.”

In a New York Times editorial, the senators pointed to agencies such as the Interstate Commerce Commission and the Federal Communications Commission for “preserving[ing] innovation while minimizing damage from new industries.”

Unfortunately, history shows that such ideas can instead hurt innovation, American consumers, and the American economy. This is demonstrated by the agencies that the senators cited as success stories.

Founded in 1887 to “rein in” railroad monopolies, the ICC instead oversaw the formation of a railroad cartel under the terms of the Transportation Act of 1920. This statute stifled competition by requiring the ICC to set rates that provide a ” fair rate of return” ” to railways. The Act also empowered the ICC to control market access and oversee rail mergers. The ICC then extended its powers to trucking as the new industry threatened the viability of the railways. Busing was next to come under its regulatory monopoly.

The end result? American consumers and businesses faced unnecessarily high prices and quality improvements suffered. According to a study by the American Enterprise Institute, the significant deregulation of railroads under the Staggers Act of 1980 led to reduced operating expenses and subsidies. Rate increases were curbed and service quality improved, with benefits for most shippers, consumers and taxpayers. The ICC was finally abolished in 1995.

The FCC also imposed heavy costs on the American economy and became a “captured agency” dominated by the same huge firms that were subject to its regulation.

For example, it protected the AT&T monopolist, which it regulated, by slowing the introduction of cellular telephony and competition in long-distance telephony. This kept prices artificially high for consumers and reduced innovation. AT&T’s breakup due to the 1982 settlement of a Justice Department antitrust lawsuit and subsequent 1995 legislation eventually helped break the regulatory logjam.

Consumers were big losers due to FCC-caused delays in the expansion of cellular telephony, specifically a four-decade delay in the widespread availability of cellular telephony (with AT&T officials also responsible). Similarly, the FCC delayed the widespread adoption of cable television at the behest of the “big three” television networks that it oversaw.

The ICC and FCC cases are typical of what happens when large companies are regulated by new government authorities. In a famous 1971 article, “Theory of Economic Regulation,” Nobel laureate in economics George Stigler described how industries distort regulatory processes to their private advantage. In particular, he showed how powerful companies demand the introduction of rules that they can manipulate to harm or exclude their potential rivals from the market.

Remember this the next time a tech company calls for its own regulation, as when Facebook (now Meta Platforms) CEO Mark Zuckerberg called for government regulation of major platforms and Google’s policy chief advocated common “rules of the road.” Sincere or not, their ideas are far more likely to serve private interests than the public interest, with American consumers the losers.

Big business has the scale to bend rules to suit their interests through lobbying and legal filings. Smaller companies, or companies that are not yet on the market, are in a weaker position to represent their interests to the regulator. Rather than promoting healthy competition, regulation of very large companies tends to undermine it.

In his book “Permissionless Innovation,” Adam Thierer showed how new high-tech products and services—commercial drones, driverless cars, 3-D printing, virtual reality, the Internet of Things, etc.—thrive when they can develop largely free from government rules. Indeed, the phenomenally rapid growth of the commercial Internet, which has showered consumers with benefits (think online ordering, Google searches, and navigation apps), is the best example.

Creating new complexities and legal risks to manage discourages entrepreneurs (including possible rivals to large platforms) from experimenting with new innovative solutions that can lower costs, better protect our privacy and spur the economy.

To add to the confusion, Warren and Graham’s proposal does not displace existing antitrust and consumer protection oversight. This would represent an accumulation of public costs as well as confusion when enforcement actions by established agencies collide with new regulations.

Most proponents of Internet regulation no doubt act with the best of intentions. But, as John Adams pointed out, “facts are stubborn things.” The stubborn facts show that the United States, without caution, could end up with a more monopolistic and less competitive high-tech future. This would be particularly unfortunate with China threatening to surpass the US in this area.

Winston Churchill famously said, “Those who fail to learn from history are doomed to repeat it.” It would be a shame to have an internet retrofitted with 1970s style trucking and phone policies.

Alden F. Abbott is a senior fellow at the Mercatus Center at George Mason University and a former general counsel at the Federal Trade Commission.

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