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The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order

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Abstract

In 2015, the Federal Communications Commission (FCC) imposed common carriage regulation—so-called Title II requirements—on previously unregulated broadband Internet service providers. The regime shift was premised on the FCC’s findings that such rules had demonstrably yielded economic gains. This paper evaluates the FCC’s empirical arguments and finds them uncompelling. Adjustments for inflation or general economic trends eliminate the effects cited by the FCC. Moreover, contrary to the Commission’s assessment, mobile services and broadband markets have shown notable growth in response to deregulatory events that reduce Title II requirements.

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Source: Hazlett and Caliskan (2008)

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[Source: Kagan (2015). Asterisk (*) Re-auction; Circumflex Accent (^) mean price excludes Puerto Rico licenses; Number sign (#) total gross revenues (not reflecting bidding discounts) and price for paired spectrum only]

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Notes

  1. “The air in Washington is alive with contending voices that are taking sides on these issues” (Owen 2011, p. 381).

  2. Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) [quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)]. See also, FCC (2015a, b, p. 387).

  3. The term, used in a Comment filed at the FCC by Netflix, is used in FCC (2015a, par. 200, fn. 505).

  4. The papers are Katz (1983, 1984, 1987), Brock (1986), Yoshida (2000).

  5. The source of the data is the same as that utilized in the FCC's analysis. U.S. Broadband Provider Capex, U.S. Telecom: The Broadband Association;  https://www.ustelecom.org/sites/default/files/images/Historical-Broadband-Provider-Capex-072015.png. Adjusting by the Consumer Price Index (All Urban Consumers) makes the 2011–2013 level the third-lowest capex for the sample period.

  6. Gartner Consulting, One Gigabit or Bust Roundtable Presentation (Nov. 15, 2004); http://www.cenic.org/events/archives/1gob/112004/mgilbertpres.pdf.

  7. The FCC identified 547 MHz as available to mobile carriers in 2010. In May 2015, some 645 MHz were available (Bazelon and McHenry 2015, p. 8).

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Acknowledgements

The authors thank Scott Wallsten and Lawrence J. White for alert suggestions and helpful comments. Ben Schwall and Bernard Archbold provided excellent research assistance.

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Authors and Affiliations

  1. John E. Walker Department of Economics, Clemson University, Clemson, SC, 29634, USA

    Thomas W. Hazlett

  2. Antonin Scalia Law School, George Mason University, 3301 Fairfax Drive, Arlington, VA, 22201, USA

    Joshua D. Wright

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Correspondence to Thomas W. Hazlett.

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Hazlett, T.W., Wright, J.D. The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order. Rev Ind Organ 50, 487–507 (2017). https://doi.org/10.1007/s11151-016-9556-6

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