June 11, 2014

Wayne Winegarden, Ph.D.

933 N. Kenmore Street

Suite 405

Arlington, VA 22201  

Members of the Panel,

Thank you for the opportunity to submit comments regarding the importance of modernizing the U.S. Communications Act.  The House Committee on Energy and Commerce’s premise for modernizing the Communications Act is that the foundation of U.S. regulatory policy toward the communication and technology sectors is outdated.  It is.  Paramount among the anachronistic regulations is how the Federal Communications Commission (FCC) defines competition.

The FCC’s goal is to promote a competitive market for communication services in order to ensure that all consumers have access to affordable communication and broadband services.  However, the goal of promoting competition is thwarted by the FCC’s practice of categorizing communication services by the type of technology used to provide the service (the traditional medium).  The current market structure is developing in such a manner that competition can no longer be defined by the type of technology used – instead competition now transcends these traditional barriers. 

Consider just a sampling of the consumer-enhancing competition that is occurring between companies that have traditionally been part of different industries. 

  • Apple dropped “computer” from its name in recognition of its broader service offerings.  It is now competing with traditional cable providers through Apple TV. 
  • Amazon is now the largest online retailer in the world, (Amazon was originally an online book seller).  Amazon has introduced Fire TV (a direct competitor to Apple TV) and provides an online streaming service (Amazon Prime) that competes directly with Netflix.
  • Netflix originally leveraged the Internet and the Postal Service to deliver traditional DVD videos to consumers allowing consumers to rent videos without having to physically drive to a store (in an earlier version of the creative destructive process Netflix drove the likes of Blockbuster and Hollywood Video out of business).  Netflix now has the largest online streaming library.  Of course, fierce competition from Hulu Plus and Amazon Prime are providing consumers with more streaming choices.  Just to blur the competitive lines more, Netflix and Hulu Plus are now generating original programming.

All of these companies are the current pioneers of the Information Age.  Their new competitive offerings bring new services to consumers and empower consumers with more choices in terms of services and providers.  Traditional providers are adjusting their service offerings, consequently, in the hopes of avoiding Blockbusters fate. 

This process is the essence of market competition.  And, this is just one of the technology spaces.  Competition in the traditional telephone service is evolving quickly as Skype (owned by Microsoft) and FaceTime (an Apple offering) are changing how people use traditional telephone service.  Similarly, changes in the cloud computing space, the social networking space, and the wireless broadband space are re-defining our understanding of communication services.

The dynamic competition that is occurring in the traditional telecommunications market space is making life difficult for many companies.  Dynamic competition forces companies to strive for continual innovation and ensure that their service offerings provide value to their customers.  If consumers’ desires go unmet by current providers, then there are many new potential providers willing and able to meet their needs.  In other words, the current market dynamics are fulfilling the FCC’s goal of ensuring consumers have access to affordable communication and broadband services.  It also exceeds the FCC’s goals by bringing communications and broadband services to consumers that neither the FCC nor the consumer knew they wanted.

Keeping the dynamic and broad scope of competitors in mind, the revised FCC regulations should not regulate companies based on the technology platform from which the services are being provided.  For instance, it makes no sense to regulate phone services via a data network (VoIP) differently than phone services via a traditional telephone network.  From the consumers’ perspective, the services being provided are exactly the same. 

Worse, attempts by the FCC to regulate by technology will inevitably lead to circumstances where the FCC is burdening one company with expensive regulations that a competing company, providing exactly the same service from the consumers perspective, does not need to bear.  The result will be an inefficient reduction in the regulated company’s potential market share and excessive costs on the consumer.

In fact, the FCC’s strategic plan for 2009 – 2014 states that “Regulatory policies must promote technological neutrality, competition, investment, and innovation to ensure that broadband service providers have sufficient incentive to develop and offer such products and services.”[1]  Such sentiments should guide all efforts to modernize the Communications Act.

Thank you for your time and consideration of my comments.

Sincerely,

Wayne Winegarden, Ph.D.

Contributing Editor, EconoSTATS at George Mason University

Sr. Fellow in Business and Economics, Pacific Research Institute

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