This article originally appeared on Forbes.
The public feuds between Internet providers, such as Comcast and Verizon, and content providers, such as Google and Netflix, have started an important debate regarding how to effectively regulate the communications and technology industries. Unfortunately, in response, the Federal Communication Commission (FCC) appears to be considering heavy-handed regulations on these complex industries.
A top goal of economic regulations is to maintain a competitive market. Robust competition incents businesses to provide consumers with better services on better terms. Often, through the rigors of competition, companies come up with winning offerings; other times the offerings sound like a good idea until they face the ultimate test, the consumer.
It is only after consumers have had the opportunity to vote with their pocketbooks that we can tell which goods and services are valued, and which are not.
Unfortunately, regulators will often misinterpret their mandate to promote a competitive market. Instead, of protecting competition and empowering consumers to be the final arbiter of what is valuable to them, regulators focus on protecting competitors.
A focus on protecting competitors, by its very definition, thwarts the competitive process. You don’t promote competition by subsidizing competitors who are providing consumers with an inferior product. Nor do you promote competition by penalizing the competitors who are trying to serve consumers better.
Recent comments from FCC Chairman Tom Wheeler indicate the FCC may be about to make this mistake when it comes to broadband. The issue is whether partnership arrangements between internet service providers (ISPs) and content providers is permissible or not.
Ultimately, two companies create partnerships because they believe such arrangements enhance the value of their own products. These arrangements also exemplify the competitive process at work.
With demand for broadband services rising faster than the available infrastructure, connection speeds are suffering during high-traffic times. There are only two ways for a scarce good to be allocated – either there can be long wait times, or there can be a pricing system that allocates the scarce resources to its most highly valued users.
Due to the scarcity of broadband services during high-traffic times, and without a pricing mechanism to allocate resources, shortages are occurring – in this case, slow connection speeds.
For many online services, faster connectivity is an attribute that a content provider may want to provide to its customers – the company believes this is an attribute consumers’ value. Similarly, an ISP provider may believe its product offering is more valuable to its consumers if a content provider’s connectivity is faster and more reliable. Herein lies a possible gain from exchange between the two companies.
Content providers (such as Netflix) are creating dedicated connection agreements with ISPs (such as Verizon or Comcast); and in return, the content provider is given faster connectivity to the ISP’s customers.
These arrangements create options for consumers and exemplify the competitive process. Perhaps the additional quality and speed of the streaming videos created by the partnership arrangements are something consumers value and are willing to pay more to receive. Perhaps not. The partnership agreement is the competitive process at work. If allowed to occur, then consumers will be empowered to determine if these agreements are valuable to them.
That is, unless the FCC thwarts this competitive process in the name of “protecting consumers.”
Out of frustration, consumers have been complaining about connectivity problems (e.g. slow connection speeds) to the FCC. Google and Netflix have jumped into the fray by creating pop-up alerts when videos load slowly. The alerts contain links that provides comparative ISP download speeds. In response, Chairman Wheeler has instructed the FCC to “collect information” on whether ISPs are at fault for slow connection speeds.
Discovering who is to blame for slow connection speeds misses the point. The proper regulatory response is to empower industry competitors to discover new ways to allocate scarce broadband services efficiently.
Like any competitive market, the broadband market is looking for new and better ways to provide services to consumers. Companies exploring new and innovative methods to deliver their services exemplifies this competitive process. The FCC should not start an “information collection” process that is the first step toward greater regulation and the penalizing of competitors searching for new and better ways to serve customers. Instead, the FCC should support the competitive process that is already trying to overcome the obstacle of slow connection speeds and serve consumers better.
Wayne Winegarden, Ph.D., is a Sr. Fellow in Business and Economics at the Pacific Research Institute and a Contributing Editor to EconoSTATS at George Mason University.