While many consumers reasonably assume that government regulators protect and work for their interests, the reality of today’s regulatory regime is far more complicated and sometimes corrupt. All too often, the relationship between regulators and industry is too cozy, and government regulation becomes a crutch for political insiders and a barrier to competition. Sadly, the one party not at the regulatory banquet is the consumer. No better example is that of the recent FCC decision to repurpose its Universal Service Fund as an internet build out fund, the Connect America Fund.
The FCC has a long history of driving up consumer prices to benefit rich and connected companies. Older consumers may remember the days when long distance rates varied by time of day, with prices jumping fivefold Sunday evenings. AT&T would admonish its customers to call grandma early on Sunday before prices spiked. The fact is that long distance costs basically the same as local call to provide, as evidenced by every major mobile provider including long distance for free. The price difference was a construct created solely by the FCC. When Judge Greene broke up AT&T, its executives foolishly fought to keep the long distance business because the FCC had artificially made it the profit center. The slow decline of AT&T, ending with its acquisition by one of the companies it once considered ancillary trash, demonstrates that the market eventually bypasses regulatory interference. Market competition from cell phones and internet telephony eventually reduced AT&T’s value to nothing more than its brand name.
In 1996, Congress tasked the FCC with revamping a fund that mostly provided Puerto Rico with cheap phone service into a nationwide subsidy to equalize the cost of urban and rural phone service (phone service costs much more to provide in the country). The fund did not alter the exceptionally generous, even corrupt, subsidies to small rural companies; this new fund was for large companies that mostly served big cities. The supported areas were not really impoverished farm land, but most often rich suburban estates and tony vacation hamlets. The various Baby Bell companies like Bell South or SBC fought vigorously for what they thought would be billions in free money. The handful of people who still receive a bill from these companies can still see a charge for Universal Service Fund. While consumers certainly paid into the fund, nobody was particularly happy with its results. As cell phones and internet telephony began to dominate local phone service, it became clear that few wanted a land line, especially in the suburban and vacation cities this fund was designed to subsidize.
So an expensive government program that ultimately benefited rich suburban customers at the expense of relatively poor urban customers had run its course. The FCC had the broad authority to declare that basic service was universally available at reasonable rates without the fund and end the tax on the urban poor. Of course, the government never gives money back, so the FCC repurposed the fund to now provide high speed internet to the same wealthy suburban and vacation home customers. Again, remember that country farmers are covered by a separate fund that more than adequately provides them high speed internet.
High speed internet is a growth and profit center; it does not need a subsidy. Suburbanites already have basic DSL speed internet, just not quite fast enough to satisfy the FCC’s delicate sense of fairness. Of course you don’t hear the multi-billion dollar Baby Bells fussing over another subsidy, even if nobody needs it. Again, the relatively poor urban customers are subsidizing HD video quality internet for the relatively rich suburban dwellers and their vacation second homes. The only real beneficiaries are the internet providers who will get free money to build networks that consumers probably could afford anyway. Of course the FCC’s intervention in the free market will drive up overall costs, but the consumer was never at the table to begin with. Naturally, those that might want to later compete using technologies such as LTE wireless will have a hard time overcoming the politically connected companies that got free money to build out their networks. The FCC’s M.O. is to lock in technologies and entrench favored companies at the expense of the consumer.
Good for the poor? No. Good for the truly rural farmers? No. Good for Ted Turner’s Montana ranch and Aspen second homes? Yes. Good for Fortune 500 companies that are already profitable? Yes, very. The FCC is yet another example of a rogue regulatory agency that the US does not need. Consumers can do very well without this type of protection.