Freedom Line Blog

As we at CFIF have discussed on numerous occasions, the Federal Communications Commission (FCC) effort to reclassify Internet service under Depression-era Title II regulations meant for copper-wire telephone service is a toxic idea on legal, economic and technological grounds.

Now, a new study from Georgetown University’s McDonough School of Business Center for Business and Public Policy provides additional intellectual heft and confirmation.  Entitled “Regulation and Investment:  A Note on Policy Evaluation Under Uncertainty, with an Application to FCC Title II Regulation of the Internet,” authors Kevin A. Hassett of the American Enterprise Institute and Robert J. Shapiro of the Georgetown Center for Business and Public Policy find that the FCC’s destructive maneuver will reduce Internet investment and innovation by an alarming 5% to 20%:

First, we showed that Title II regulation should be expected to increase costs, and therefore is the type of policy that should be expected to reduce investment.  Second, we reviewed the field-specific evidence that suggested that the scale of the negative effect would be quite large, from about 5.5 percent to as much as 20.8 percent.  Next, we documented that the ratio of investment to the capital stock would be expected to decline to roughly that extent if Title II regulation in the United States would be comparable to the regulatory framework of the OECD continental European countries in the first decade of the 21st century.  Next, we cited an analysis by a legal scholar that suggest that this analogy is reasonable.  Finally, we found that the negative effects on investment may well be significantly understated by these factors because the new regulation’s threshold effect will maximize the negative effects of uncertainty.”

The Internet has flourished to date, and become perhaps the most rapidly and profoundly transformative innovation in human history precisely because the federal government regulated with a light touch.  By reversing that regulatory stance that prevailed throughout both the Clinton and Bush Administrations, the Obama Administration FCC is placing continued innovation and investment at great risk.  This new study provides just the latest confirmation, and offers additional reason for Congress, the courts or even a future presidential administration to put a stop to it.