September 19, 2016
As the FCC continues its murky — and occasionally confounding — Business Data Services (BDS) process, seven economists have penned a letter to the Commission arguing that any imposed rate regulation on what is a truly competitive market would be a mistake and counterproductive. From said letter:
As commenters across the spectrum rightly acknowledge, the rationale for ex ante rate regulation hinges entirely on protecting customers from a dominant provider’s abuse of market power; in turn, there is no plausible argument for regulation BDS providers that lack market power. No party has suggested — let alone demonstrated — that competitive BDS providers exercise significant market power. Moreover, some of the undersigned economists have examined marketplace data regarding the current state of BDS competition and have found that such data do not support claims that incumbent LECs exercise market power broadly in the provision of BDS.
Translation: The BDS market is competitive and there is no need for across the board price regulation. Again, from the letter:
To the degree there are some BDS markets with persistent monopoly power, we agree that it could be economically justified and welfare enhancing to reduce monopoly rents in such markets to a best approximation of competitive levels, to the extent such a goal can be achieved without imposing large costs on providers and disincentivizing investment. The Commission should limit any such regulation to markets characterized by monopoly power that are unlikely to become effectively competitive in the near future. To that end, the Commission should regulate BDS rates for legacy services only in geographic BDS markets where only a single facilities-based provider is present or nearby.
Translation: If regulation is necessary, it should be implemented using a scalpel, not a hacksaw.
To read the full letter from the economists to the FCC, click here.