John Hood: FCC should let markets work

  • Posted: Friday, April 11, 2014 12:53 a.m.

RALEIGH ó In February, Federal Communications Chairman Tom Wheeler declared that the North Carolina General Assembly had no authority to determine telecommunications policy in North Carolina.

Well, okay, Wheeler didnít single North Carolina out for particular scorn. But he did say that in the coming months, the FCC might decide to challenge state laws, like the one the North Carolina legislature enacted in 2011, that govern the ability of cities and counties to create their own broadband networks to compete with cable, telephone, and satellite providers.

The North Carolina statute doesnít forbid localities from operating telecom services or even participating in new ventures. But it does impose a set of rules designed to prevent localities from misusing their fiscal, regulatory or condemnation authority to favor their own telecom services over those of private competitors.

Youíll get no argument from me about the potential economic and social benefits from enhancing telecom access and competition ó and from bringing new super-high-speed broadband service to North Carolina communities. A 2007 study by the Brookings Institution, for example, found that broadband access was one of two statewide variables that exhibited a consistent relationship to private job creation. (The other variable, by the way, was a stateís ranking on the Tax Foundationís State Business Tax Climate Index. Thatís good news for North Carolina, which is about to see a huge gain in ranking because of the 2013 tax reform.)

The next generation of broadband ó operating at the gigabit-per-second range and above ó may truly be revolutionary for industry and attractive to consumers. But past experience and common sense argue against governments leaping into areas best left for competitive markets and private enterprises to sort out. Chicago, Seattle and Provo are just some of the communities that should have looked more carefully before investing in or building networks that ended up costing more or delivering less than promised.

Consider the contrasting business plans of two private entrants into the super-high-speed market: Google and RST Fiber. In the case of the splashy but slow-motion Google Fiber rollout of residential service in Kansas City, entire neighborhoods are opting in or out of the service, which will use existing utility infrastructure to complete the connection to each home. On the other hand, Shelby-based RST is using a 3,100-mile network of fiber-optic cable to carry the signal to within a mile or so of potential residential and business customers in the Asheville, Charlotte and Raleigh areas. The final connection, however, will be by wireless transmission.

The advantage of the Google Fiber concept is that, at least in theory, wired is faster than wireless. But RSTís wireless option for the last mile is much less costly to accomplish and administer, and in reality many Google Fiber customers will be using wireless devices, anyway.

The goal here ought to be to facilitate innovation and competition without favoring one model over another, or biasing the market against the existing providers that have already invested significant sums in their own wired and wireless networks. What North Carolina localities should do is remove any unnecessary barriers to competition, allow access to public rights-of-way on equal terms, treat all competitors the same when it comes to taxes and regulations and otherwise butt out.

That is essentially the policy stance that the General Assembly adopted in 2011. It was the right call then and remains the right call now.

As for the prospect of FCC intervention, the U.S. Supreme Court has already ruled in a 2004 case that existing federal law does not preempt state laws on municipal broadband. Washington does have a legitimate, constitutional role to play when states attempt to obstruct interstate commerce. In this case, however, a state is really keeping the localities it creates and governs from interfering with the market process.

If the FCC wants to do something constructive about telecom innovation and competition, it should focus on freeing up spectrum for new entrants and investment. Thatís its job. Pretending to be the North Carolina legislature is not.

Hood is president of the John Locke Foundation.

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