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New Internet regulations are already hurting the economy

Despite supporters’ assurances that businesses will not be harmed by the Federal Communications Commission’s (FCC) recently adopted Internet regulations, new evidence suggests otherwise.  Last week, under oath and penalty of perjury, a number of small businesses testified that they are already cutting back on their plans to invest, hire, and expand broadband services. 

Two of the FCC’s five commissioners have continued to emphasize the negative economic implications – especially those for small businesses – that will stem from its recent order.  While those who supported the FCC’s rules have assured us that the consequences will be few and far between, suggesting that the benefit of containing larger Internet Service Providers (ISPs) outweighs the costs to the rest of us, now these commissioners have proof that the effects are already following exactly what econ 101 teaches freshman undergraduates:  when business activity becomes more costly, economic activity will slow.

{mosads}Just days after the February 26 order was passed, and in many cases even before the official vote took place, ISPs across the country began modifying business practices in order to prepare for the impact of having to comply with the new regulations.  This can no longer be dismissed as speculation or anecdotal evidence, as a number of broadband providers from around the country recently affirmed that, as a direct result of the costs to comply with the FCC’s new order, they will be delaying upgrades to service as well as expansion to new markets.

One ISP with more than 8,000 customers in St. Louis (Wisper ISP) testified that, as a result of the new regulations, it has put plans on hold to triple the number of base stations it would deploy each month to expand service to new customers.  Further, the company estimates that nearly 10 percent of its revenues will be spent just to comply with FCC rules. 

Other ISPs that serve predominantly rural areas are cutting back their plans to expand service to communities where no other providers are willing to operate.  As far as their investors are concerned, once viable projects no longer make sense. 

Example after example of existing, smaller firms who confirmed similar decisions were noted in a letter from one of the commissioners this week.  Any small and growing business struggling with already tiny margins will tell you that substantial adjustments in the cost of doing business requires an equal modification in their expected future revenues schedule (most investors seek a five year pro forma, for example) that companies are required to provide to potential lenders and investors.  What may have looked like a no-brainer credit extension before the regulations were passed, now means fewer financing opportunities for many of the smaller companies who provide the necessary competition for markets to operate efficiently.

Everyone (yes, everyone) knew this would happen.  Even the FCC cited the expected direct impact on 20,000 small businesses in its published order, not including the dissenting opinions.  It doesn’t take an expert, however, to see how such regulations will extend beyond just those businesses who offer Internet service.  At least five million businesses who rely upon broadband Internet service – and employ 50 percent of the American workforce – to conduct day-to-day operations will be impacted.  The FCC saw this as a small price to pay in its mission to burden large ISPs.  Unfortunately, their big picture outlook wasn’t big enough.

The national economy is now, once again, teetering on the edge of stagnation with the two most recent quarters’ growth coming in at 0.2 and 0.8 percent.  Given room for estimation errors, we could have experienced a contraction in the first quarter of 2015.  Combined with continually slow employment growth and limited credit market access for small businesses, it’s easy to see how the smallest macroeconomic repercussions should outweigh the FCC’s concerns regarding a small sliver of the economy.

What may be most ironic, is that the FCC’s White House-supported regulations directly contradict the president’s own National Broadband Plan’s mission to increase Internet accessibility and affordability within impoverished and rural communities.  Many of the small ISPs that will be forced to scale back planned service expansions, or withdrawal from certain communities altogether, were created specifically to serve these communities.

While the FCC may continue to have intra-agency tiffs over its own regulations, more should be done to protect our economic future, as well as to continue to promote the investment and growth of broadband in rural and poorer communities. 

The FCC may have thought it was looking out for the greater American good, but the limited scope of its mission restricts its ability to see the far grander picture.  Given the unique implications for Americans from both affluent and indigent communities, as well as both Main Street shops and publicly traded mega-corporations, Congress should now have the incentive and the macro viewpoint to put together a more comprehensive and palatable bill that won’t have such wide-ranging consequences.

Vélez-Hagan is an economic policy researcher at the University of Maryland-Baltimore County, founder of The National Puerto Rican Chamber of Commerce, and author of the upcoming book, The Common Sense behind Basic Economics (2015). @JVelezHagan  



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