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New Internet Regulations Spell Trouble for Innovation and Small Businesses

06/15/2015

By Karen Kerrigan

Today the Open Internet Order of the Federal Communications Commission officially hit the broadband industry. The impact of this change will not be immediately obvious to all who use the Internet, but over time the crippling regulations will produce a lasting effect on the Internet economy. For small businesses directly and tangentially related to the Internet, the impact could be especially profound.

The public-utility regulations, dating back to the 1930s, that the FCC dusted off and applied to the Internet are entirely inappropriate for promoting competition and innovation and encouraging investment. Designed for controlling the old Ma Bell monopoly, these old-fashioned utility regulations have long been irrelevant but have been given new life under the Open Internet Order.

Competition has been thriving, and the speed of technological innovation requires a nimble, light regulatory approach. Content companies like Google continue to expand fiber offerings, while traditional providers like Verizon and Comcast continue to compete with content, acquiring NBC and AOL, respectively.

The Internet has changed more in its short lifetime than telephone services have in nearly a century. So it should surprise no one when public-utility regulations prove inadequate to the job of maintaining strong competition or encouraging future investment. The collateral damage felt downstream, hampering small providers and would-be market entrants alike with colossal regulatory costs, is inevitable.

Nowhere is this truer than with small Internet providers, companies that often go into areas that large providers will not. Take, for example, KWISP Internet, which “serves 475 customers in rural northern Illinois,” as FCC commissioner Aji Pai, a Republican, explains in media release issued last month:

“As a result of the regulatory uncertainty and costs created by the FCC’s decision [to adopt President Obama’s plan to regulate the Internet], KWISP plans to delay network upgrades that would have upgraded customers from 3Mbps to 20Mbps service, new tower construction that would have brought service to unserved areas, and capacity upgrades that would reduce congestion for existing customers. . . . KWISP worries that even a frivolous lawsuit brought under the Order could force ownership to “close the business.”

This is no isolated incident. For everything that KWISP offers, its president Kenneth Hohhof explained to Ars Technica, “we will have to pay a telecom lawyer to review to see if we are exposing ourselves to either a complaint to the FCC that could result in fines or, as we understand it, we will now be exposed to civil damages.”

Economist Hal Singer reported in a recent paper for the Progressive Policy Institute that ISP capital expenditures will fall between 5 and 12 percent “per year relative to 2014 levels — based on experience in the late 1990s and early 2000s, the last time telecommunications companies were subject to public-utility rules.” For small businesses reliant on top-down investment, this spells real trouble. Less investment means fewer equipment purchases, fewer installations, and, in the end, fewer jobs. If these small businesses go under, it will mean less competition for consumers to choose from or, in some cases, no service at all.

For decades, innovation in the tech sphere has been evolving at a blistering pace, and consumers and businesses alike have benefited from companies’ ability to create and launch new products and services without having to seek the FCC’s permission. For startups and small businesses, speed and momentum are critical. Many of them develop and differentiate their respective brands by introducing their best and newest innovations directly to consumers. Now that the FCC must approve any product or service they create, many of their most useful and creative concepts risk the prospect of lengthy evaluation and of eventual rejection by a government bureaucrat.

So today, though few Americans are taking note of it now, we move from a competitive marketplace, characterized by free-flowing exchange, to a “mother may I” regime managed by unelected regulators. As much as we love rooting and advocating for the underdog in America, even fervent optimists have to admit that the Open Internet Order doesn’t give America’s small businesses a fighting chance.

— Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council. @SBECouncil