It never is entirely clear to me what proponents of regulating broadband “as a utility” have in mind. You might recall that we once regulated telecommunications as a “utility,” with limited market entry and price controls. Over a process of decades, starting in the mid-1980s, U.S. regulators slowly began to loosen those regulations, which originally were put into place as telecom was seen as a “natural monopoly.”
Natural monopolies, it is argued, must be regulated because only one supplier can exist. In such cases, market competition cannot act to restrain predatory behavior. But there is no such consensus anymore. Mobile and fixed communications market have been proven not to be natural monopolies, at least in the U.S. market.
As often is the case, good intentions can be thwarted by inappropriate policies that actually create the opposite of intended benefits. You might recall that under monopoly regulation, business communication prices were quite high, to subsidize consumer services, which were moderately priced if not characterized by innovation and creativity.
Prices fell, and usage rose as competition was introduced for long distance services, even before passage of the Telecommunications Act of 1996, which substantially deregulated the fixed network business. A look at AT&T revenues between 2000 and 2013 illustrates the point.
Revenues from the deregulated fixed networks business dropped about 50 percent. Mobility nearly tripled. Cash flow from fixed network operations was slashed nearly two thirds. Mobility, historically unregulated, boomed and prices fell. As always, the changes have many drivers. Demand changed as consumers preferred new services.
The same happened in other markets, as deregulation lead to lower prices, higher innovation and much-higher usage, with a huge amount of new investment. Global prices have fallen because of competition.
To be sure, some prices--such as for consumer fixed network voice service--have risen. That is because the actual cost of service cannot be subsidized any longer by profits from long distance service. That being the case, retail prices must reflect actual costs.
What is never clear to me is why some regulators and policy advocates think matters would be better if we reversed course and returned to monopoly regulation of fixed network services. That would doom a business with declining revenues and slim to no profits to further decline, were prices to be regulated.
Unable to raise prices, ISPs would logically allow service quality to degrade, reduce costs, continue to downsize employment and slice investment, as profits would be very difficult to earn.
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