Convergent Market Calls for Serious Intermodal Competition Assessments

by

Seth L. Cooper *

An expert regulatory agency should have a high-level, up-to-date understanding of the markets it regulates, right? That would seem only logical, especially when technologies and consumer trends undergo successive sea-changes. But in the face of these changes, the FCC appears remarkably uninterested in taking a hard look at the effect of intermodal competition. Its shallow consideration of the data available concerning the competitive effects of wireless-wireline rivalry is a good example of this disinterest.

Substitute services and alternative platforms are indicators of dynamic competition. Their availability is consumer welfare-enhancing. As a matter of public policy, evidence of intermodal competition renders many types of regulation unnecessary and potentially harmful. So in many instances, the proper policy response to intermodal competition should be reductions in regulatory burdens.

The FCC can respond to newly competitive conditions by forbearing from enforcing old rules or by eliminating them. But unjustifiable disregard for such competition only serves to preserve the regulatory status quo. This can create a disconnect between regulatory policy based on outdated monopolistic assumptions and one based on currently competitive market conditions.

The FCC needs to give intermodal competition more than short-shrift treatment. In this digital age of all-IP broadband networks, services are increasingly characterized by cross-platform convergence and competition. Consumer behavior is increasingly dispersed across services and platforms through multi-screening and multi-homing. Understanding the competitive effects of wireless substitution and rivalry with wireline and satellite alternatives through cord-cutting or cord-shaving is critical to an informed digital age communications policy. A proper assessment of intermodal competition helps ensure that policy tracks with actual market conditions.

Transformative market changes, and the FCC's seeming inattention to them, should prompt reconsideration of modest reform legislation. One commendable near-term modest approach is to require a single FCC report on the communications market that seriously assesses intermodal competition across platforms. A unified competition report would be better suited to capturing the competitive effects of substitutes and cross-platform rivalry that are essential to informed policymaking.

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In the digital age, video, voice, and other advanced communications services are increasingly characterized by cross-platform convergence and competition. Intermodal competition benefits consumers by offering a broader variety of product and service choices, in some cases putting downward pressure on prices. Where substitute services and alternative platforms exist, the resulting market competition makes reductions in legacy regulations the proper public policy response. The FCC has tools to recalibrate its regulatory policies to more competitive conditions, through forbearance or elimination of old rules through its biennial review process.

Regulation that has outlived the market conditions upon which it was based can become a drag on existing providers. This can include limiting marketplace freedom to meet changing consumer demands or imposing unnecessary administrative compliance costs. But unjustifiable disregard for such competition preserves the regulatory status quo. And it furthers a disconnect between regulatory policy based on uncompetitive competitions and actual market conditions where competition prevails.

The FCC needs to take a more rigorous and empirical approach to intermodal competition.

It has ample authority to do so. Yet, the agency's apparent reluctance to apply intermodal competition insights in its regulatory policymaking suggests the need for a Congressional response. One modest reform proposal would be to require a single FCC report on the communications market that seriously assesses intermodal competition. A unified competition report would be better suited to capturing the competitive effects of substitutes and cross-platform rivalry that should be essential to informing digital age communications policy.

* Seth L. Cooper is a Research Fellow of the Free State Foundation, a non-profit, nonpartisan free market-oriented think tank located in Rockville, Maryland.