Adam Smith laid down the guiding principle of regulatory policy 241 years ago. He wrote (0) in “The Wealth of Nations”: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”
In other words, free consumers and let producers take care of themselves. What do consumers want? High quality, low prices, and the truth about what they are buying. It’s really not so difficult. The tendency among most policymakers, however, is to choose winners and losers among producers and then to pretend that the policy ultimately favors consumers.
In just two months, Ajit Pai, the new chairman of the Federal Communications Commission (FCC), has shown he understands Smith perfectly. He is on track to become the most consumer-oriented regulator since Alfred Kahn (1), a Cornell economist, who deregulated airline routes and prices as chairman of the Civil Aeronautics Board under President Jimmy Carter.
My colleague Roslyn Layton (2) listed some of the pro-consumer actions Pai has taken so far this year, including a rulemaking on the next generation TV standard (3); extending the area for AM radio broadcast (4); setting the rules for the reverse auction of spectrum for rural broadband (5); authorizing new LTE-U devices (6); ending the politically driven investigations of the money-saving, free data plans that consumers love (7); launching numerous long overdue process reform measures (8); appointing Mike O’Rielly to the Federal-State Joint Board on Universal Service to ensure cooperation continues (9); promoting transparency by requiring the publishing of text of rulemaking before votes (10); disbursing Connect America Fund monies to eligible areas of New York State (11); launching the Digital Empowerment Agenda (12) to close the digital divide; and establishing a Broadband Deployment Advisory Committee (13) to which a whopping 475 potential volunteers applied.
One of Pai’s first steps was to encourage smartphone makers to switch on the FM radio receivers that come as standard equipment with most phones. The move would help consumers save on data usage and allow them to monitor radio stations in an emergency. As April Glaser of Recode (14) explains: “FM chips come with every Qualcomm LTE modem (15), which can be found inside nearly all mobile phone, including iPhones. But iPhones don’t have the FM chip turned on — forcing Apple devotees to listen to streaming services like Spotify and Apple Music.”
Pai’s FCC won’t require the phone makers to switch on the receivers (he’s not that kind of regulator), but by urging them to do so publicly, he is applying just the right kind of moral suasion to benefit consumers.
The new chairman’s interest in radio has strong roots. On January 24th, he tweeted about being grateful to this country for allowing his family the “opportunity to dream big.” Pai’s parents came to the US from India 45 years ago with “literally no assets other than $10, a transistor radio, and a desire to achieve the American Dream.” Their son, Pai, graduated from Harvard College and the University of Chicago Law School, became an FCC commissioner at age 39, and is now chairman at 44. And, by the way, Pai is a good guy to follow on Twitter. He’s big on sports and popular culture as well as the Chicago school of economics.
In a speech (16) in Barcelona on February 28th to the Mobile World Congress, Pai laid out a clear strategy: The internet is a powerful tool for unleashing entrepreneurship, allowing small businesses to reach the world. Technology is enabling enormous connectivity growth, and “5G could transform the wireless world.” But “we need smart infrastructure, not dumb pipes.” To achieve “tremendous investment and innovation throughout our entire Internet ecosystem,” we need light-touch regulation that encourages the deployment of more capital. This makes sense for consumers.
And speaking of consumers, let’s go back to Layton’s third item above — liberating those “money-saving, free data plans that consumers love.” She is referring to zero-rating offerings by telecom providers. In his Barcelona speech, Pai explained his reasoning:
Earlier this month . . . we ended the FCC’s investigation into so-called “zero-rating,” or free-data offerings. Free-data plans have proven to be popular among consumers, particularly those with low incomes, because they allow consumers to enjoy content without data limits or charges. They have also enhanced competition. Nonetheless, the FCC had put these plans under the regulatory microscope. It claimed that they were anticompetitive, would lead to the end of unlimited data plans, or otherwise limit online access. But the truth is that consumers like getting something for free, and they want their providers to compete by introducing innovative offerings. Our recent decision simply respected consumers’ preference.
The best evidence of the wisdom of our new approach is what happened afterward. In the days following our decision, all four national wireless providers in the United States announced new unlimited data plans or expanded their existing ones. . . . And remember: Preemptive government regulation did not produce that result. The free market did.
As Babette Boliek wrote (17) last month: “T-Mobile started the zero rating competitive battle with its Binge On program, and mobile rivals followed with their own plans: Verizon with the NFL Mobile app and Stream Pass (hosting a variety of sports programming), AT&T’s DirectTV and DirectTV Now, and Sprint with Copa América Centenario, to name a few. By closing its investigation into some of these, or similar plans, the FCC has assured that mobile consumers can continue to enjoy free data.”
Of all the truly weird regulatory notions, few are weirder than attempts to prevent zero-rating plans. A provider such as T-Mobile lets customers stream as much video as they want from dozens of services such as Netflix, HBO, and YouTube, and the high-speed data that’s used is not applied to the plan’s limits.
But, incredibly, zero-rating plans bump up against the General Conduct Rule of the Open Internet Order (18) of 2015. Boliek points out that this rule is “dangerously vague and raises uncertainty in the marketplace that can depress innovation and competition.” The Open Internet Order, so antagonistic to the bipartisan spirit of light-touch regulation that animated the internet since the Clinton administration, is a prime example of a policy that favors one group of producers over another — to the harm of consumers.
The Electronic Frontier Foundation (19) has called zero-rating “the bleeding edge of the Net Neutrality debate.” That debate may soon be reopened, but with the election of Donald Trump as president and Republicans holding a majority on the FCC, the outcome seems preordained. The Open Internet Order may be on its last legs, but that doesn’t mean it won’t be resurrected if a Democrat wins the White House in 2020 or 2024. The only sure way to enshrine consumers and preserve light-touch regulation is through long-lasting legislation.
That legislation itself is in the future, but Congress is fully alert to the changes Pai is bringing, and he’s under attack. Along with Commissioners O’Rielly and Mignon Clyburn, Pai will appear Wednesday at a hearing (20) before the House Subcommittee on Communications and Technology, headed by Rep. Marsha Blackburn (R-TN). No doubt his consumer-focused strategy will be on full display.