Yesterday, the FCC decided to regulate the rates that big telecoms can charge the smaller ones for using their mobile networks for data services ranging from streaming video to Web mail. The “little” guys, including not-so-little Sprint, are happy. The big guys – AT&T and Verizon – are not.
The FCC Chairman explained that the ruling would “spur investment in mobile broadband and promote competition.” We’re unconvinced. There is always a significant price to pay for this sort of detailed regulation: Rate-setting is a messy business that is guaranteed to keep an army of lawyers, lobbyists and economists fully employed. And that may be only the beginning.
Consumers might enjoy lower rates in the short run, if they’re lucky – but face a real major risk of lesser service in the long run. If the tariffs prescribed are below the levels needed to cover the fully allocated costs of maintaining the networks, the smaller carriers would have an incentive to free-ride on the majors’ existing investments rather than making their own. What’s more, the obligation to share the wealth in the future would reduce the larger carriers’ incentives to add capacity – in the end, actually undermining competition.
True, there’s always the chance that, left on their own, the big guys will abuse their dominant position. But as The Economist recently pointed out (and as we recently echoed), such hypotheticals are better addressed by the antitrust laws if and when they arise.