The White House released a fact sheet outlining President Biden’s Executive Order to “promote competition in the American economy.” The Executive Order includes 72 initiatives and covers a wide range of issues in numerous sectors of the economy. While competition is essential to a free-market economy, promoting competition through heavy-handed government intervention will not achieve the desired results. One of the best ways for the government to increase competition is simply to get out of the way. Below, I outline NTU’s concerns and considerations with the internet service and technology portions of the Executive Order.
Internet Service
The Executive Order claims there is a “lack of competition” among broadband providers, which leads to higher prices for consumers. However, taxpayers should be extremely skeptical of this claim as well as the supposed remedy of rate regulation. Rate regulation on broadband service would disincentivize private sector investment and lessen competition. These investments have been critical to providing better service and keeping Americans online during the coronavirus pandemic. U.S. broadband providers invest three times as much as our European counterparts, and the continual investment by the private sector led to more reliable internet service for Americans. Similarly, even as broadband usage has increased, for most consumers speeds are getting faster and prices are going down.
There is work still to be done to increase competition among broadband providers. However, the Executive Order takes the wrong approach by attempting to regulate competition into existence. Reforms to the Universal Service Fund, including vouchers for consumers instead of the current system where subsidies are distributed to telecommunication providers who in turn pass the savings onto consumers, would increase consumers choice and competition. Similarly, at the state and local levels, governments should evaluate how to lower costs and regulatory barriers to entry for private sector providers.
The Executive Order also calls for the reimposition of burdensome Title II net neutrality regulations. The Obama-era Title II regulations were repealed by former Federal Communications Commission (FCC) Chairman Ajit Pai in 2017 in a major win for consumers. Net neutrality advocates falsely claimed without these heavy-handed regulations on internet service providers, consumers would get the internet “one word at a time.” Despite these apocalyptic prophecies failing to materialize, supporters of net neutrality regulations are undeterred.
Tim Wu, on President Biden’s National Economic Council, is credited with coining the term “net neutrality.” Mr. Wu's argued that consumers paying more for their internet service is preferable to letting telecom companies charge websites for priority. Title II regulations have always been a solution in search of a problem, and the best thing for consumers would be to abandon this misguided proposal. A light-touch regulatory approach to the internet has connected billions of consumers and created a more dynamic ecosystem.
Together, the Biden administration’s broadband initiatives have the making of a manufactured crisis. Imposing Title II net neutrality regulations and rate regulations in response to a supposed lack of competition will disincentivize private sector investment. This would stall efforts to bring more Americans online and result in slower speeds and poorer quality of service for consumers. In turn, this would spur calls for government-run broadband as an alternative, something President Biden and progressive Democrats have already signaled support for. The troubling history and inability for government-run broadband providers to compete fairly with the private sector would further exacerbate the problem. Steps to increase competition, like the rule change made by the FCC to “in-kind” franchise fees on cable operators, along with other efforts to lower barriers to entry and maintain a light-touch approach will do more to increase competition than onerous regulations. The fact remains that consumers do not require heavy-handed government regulations on the internet.
Technology
Technology, competition, and lawmakers have a complicated relationship at the moment. Regulators and policymakers appear eager to cap the size of some of America’s largest companies, while simultaneously raising alarms about the rise of China’s technology sector. Unfortunately, the Executive Order falls prey to some of the same fallacies that have surfaced in discussions around “Big Tech” and online competition.
The Biden Administration is calling for greater scrutiny of mergers by “dominant internet platforms,” especially so-called “killer acquisitions.” Mergers and acquisitions have been misrepresented as disproportionately harmful and anticompetitive. The vast majority of startups either go public, get acquired, or go bankrupt, with bankruptcy as the most common result. Mergers and acquisitions help smaller companies attract investors and important startup capital. Creating more uncertainty around what acquisitions are permissible will have a chilling effect on innovation and growth. A letter from the National Venture Capital Association warns that many deals may not leave the boardroom if the risk of intervention is too high, saying “policymakers must appreciate that many growth companies are not well-positioned to endure months or years of uncertainty and costs in a legal or regulatory process if at the end of the process the government might slam the door on the transaction.”
In some cases, being acquired by a larger company is the desired outcome. Startups play a vital role in the online economy, and the revenue generated from an acquisition can be used to fund the next venture. Startups can also serve more niche areas that are missed by larger entities. Similarly, mergers provide consumers with high-quality products and services. Restricting growth and capital formation for a growing sector of the economy will end up hurting consumers and undermining the goal of increased competition. In response to this Executive Order, Federal Trade Commission (FTC) Commissioner Rebecca Slaughter stated that she believes this means “centering racial and economic justice” into their policy and enforcement work. Consumer welfare must remain the guiding principle of antitrust enforcement. Creating uncertainty through subjective enforcement measures and arbitrarily stunting the growth of a large sector of the economy would cause more harm than good.
The Biden Executive Order would also encourage the FTC to establish rules on accumulation of data. Data privacy concerns are valid and there is a role for the FTC to play. However, Congress should take the lead here by creating a federal data privacy standard. Elected officials who are accountable to their constituents are better positioned to craft a data privacy standard than political appointees and unelected bureaucrats. Some states have already stepped forward to issue their own data privacy standards. However, the patchwork approach creates more problems for smaller companies who must comply with different standards in different states. A federal standard would provide more certainty and lessen the barriers for compliance from online companies. However, lawmakers and regulators should be cautious to avoid heavy-handed standards like the European General Data Protection Regulation.
The Executive Order encourages the FTC to establish rules “barring unfair methods of competition on internet marketplaces.” Again, taxpayers should be skeptical that increasing regulation through federal agencies would increase competition. While vague on the specifics on what would fall under “unfair methods,” the legislation from the recent House Judiciary Committee markup and recent FTC Open Meeting can give some clues. Banning so-called “self-preferencing” for online companies has been a reoccurring topic. Private labels competing side-by-side with name brands enhances competition, provides consumers with more choices, and lowers prices. Private labels are common across retail, streaming, and grocery. If Walmart, a large retailer that is expanding rapidly into e-commerce, can sell private labels alongside name brands, other online companies should be able to as well.
The FTC under newly appointed Chair Lina Khan held a July 1st Open Meeting to discuss “unfair methods of competition,” in which NTU Foundation submitted comments. Billed as a way to increase transparency to the public, this Open Meeting was hastily announced, giving little time to debate. Additionally, the public comment period was scheduled at the end of the meeting, so Commissioners were tasked with casting votes before hearing any outside input. Democratic Commissioners, including Chair Khan, voted to rescind a bipartisan policy statement issued during the Obama administration which provided guidance on what antitrust cases the FTC could pursue. Clearly, the FTC does not need the encouragement of the White House to pursue aggressive regulatory action. However, allowing federal agencies to pick winners and losers won’t magically create competition. It is important to note that the rulemaking ability is not constrained to taking on only big business or technology companies.
Overall, the Executive Order is a big swing and miss when it comes to creating competition. The Biden Administration decries the consolidation of sectors of the economy that are heavily regulated like health care, then calls for more regulations on the internet and online platforms. Creating competition through raising barriers to entry, increasing regulatory uncertainty, and expanding the role of the federal government is a backwards approach that won’t serve consumers or the broader economy well. A light-touch regulatory approach has served consumers well and should not be abandoned.