Government regulations always have a cost. In fact, every regulatory agency has to estimate the economic impact of a proposed rule before implementing it. Yet, despite producing its own estimates of the costs to small businesses, the Federal Communications Commission (FCC) recently chose to pass Internet rules that dismiss this burden as “collateral damage” in its war on large Internet Service Providers (ISPs). The dirty work of cleaning up the mess is now the burden of Congress and the judicial system.
As inaccurate as they may be, all agencies are required to submit “good faith” estimates on the costs that may be incurred by American taxpayers, and specifically small businesses. Inaccuracies are not necessarily the result of incompetence. It’s really difficult to know with certainty how much extra paperwork, labor, or other costs a regulation will require. But it becomes a problem when agencies systematically underestimate – or worse ignore – the expected price tag of a regulation.
As evidence of how easy it is to underestimate costs, consider the wage rates used in the Office of Information and Regulatory Affairs’ (OIRA) estimation techniques. OIRA periodically estimates the number of hours that Americans have to spend on paperwork each year due to new regulations (recently around 10 billion hours), but estimates the total cost based on a wage rate below the minimum wage in more than 27 states, that is also less than one-fourth of the wage that an average compliance officer receives. Estimates, by any organization, have to be taken with a grain of salt.
I always prefer to give an agency, legislator, or regulator the benefit of the doubt, but in the case of the FCC, it’s really difficult to ignore the facts surrounding its own estimates. By its own estimates, nearly 20,000 small businesses will be directly impacted by its new “net neutrality” rules. In fact, 90 percent of the businesses that it estimates will be impacted, are small businesses. An interesting ratio, given that the case for implementation has always revolved around controlling the market power of large ISPs.
Although thousands of small businesses, as well as trade groups representing many more small ISPs, brought their own concerns to the FCC well in advance of its order, the FCC instead focused on letters that supported where it wanted the regulation to go. In one case, a letter signed by close to 100 small businesses supported its rule. In others, many hundreds more were in opposition. Needless to say, the FCC mostly dismissed the latter groups’ concerns.
Why are the concerns of these 19,000 directly impacted small businesses so important? Not only do they represent a very small portion of the thousands of businesses which will be “indirectly” affected (as defined by the FCC) by the new order, but they are also the very Internet providers that reach the most disadvantaged Americans, quite often existing as the sole providers in both urban and rural communities where large ISPs find little profit and choose not to operate.
Every small business requires an online connection to compete in what has become the global marketplace, not to mention the requirement to email or file paperwork that is rapidly becoming a web-only activity. When ISPs pass on additional costs of doing business to these small businesses that require internet connections, everyone takes a hit to their bottom line (not including the near guarantee of new service fees that the FCC has left open). Only including the small businesses that have employees, and that brings the number of businesses impacted by this regulation to over five million, which employ 50 percent of America’s private sector employees and creates 60 percent of all new jobs (per the SBA). Include all of these employees and it becomes clear how many tens of millions of Americans will bear the cost that the FCC only intended to place on much larger firms.
President Obama’s own National Broadband Plan (adopted by the FCC) has in its mission to increase accessibility and affordability for high-speed internet access, so that citizens can become more civically engaged, have greater access to education, and become more entrepreneurial. While this is a commendable concept that should be a national goal (although we can argue the means), the FCC’s recent rules contradict the mission, creating many impediments for the ISPs that previously were the only ones willing to enter less profitable markets, like some rural and low-income areas.
The most immediate collateral damage, however, is the millions of dollars that taxpayers will have to front in order for the already busy judicial system to work its way through the numerous lawsuits that will be, or already have been, filed. Most legal scholars, and even many sideline observers, have found legitimate concerns with the order, some of which have already been overturned by previous decisions. It’s going to be a long, unnecessary battle.
Given the potential for wasting the courts’ time and money on such lawsuits, along with the guaranteed losses in investment, hiring, and services from businesses who have no choice but to wait for some future certainty, legislation may be the only solution. Congress should put aside partisan politics and rally around the one idea that can truly benefit all Americans, and once and for all clean up the FCC’s mess.
