MWC17: FCC chair Ajit Pai’s slightly disingenuous argument for deregulation

FCC
FCC chairman Ajit Pai Credit: Guillem Valle. Source: GSMA

FCC chairman Ajit Pai made the case for light-touch regulation at MWC17 – but he did it by stacking the deck in his favor when he didn’t need to

When CNBC’s Karen Tso introduced new FCC chairman Ajit Pai to the stage at MWC17, she quipped that he was likely to get a standing ovation for his plans to get rid of the regulatory agency’s net neutrality policy. It didn’t go down that way, but he did manage to get through his stage time relatively unscathed – the subject of President Donald Trump only came up twice during the Q&A – and he did talk about net neutrality and the obvious benefits of deregulation – although not without stacking the deck in his favor.

For example, Pai highlighted his recent decision to end an FCC investigation into whether zero-rating data packages were anti-competitive:

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. Consumers are now benefiting from these offers – offers made possible by a competitive marketplace.  And remember: preemptive government regulation did not produce that result.  The free market did.

The only problem with this assertion is that three of the country’s four telcos were already offering unlimited data plans well before Pai was appointed FCC chairman. Sprint launched unlimited data plans in October 2015. AT&T launched unlimited data for DirecTV and U-verse TV customers a few months later. And T-Mobile launched its unlimited data plan in August 2016 while the FCC zero-rating investigation was ongoing.

So it’s a bit of a stretch to claim that halting that investigation resulted in an explosion of unlimited data services. The only thing that happened was Verizon jumped into the unlimited data game, forcing the competition to respond – and even then, it’s not clear that Verizon’s move was a direct result of Pai’s actions. Verizon could well have been responding to market pressure from T-Mobile’s aggressive marketing of its unlimited data services.

Pai also claimed that the FCC’s net neutrality rules had resulted in lower broadband investment:

After the FCC embraced utility-style regulation, the United States experienced the first-ever decline in broadband investment outside of a recession. In fact, broadband investment remains lower today than it was when the FCC changed course in 2015.

His basis for that claim may be a December 2016 report from USTelecom (a US telecoms industry lobby group), which said that broadband provider network capex declined nearly $1 billion from $77 billion in 2014 to $76 billion in 2015 – the lobby group used those numbers to argue for regulation more conducive to investment.

However, that’s a relatively small slump – and it’s actually the highest level of capex (apart from 2014) since 2001.

USTelecom
Source: USTelecom

Statistically speaking, that drop could either herald a trend in decline or just be a slight blip. Even if the 2016 numbers are a bit lower, it doesn’t prove that the FCC’s net neutrality rules were directly responsible for that.

None of this is to say that Pai’s opinion on light-touch regulation – including getting rid of net neutrality – is necessarily wrong. He just could have picked some more factually-based examples, maybe.

Inevitably, Trump

Meanwhile, during the Q&A panel after Pai’s talk, the questioning inevitably turned to the political impact of things like President Trump’s controversial policies.

When Pai mentioned the importance of regulatory independence in setting investment policies, Karen Tso of CNBC asked about his ability to remain independent given President Trump’s industry-related public statements and business ties:

“Putting the pieces together: Softbank and T-Mobile, the market’s been wondering if they’re going to consolidate. Softbank’s CEO meets with Donald Trump – a few weeks later suddenly he starts talking about Sprint and T-Mobile, potentially giving up his majority stake to T-Mobile. The other big deal is AT&T and Time-Warner – we know Rupert Murdoch is very close to Donald Trump, there’s a connection to Donald Trump’s daughter, he’s against consolidation in the market because it would impact Fox. How do you remain independent and look independent, more importantly, to the industry on big decisions like this?”

The question generated applause from the audience. To be fair, so did Pai’s response:

“These are political and business issues that are, as we say in the US, above my pay grade. My role is not to read the headlines and try to make a determination based on who said what and in what form. It is a very limited role, looking at the papers that are in front of me, and making a decision based on the facts, because once I stray from that mission, then I become nothing more than a political actor as well, and I take my role seriously as defending the public interest.

It’s actually a good answer that reflects how the FCC generally works – in theory. But in an era where US politics has become increasingly polarized and pervasive – and given the authoritarian style of Trump’s presidency thus far – it remains to be seen how closely Pai can stick to his desire to stick to his mission.

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John C. Tanner
About John C. Tanner 249 Articles

John Tanner has been covering the Asia-Pacific telecoms industry since 1996. He has two degrees in telecommunications, and worked for six years in the US radio industry in various technical and advisory capacities, covering radio and satellite equipment maintenance, studio networking, news writing and production, the latter of which earned him several regional and national awards.

2 Comments

  1. It’s a bit rich to complain about exaggeration when you’re also guilty of exaggeration.

    Pai didn’t say there had been an ‘explosion’ in unlimited data services, just an ‘expansion’. Why put words into his mouth then complain that he stretched the truth?

    More importantly, you imply USTelecom is biased because they are lobbyists, but you didn’t take the trouble to perform an unbiased analysis of their raw data. You just accepted the data at face value, without looking for obvious flaws. A cursory review of the USTelecom report shows a very serious weakness in their methodology: they take the nominals presented in annual reports, so none of these figures have been adjusted for inflation. That means ‘the highest level of capex since 2001’ isn’t the highest level of capex in any useful sense of those words. Adjusting for inflation renders your claim false. For example, if we adjust using CPI the nominal $71mn invested in 2008 would be equivalent to $78mn at 2015 rates. So the truth is that investment fell after 2008 and hasn’t recovered since, despite your erroneous focus on the ‘slight blip’ between 2014 and 2015.

    Lack of investment in networks has the potential to seriously limit economic growth. An amateurish approach to analysing investment is the bane of the net neutrality debate. If you want to wade in, focus less on words and politics, and learn to do a decent job of analysing the actual data.

    • Thanks for the comments. A couple of points here:

      1. USTelecoms is a trade organization that engages in lobbying for pro-investment policies (it says so in their mission statement), and is on record as opposing the FCC’s net neutrality policy on the grounds that it’s detrimental to investment. Lobbyists take sides on an issue. It’s what they do. So I’m not sure what the complaint here is.

      2. Regarding inflation adjustments, thanks for pointing that out, although when I punch those numbers into http://www.usinflationcalculator.com, it indicates that after 2008, broadband investment fluctuated for a few years before rebounding in 2013 and 2014 to $77 billion – roughly the same level as the unadjusted figure. So while this would indeed suggest the last high watermark for broadband investment was 2008, not 2001 (when adjusted for inflation), and technically hasn’t quite recovered to the 2008 level, it was in fact well on the road to recovery.

      Put another way – and correct me if my methodology is wrong here – whether we use USTelecoms’ original numbers or the adjusted numbers, the trend appears to show a big drop in broadband investment in 2008 (primarily because of the economic crisis, I would wager) followed by an eventual upswing by 2014, followed by a relatively small downtick in 2015. I see no obvious evidence that the net neutrality rules were directly responsible for that downtick – and even if they were, frankly, a drop of $1 billion isn’t all that big.

      All told, I stand by the main assertion in this column – Mr. Pai had an opportunity to make a solid case for light-touch regulation, particularly regarding net neutrality. In my opinion, the examples he offered did not make that case.

What do you think?