Lessons on regulation, subsidies and taxation

If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.

America seems to approach infrastructure with Ronald Reagan’s famous quote echoing in our minds. Because infrastructure can be complicated.

For certain segments of the internet, hue and cry has been raised over some proposed Federal Communications Commission rulemaking. Meanwhile, back home in Maine, legislators are proposing new laws to regulate Central Maine Power Co. and Emera Maine following October’s outages.

Crews work on power lines in Bangor after a late October storm caused widespread damage to the power grid leaving hundreds of thousands of people without electricity. Gabor Degre | BDN

When America first began to electrify, regulations didn’t exist. Thomas Edison built the world’s first power plant on Pearl Street in New York in 1882; he was subject to government taxes. States got into the regulatory role a few years later, with Massachusetts establishing a proto-Public Utility Commission in 1887. As that regulation grew, companies became less profitable. So, to entice power line companies to continue to offer services, we guarantee them a certain return on their investment. In effect, a subsidy.

That subsidy is what gives rise to attempts by the Legislature to dive into the business operations of CMP and Emera. We have three legislatively confirmed commissioners oversee the business, so let’s then have 186 representatives and senators second guess things. Sounds like a recipe for success.

Meanwhile, in Washington, the idea at issue is so-called “net neutrality.” And while the tax reform debate rages on, everyone agrees internet service providers should be taxed. But how we regulate them is the present question.

Should internet access be treated like phone service, electricity, or water, charging on the size of the “pipe” (a.k.a bandwidth) or how much is sent through it? Thus, no matter which 1s and 0s get transmitted, they are treated equally. After all, water is water, electricity is electricity, and data is data, right?

Or should we consider internet service providers more like delivery services, where you can pay extra to overnight important packages but ship routine items at a lower cost? FaceTiming with your grandkids is a much higher priority than loading a webpage with some right-leaning opinion piece via your new BDN digital subscription.

The biggest challenge with internet starts with the “pipe.” For many reasons, it is cost prohibitive for countless providers to string up wires along the road to offer competitive services to customers. While alternates — satellite, wireless — exist, the level of service simply isn’t the same, at least not today.

That leaves consumers generally with only one or two options to obtain access to the web. With limited competition, ideas like net neutrality seem reasonable.

But if I had to ask you to pick between two industries — package delivery and electricity distribution — and tell me which one you think offers better value and customer service, which would you choose? Options on the former include the Post Office, UPS, and FedEx, while the latter is … whoever connects the wire to your house.

That’s the real challenge not addressed by so-called net neutrality regulations. The real need is a fostering of competition in the marketplace.

How exactly to foster competition is a complex problem, but the one we need to solve. Maine’s so-called “Three Ring Binder” was built to offer a fiber optic backbone for the state, with excess capacity available for private providers to access it. Like a toll road, anyone who wants to use it, can. But they have to pay.

Internet service providers can lease “lanes,” then build out their final distribution networks to customers and cover the cost of their lease, generating a return. As demand for those lanes heat up, so too will the price, and thus revenue is available for new investment to make the lanes bigger.

Maine’s example can be a starting point.  Because the more we push companies into highly regulated spaces, the greater the likelihood they’ll declare themselves not viable and beg for subsidies and special treatment. And when it comes to internet, like electricity, those in power will probably give it to them. Then we’ll have to read articles about new legislation dealing with guaranteed profit margins for private businesses.

So let’s stop promising profits and let companies rise and fall on their own merits. And as long as they are moving in the market? Take Reagan’s advice and tax ‘em.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.