Preventing a Regulatory Train Wreck: Mandated Regulation and the Cautionary Tale of Positive Train Control

June 21, 2016

Before they issue new rules with significant economic or societal impacts, regulatory agencies are required to conduct a regulatory impact analysis identifying the systemic problem that the rule seeks to correct, evaluating alternative solutions to the proposed rule, and estimating the benefits and costs of the proposed rule and of alternatives. Congress, on the other hand, is under no obligation to conduct such analysis when it passes laws requiring agencies to enact significant regulations. Between 2008 and 2013, Congress mandated nearly half of all prescriptive, economically significant regulations that were promulgated by regulatory agencies. These congressional mandates, often passed without the benefit of impact analysis, can tie agencies’ hands by requiring them to adopt rules that are not supported by their own analysis.

A new study for the Mercatus Center at George Mason University uses the recent example of the positive train control (PTC) mandate to examine why Congress could benefit from more thorough impact analyses of regulatory legislation. Congress imposed the mandate in response to several high-profile train accidents. The committees that wrote the legislation did not seriously consider the extent of the problem, evaluate alternative methods of improving rail safety, or compare benefits with costs. An appropriations conference committee report required the Federal Railroad Administration (FRA) to produce a study on the benefits and costs of PTC in 2004, but the study appears to have been ignored in the hearings and congressional committee reports accompanying the Rail Safety Improvement Act of 2008 (RSIA). Although the FRA found that the costs of PTC far outweigh any safety benefits, the FRA had no choice but to implement the regulation. Congress could avoid such quandaries by conducting legislative impact analyses before imposing regulations through legislation.

BACKGROUND

In response to several high-profile train accidents, Congress passed the Rail Safety Improvement Act in 2008. This law mandated that the FRA adopt a rule requiring implementation of PTC by 2015. The FRA issued the PTC mandate in 2010 and issued a revised rule in 2012. The FRA, Government Accountability Office, and railroads repeatedly warned that many railroads would not be able to meet this deadline. In 2015, lawmakers extended the PTC installation deadline to 2018 and allowed railroads to request an additional two years to test the systems.

KEY FINDINGS

Complete analysis of a proposed regulation’s impact requires identifying how the proposed rule will solve a systemic problem, assessing potential alternatives, and estimating the benefits and costs of a rule. The Mercatus Center’s Regulatory Report Card provides a framework for comparing the quality of the FRA’s analyses of PTC, both before and after passage of the RSIA, with Congress’s analysis. Figure 1 shows how the FRA studies and congressional committee reports on the RSIA compare on the Report Card scoring system for the four major elements of regulatory impact analysis.

 

Congressional hearings and reports on the RSIA contain very little analysis of the PTC mandate it forced on the FRA.

  • The congressional committee reports contained no substantial analysis identifying the cause of the safety problem or evaluating the effectiveness of alternative solutions.
  • The reports identified the intended safety benefits: reduced accidents, fatalities, and injuries. But the sole estimate of PTC’s effectiveness in the committee reports was an assertion that the National Transportation Safety Board estimated PTC could prevent approximately 40 to 60 accidents that could otherwise result in 7 fatalities and 55 injuries each year. However, the report does not cite a source for these figures, and they were not mentioned in testimony, so it is not clear where the figures came from.
  • Cost analysis consisted of mentioning one cost estimate from railroads and a single sentence from a Congressional Budget Office analysis, stating that PTC would cost “at least a few billion dollars.” The FRA’s acting administrator mentioned the agency’s 2004 benefit-cost study in testimony before Congress, but the study was not discussed during the hearings and was not mentioned in the committee reports on the legislation.

CONCLUSION

Fully 49 percent of prescriptive, economically significant regulations proposed from 2008 through 2013 were required by statute. The passage of the PTC mandate illustrates the haphazard approach Congress takes toward requiring the adoption of particular regulations. Although an appropriations subcommittee instructed the FRA to produce a report on the potential benefits and costs of a PTC mandate, the committees that wrote the legislation apparently ignored the report. Congressional hearings and reports are unlikely to generate the analysis necessary to determine the full impact of a proposed regulation. If Congress insists on writing regulatory mandates into statutes, it should have an organized process for obtaining critical information before decisions are made.

Mercatus Scholars on Net Neutrality

Thursday, February 5, 2015
Authors: 
Brent Skorup
Eli Dourado

FCC Chairman Wheeler announced his intention to propose new “Net Neutrality” rules this month which will be voted on by the FCC on February 26. The Mercatus Center’s Technology Policy Program scholars have weighed in heavily on this issue, including Public Comment to the FCC, commentary in the press, and a study on mobile Net Neutrality, “Innovations in Mobile Broadband Pricing.” In addition to these resources, below are highlights from Mercatus scholars on Net Neutrality. 

Brent Skorup

"Net Neutrality Rules Represent a Giant Step Backwards", February 26, 2015

"Five Myths about Net Neutrality", Medium, February 23, 2015

Mercatus Expert Commentary: Net Neutrality's Threat to Innovation, February 5, 2015 

Net Neutrality Discussion on the Dr. Katherine Albrecht Show, January 15, 2015 

Mercatus Expert Commentary: Net Neutrality Would Be a Mistake, November 10, 2014 

“Don’t Demonize Internet ‘Fast Lanes,’” US News and World Report, October 6, 2014

“Net Neutrality and the Dangers of Title II,” TechLiberation.com, September 26, 2014 

Policy Briefing: Net Neutrality and Maintaining a Free and Open Internet, September 25, 2014 

Public Interest Comment: FCC Open Internet Reply Comments, September 15, 2014 

“Classifying Internet As Utility A Perilous Concept,” McClatchy-Tribune, August 22, 2014 

“The FCC Has More Important Things to Worry About Than Netflix,” Wired, June 18, 2014 

“Regulation Could Slow Our Future,” The New York Times Room for Debate, May 15, 2014 

“In Defense of Broadband Fast Lanes,” Re/code, May 13, 2014 

Mercatus Expert Commentary: FCC Should Support Pricing Innovation, April 24, 2014 

“The End of Net Neutrality and the Future of TV,” TechLiberation.com, March 26, 2014 

“If You’re Reliant On the Internet, You Loathe Net Neutrality,” Real Clear Markets, February 12, 2014 

Net Neutrality Discussion on C-SPAN’s The Communicators, January 29, 2014 

“Who Won the Net Neutrality Case,” TechLiberation.com, January 15, 2014 

Mercatus Expert Commentary: Court Right to Strike Down FCC Net Neutrality Rule, January 14, 2014

“Yes, Net Neutrality is a Dead Man Walking. We Already Have a Fast Lane," TechLiberation.com, November 15, 2013

Eli Dourado

“New FCC Rules Will Kick at Least 4.7 Million Households Offline,” Medium, February 3, 2015 

“Why Reclassification Would Make the Internet Less Open,” TechLiberation.com, May 15, 2014 

“How Net Neutrality Hurts the Poor,” The Umlaut, April 30, 2014 

“Real Talk on Net Neutrality,” TechLiberation.com, May 9, 2012

Daniel Lyons

Mercatus Study: Innovations in Mobile Broadband Pricing, March 18, 2014 

Roslyn Layton and Michael Horney

Mercatus Study: Innovation, Investment, and Competition in Broadband and the Impact on America’s Digital Economy, August 12, 2014 

Innovation, Investment, and Competition in Broadband and the Impact on America’s Digital Economy

August 12, 2014

How true are fears that the United States is falling behind the rest of the world when it comes to broadband? Are Americans paying more for lower-quality broadband than Europeans and South Koreans, and are US companies falling behind their global counterparts?

In a new study for the Mercatus Center at George Mason University, Roslyn Layton and Michael Horney survey broadband in America and compare broadband costs around the world. They find that the United States is a global leader in broadband, as measured by the level of broadband-enabled economic activity, the number of Internet-based companies, the level of digital exports, and the level of Internet-enabled employment.

For the complete study, see “Innovation, Investment, and Competition in Broadband and the Impact on America’s Digital Economy.”

BROADBAND IN AMERICA

When price comparisons are adjusted for taxes, network quality, and consumption of data, Ameri­cans enjoy lower unit costs for connectivity.

Americans typically pay a monthly fee to their cable or mobile company for the use of broadband. Additionally, much of the content on TV and the radio has historically been considered “free” because it has been paid for by advertisers rather than by consumers.

  • Typical price comparisons rarely include taxes or the mandatory media licensing fees that much of the rest of the world pays. In two-thirds of European countries and half of Asian countries, households pay a media licensing fee on top of subscription fees. These fees must be considered to obtain a more complete picture of the real price of broadband across countries.
  • In contrast, the United States’ pricing structure allows Americans to access entry-level broad­band for prices below the global average.

Moreover, Americans are paying for innovative networks that simply are not available in much of Europe. For example, in 2013 just 26 percent of people in the EU had access to 4G/LTE (long-term evolution) wireless networks, but 97 percent of Americans had the ability to access these networks.

INNOVATION

America’s broadband market is characterized by a high level of innovation in networks, services, and technologies. Network innovations continue to improve the capacity and throughput of broad­band networks. The United States’ growing digital economy is the result of the vast majority of Americans having broadband access and using it to produce and consume a range of goods and ser­vices. A fixation on broadband speeds would harm policies that promote greater adoption and investment, as well as more competition.

  • Americans use a variety of network solutions, including DSL, cable, fiber to the home, mobile, Wi-Fi, and satellite, to meet their preferences. Each broadband technology has advantages for a given set of users, and it is critical that the government not favor one tech­nology over another, as the access to a variety of technologies creates a dynamic broadband marketplace.
  • Some critics of US broadband policies argue that America’s speeds lag behind those of other countries, thereby harming innovation. However, if speeds were all that mattered, then the Internet should be dominated by firms from South Korea, Japan, and Hong Kong. Instead, Internet giants like Google, Amazon, and Facebook come from the United States.
  • Innovation is highly complex and results from the interplay of many factors in a larger inno­vation ecosystem. America’s broadband networks are an important input, but not the only one, in the innovation landscape. For example, though the United States and Canada have only 5 percent of the world’s population, these two countries account for more than half of the world’s 4G/LTE subscriptions, making North America a hotbed for mobile innovation. 

INVESTMENT

The current policy debate primarily revolves around whether broadband should be regulated as a utility. During the past decade, many EU countries have applied aggressive utility-style regulation to broadband. Meanwhile the United States, with its relative lack of regulation, enjoys a dynamic broadband market.

  • A decade ago, the European Union accounted for roughly one-third of the world’s private investment in communications capital equipment; that amount has plummeted to less than one-fifth today. EU broadband providers invest only half as much as their American counterparts. Additionally, more than three-quarters of all EU broadband subscriptions are DSL, a slower technology, which many Americans would find unacceptable.
  • Over the past decade, the United States has consistently made up around a quarter of the world’s broadband investment. This remains true even as the world’s investment in broad­band has grown from $130 billion in 2003 to $330 billion in 2013. US companies continue to invest in technologies like mobile and Wi-Fi, making them cheaper and more broadly avail­able for consumers.
  • Providers in the United States invest at twice the rate of EU operators, and there is a grow­ing gap between the United States and the EU in per capita spending on infrastructure.

COMPETITION

Competition in the broadband industry is based on the level of technology, not the number of pro­viders. Competition also spurs the development in fixed and wireless services from “over-the-top providers,” which provide services to supplement the network.

While mobile has developed to be both a competitor of and a complement to fixed broadband, con­cerns about limitations on data usage lead some to believe that mobile will never be a true substi­tute for fixed broadband.

  • Innovations in technology and business models could yield solutions to the challenge of data caps, which will allow mobile to compete more directly with fixed broadband, high­lighting the dynamic nature of this fast-moving industry.
  • In Denmark and the United States, the segment of the population with mobile-only broad­band subscriptions is already approaching 10 percent, showing that for many people, wire­less broadband is sufficient.
  • In Europe, the regulated broadband market is marked by static competition that fails to increase investment or innovation. In general, the EU relies on an approach where network owners are required to lease the networks to competitors at regulated rates, providing little incentive for entrants to develop their own networks. Furthermore, operators are reluctant to invest in new networks because they have to make them available to competitors.
  • The US model is based on dynamic competition where companies compete on the basis of different technologies and networks, which results a greater variety of broadband networks for consumers to choose from, with more advanced technologies.

SUGGESTED SOLUTIONS

America’s broadband networks have allowed the United States to become a leading digital econ­omy. Building on a sound broadband foundation and leveraging the advantages of America’s inno­vation ecosystem have allowed American firms to export their digital goods and services to other countries, making the digital sector America’s third-largest category of exports after industrial supplies and capital goods. Policymakers should take the following steps to ensure that the United States continues to be the leader in global competitiveness:

  • In order to maximize investment, avoid utility-style regulation. Instead, focus on market-based, technology-neutral approaches that encourage dynamic competition with different networks and technologies.
  • Avoid subsidies for any particular technology: a variety of broadband technologies keep the market competitive. Government involvement in the broadband market may cause private firms to exit, stifling growth in the industry.
  • Permit competition-enhancing consolidation of broadband companies because mergers lower overhead costs and make operations more efficient.
  • Remove barriers to mobile infrastructure at the local level. Municipalities often hinder the deployment of infrastructure, which limits broadband competitors, particularly in rural areas.
  • Focus on increasing Internet adoption rather than the deployment of network. More than 80 percent of Americans use the Internet, and those who do not cite lack of usability and relevance as their primary reasons rather than cost or lack of access.