Information Technology Industry Faces Regulatory Crosswinds

Information Technology Industry Faces Regulatory Crosswinds

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Americans are counting down to fiscal Armageddon with four days left before tax increases and government spending cuts kick in and our $16.4 trillion debt ceiling is reached. The Congressional Budget Office forecasts that if the sequestration requirements passed by Congress and signed by go into effect on 1 January 2013, gross domestic product will fall by 0.5% in 2013. The shrinkage in the economy could lead to an unemployment rate of 9.1% in the fourth quarter. CBO further estimates that after the initial dip off the cliff, the economy will rebound with output increasing and unemployment falling to 5.5% in 2013.

I expect one of the bright spots in the growth picture will be the information and communications technology industry (ICT). ICT is rapidly evolving. ICT covers any product that will store, retrieve, manipulate, transmit, or receive information electronically in digital form. ICT is also concerned with the ways different uses of ICT can work together. The industry produces two types of product: traditional computer-based technology and digital communication technologies.

The ICT industry has shown resilience during the recession. For example, according to the U.S. Bureau of Economic Analysis while the economy contracted by .3% in 2008, output from the ICT industry grew 6.1%. In 2009, the output from the ICT industry contracted by .9%, but fared better than the overall economy which contracted 3.1% in the year. The ICT industry continued to outperform the overall economy in 2010 with its output expanding by 11.4% compared to the nation’s overall expansion of 2.4%. In 2011, although ICT industry output was positive, growth in ICT output came in at 4.3% versus the nation’s overall expansion of 1.8%.

Along with this expansion has come a need to implement social and public policy that could put a stranglehold on future the ICT’s future growth. The two components of ICT, information and communications, are on the radar of the Federal Communications Commission and the Federal Trade Commission.

For the FCC, its interest in ICT stems from its attempts over the past three and a half years to further entrench itself in network management. In December 2010, the FCC codified network neutrality rules which, the FCC says, are intended to ensure that broadband access providers do not curry favor of one content provider over another. The rules are also intended to make transparent a broadband providers network management practices and providing consumers and their surrogates access to information that may show that a provider for example is throttling data speeds or that the service tiers or data caps it imposes are unfair to consumers.

Adding to the regulatory storm clouds hanging over network management is legislation proposed by Senator Ron Wyden, Democrat of Oregon. On 20 December 2012, Mr. Wyden announced the introduction of the Data Cap Integrity Act which is intended to allow consumers to better manage their data usage and promote online innovation. The Act also institutes data management accuracy standards for Internet service providers to ensure that data caps applied by ISPs are indeed put in place to manage data congestion as opposed to extracting higher fees from consumers via monopoly rents.

The FTC has been focusing on the privacy of personal information flowing down the stream of e-commerce. For example, the FTC recently announced that it is opening non-public investigations into whether entities within the mobile apps marketplace are violating the Children’s Online Privacy Protection Act or engaging in unfair or deceptive acts in violation of the Federal Trade Commission Act. The investigations stem from a FTC survey and report that documents how app providers are failing to disclose to parents the type of information collected via online apps and how and when this information is collected and used.

Because the two houses of Congress are controlled by different parties and given that Mr. Wyden’s influence on the Senate Commerce Committee is minimal at best, the Data Cap Integrity Act is dead on arrival. What the Act, combined with the initiatives from the FCC and FTC tell us is that the ICT industry is caught in a crosswind of regulatory activity given the role the industry plays in e-commerce and the knowledge economy. Long gone are the days where information services enjoyed a hands-off approach by regulators, and even in the face of an industry that is doing better than the overall economy, there appears to be a willingness on the part of the FCC, FTC, and Democrats in Congress to be even more intrusive.

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