The Feds Lost on Net Neutrality, But Won Control of the Internet
Image: DrAfter123/Getty
But not for the reasons you think. Others are saying that the FCC just lost the battle but “can finally win the war” — if the agency formally “reclassifies” broadband as a heavily regulated “common carrier” (like traditional telephone services). Actually, the FCC lost the battle, but it just won the war over regulating the internet. It no longer needs to bother with reclassification, a process so difficult and drawn-out it was always a political fantasy anyway.
The FCC’s broad new powers should worry everyone, whatever they think of net neutrality. Because beneath the clever rallying cries of “net neutrality!” lurks a wide range of potential issues. Most concerns are imaginary or simply misplaced. The real concerns would be better addressed through other approaches — like focusing on abuses of market power that harm competition.
But first, we need to look at the ruling in a more nuanced way.
Here’s What Really Just Happened: Yet Another Government Agency Gets Broad Power
What just happened? Well, the Federal Communications Commission (FCC) found in 2008 that Comcast had violated the agency’s net neutrality policy statement by allegedly slowing BitTorrent traffic. The D.C. Circuit then found the FCC lacked statutory authority. The FCC responded with the 2010 Open Internet Order, which re-interpreted Section 706 of the Communications Act as a broad grant of authority. So Verizon sued. Two days ago, the court accepted that re-interpretation, which means the FCC can regulate net neutrality even though the court struck down the two key provisions of the Open Internet Order.
Indeed, the court has very nearly given the FCC — and state utility commissions, to boot — carte blanche to regulate the entire internet. And that’s the real story here.
The only real limit is that the FCC can’t overtly treat internet services like common carriers. But this limit may mean little. Indeed, the court’s ruling even lets regulators assert new powers to regulate internet services well beyond broadband… Still, putting that kind of broad power in the hands of government should trouble anyone worried about the abuses of the NSA or the prospect of the International Telecommunications Union taking over internet governance.
The Road to Hell Is Paved With Excessive Discretion
The current FCC Chairman, Tom Wheeler, declared he would use his new discretion judiciously, even recognizing the need to “avoid both Type I (false positives) and Type II (false negatives) errors” in assessing whether a new premium service helps or hurts consumers.To some extent, the FCC’s newfound sense of restraint is required by the court’s decision, which hinged on a provision of the Communications Act barring the Commission from imposing “common carriage” obligations on Title I “information services” like broadband. Instead, the FCC has to leave room for “individualized negotiation” between ISPs and so-called edge providers (Netflix, Google, etc.). But the FCC can still require that, for example, premium carriage agreements be “commercially reasonable” and non-discriminatory — as it did when requiring wireless carriers to provide data roaming to their competitors’ customers (which the D.C. Circuit recently upheld). This would prevent the clearest potential problems (like, say, degrading Netflix just to favor an ISP’s own video service) while still allowing pro-consumer deals (like guaranteeing quality of service for video providers).
In short, the FCC now has vast discretion, and seems unwilling to give that up.
Instead of issuing new rules, Chairman Wheeler has declared the FCC will use its newfound powers “in a common law fashion” (as in 2008). Such case-by-case, learn-as-you-go enforcement would indeed the allow the FCC to strike a better balance. But without any clear underlying principles to guide the agency, piecemeal regulation could actually more restrict innovative deals. The FCC could exceed the “no common carriage” limit, saying no to one deal after another without a court ever getting to question what amounts to de facto common carriage. And that could be a death by a thousand cuts.
A Trojan Horse for Other Regulation?
The Electronic Frontier Foundation has long supported net neutrality but nonetheless warned that it could be a Trojan Horse for broader internet regulation. Judge Silberman’s dissent said much the same, noting that Section 706 “grant[s] the FCC virtually unlimited power to regulate the Internet.”That can’t be good, no matter how much you want net neutrality regulation.
Still, the majority of the court (and the FCC) insist that their interpretation of Section 706 is not limitless or unbounded because the FCC can regulate only: 1) Things the rest of the Communications Act allows it to regulate; 2) Where the FCC can show the regulation will “encourage the deployment… of advanced telecommunications capability;” and 3) Using regulatory methods specified by the statute: “price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”
In his dissent, Silberman calls these limitations “illusory.” Most notably, if Section 706 justifies “any regulation that, in the FCC’s judgment might arguably make the Internet ‘better’” — what limit is there?
And the last regulatory method authorized by 706 (“other regulating methods…”) is a catch-all, with the first listed as “price cap regulation.” So… the FCC could start setting not only broadband prices but VoIP prices as well. Why not tablet prices, too?
This starts to look a lot like common carriage regulation by another name. Indeed, it’s not clear why the FCC couldn’t regulate any information services or, say, interconnected aspects of smart washing machines or Nest-like thermostats. The FCC would just need a plausible argument that it was boosting broadband demand.
Congress intended Title I as a light-touch approach to promote investment and innovation in “information services” while allowing public safety regulations like e911. Now, through Section 706, the FCC can impose economic regulation, too, so long as it doesn’t amount to common carriage — which may be no limitation at all. That’s cause for concern.
Here’s What the FCC Should Do About Net Neutrality
We’ve all heard the breathless claims of net neutrality advocates: without the Open Internet Order, Big Cable will collude with Big Content to kill the “little guys” in a digital “Wild West.”The FCC made such claims, too. The court accepted them (in order to uphold a narrow part of the FCC’s Order) but only under the near-blind deference courts usually grant to agencies’ factual assertions. But there’s no evidence this was ever likely even before imposition of the Order. And the logic simply doesn’t hold. ISPs may want to charge for access to their users, but, in the end, just like content providers, they profit most by getting subscribers to use more of their service.
And, counterintuitively, there’s every reason to think new entrants — the little guys — would benefit most from non-neutrality: Payola (paying radio stations directly for extra airplay), for example, is frequently derided by those who misunderstand it, but it actually helps new artists break through. Sponsored data and other prioritization arrangements on the internet are just a further extension of this. The FCC’s earlier approach would have foreclosed innovative, upstart edge providers from buying the preferential treatment or “premium carriage” they might need to gain recognition and draw users away from well-established incumbents.
Bottom line: The FCC should stop trying to ban prioritization outright and focus only on actual abuses of market power. But instead of adopting antitrust principles, Wheeler’s case-by-case approach will probably be guided by little more than the outer boundary of avoiding common carriage regulation (if even that).
And that’s the real issue here. It’s not about what the FCC wins or loses, but that net neutrality “common law” could be haphazard and devoid of economic rigor — and, worse, that the FCC could use the same Section 706 power to regulate internet services beyond broadband. That’s where we should be focusing this discussion: the FCC’s new, sweeping discretion.
Disclosures: The authors’ work is supported by both broadband and edge providers.
Editor: Sonal Chokshi @smc90
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