Policy Options to Prevent Internet Degradation Are Still Available
Two weeks ago, the Federal Communications Commission (FCC) established an Open Internet Order, or "Net Neutrality" rules, whereby Internet service providers (ISPs), such as AT&T and Comcast, are to be reclassified from their Title I (Information Service) category to Title II (Telecommunication Service) under the Communications Act of 1934. Moreover, the agency will regulate ISPs using section 706 of the Telecommunications Act of 1996, requiring the FCC to act if advanced services are not deployed by ISPs in a "timely manner." This net neutrality regulation, passed by a partisan Commission vote of 3-2 (Democrats favoring passage, Republicans opposing), will require ISPs to treat all content on their networks in a neutral, unbiased fashion.
In two instances, in 2005 and 2010, the FCC had previously attempted to impose similar net neutrality rules, with both agency efforts overturned by the courts. However, after an unprecedented "President's Statement" was issued by the White House last November addressed to the independent agency recommending reclassifying ISPs as a public utility under Title II, FCC Chair Thomas Wheeler proposed to adopt President Obama's recommendation of Title II authority and scheduled a Commission vote on the rule.
In January, the Republican-controlled Congress attempted to head-off this FCC vote by releasing a draft legislative version of a net neutrality bill. This draft bill included many of the key net neutrality provisions that Democrats have wanted, including restricting the blocking of lawful content or "throttling" of lawful traffic, and prohibiting "paid prioritization" for content providers, while preventing the FCC from classifying the Internet as a public utility or using section 706 to regulate ISPs. While the Republican draft legislation did not garner support from a single Congressional Democrat, Senate Democrats acknowledged the GOPs "change of heart" in support of net neutrality.
The FCC has promised to refrain from utilizing a substantial number of the more than 1,000 regulations under Title II classification, which includes traditional authority to establish maximum or minimum rates, the quantity of service, and number of competitors. Yet, is there a looming threat to a content provider such as Netflix (which during peak times of operation alone accounts for up to one-third of all Internet traffic) by ISPs to justify this expansion in regulatory oversight, or is it simply a "power grab" by the FCC to acquire regulatory authority over the Internet?
The evidence is slim for the former, as a "real world" example of a "paid prioritization" commercial agreement does not presently exist, and more convincing for the latter, where the FCC would have the authority to specify how networks operate and what technologies that ISPs could use in those operations. Content providers, such as Google and Netflix, have already created so-called "fast lanes" using "content delivery networks" to locate their computer servers in local ISPs. These "peering" arrangements allow for high volumes of data, including photographs and video, to be delivered smoothly to ISPs. These "permissionless" innovations, says L. Gordon Crovitz of The Wall Street Journal, have saved the Internet from coming to a "screeching halt." Will bureaucratic public utility regulation be as responsive to market demand?
Los Angeles Times reporter Jon Healey, in his January 7th article, contradicts a fundamental premise in FCC Chair Thomas Wheeler's recent February 4th op-ed piece in Wired: the nearly $300 billion that the wireless data network portion of the industry had invested over the last 21 years was not, as Wheeler stated, under similar Title II rules, but were exempted by an FCC ruling issued in 2007. The Los Angeles Times also reports that wireless data services could be re-classified under Title II, thus potentially increasing the regulatory costs on the fastest growing and most innovative industry segment.
If the FCCs Open Internet Order is eventually overturned in the courts, the Republicans' draft bill on net neutrality may become a viable bipartisan alternative in Congress. One amendment to the bill, however, should be included. In December 2014, the International Center for Law and Economics sent a letter, signed by 32 academics and scholars, to the Federal Trade Commission (FTC) imploring the FTC to recommend to the FCC that concerns over paid prioritization arrangements be addressed by adopting a "rule-of-reason", antitrust approach when they occur and cause alleged harm. This regulatory approach, as an integral part of the bill's formal complaint procedures, would require a review of what "reasonable network management" entails for each company in its operating environment.
With the Open Internet Order now passed by the Commission, public policy options to prevent the net neutrality rule from taking effect are still available. The net neutrality rules, and specifically Title II authority, will certainly be challenged in the D.C. Court of Appeals. In the short-term, if this issue is important, GOP congressional leadership can withhold FCC appropriations for implementing section 706 to regulate ISPs as common carriers.
