The FCC Makes Internet Control Its 21st Century Mission

The Federal Communications Commission has been steadfast in its determination to reshape our digital world by expanding its authority to control the Internet. Remarkably, after the Obama White House weighed in, FCC Chairman Tom Wheeler opted to unleash an outdated regulatory regime that attempts to shoehorn the Internet into the same public-utility structure designed to regulate the old telephone networks of almost a century ago.

While redefining the Internet as a common carrier may be the most visible action taken by the FCC, Wheeler has actually proposed a number of steps that place the FCC squarely at the crossroads of the Internet.

Specifically, Wheeler took three actions that solidify the FCC's future as digital regulator. Of course, imposing Title II public utility regulation on the Internet - extending even to wireless providers, which always had a light touch of regulation - is the most prominent of the FCC's actions, and rightly so.

The massive new regulations create a lot of authority balanced only with a promise that it will be used for good. This is the worst of all possible worlds and a questionable doctrine of regulatory authority. In effect, this provides virtually unlimited discretion to FCC regulators, who will pick and choose which regulations to enforce and where they will apply forbearance. Like most regulatory agencies, the process will be captured by advocates with the highest-paid lawyers and lobbyists, and consumers are not the ones hiring these people.

But Wheeler also redefined what constitutes broadband; in effect, raising the bar from 4 mbs to 25 mbs, instantly making most markets noncompetitive, and therefore, ripe for FCC action. Despite the fact that most consumers use less than 10 mbs, and the fact that private networks have been expanding to offer faster access, the new definition of broadband ensures more FCC oversight is necessary.

Finally, Wheeler moved to pre-empt states from barring local municipal broadband networks. The record of these taxpayer-financed networks is spotty at best, and they tend to reduce the incentive for private broadband service providers to compete with their state-funded competitors. This serves only to increase the public sector's role in broadband while dampening private investments in the networks of the future.

While consumers may not fare well under the new regulatory regime, federal regulators are quietly breathing a sigh of relief. The Wheeler three-step is an amazing feat of self-preservation for an agency whose very existence can be legitimately challenged, given the technological transformations brought on by the digital revolution. Indeed, with the declining relevance of the old copper landline networks, thoughtful plans have been floated to relocate the remaining core functions of the FCC while jettisoning the rest of the agency.

Some, for example, suggest transferring questions of spectrum allocation and management to the National Telecommunications and Information Administration within the Department of Commerce, while shifting questions of enforcement, competition and consumer protection to the Department of Justice and the Federal Trade Commission, two agencies with that focus exclusively on such issues. Questions of subsidies, such as the Universal Service Fund could also be spun off to other agencies while implementing reforms to eliminate the disparities of the existing programs.

Yet, the FCC's regulatory cannonade makes downsizing the agency unlikely. Rather than protecting an open Internet, the FCC has moved to consolidate its authority and create a new era of a government-run Web. Advocates of big government may applaud these actions, but the history of FCC regulation suggests consumers do not necessarily benefit under such heavy-handed policies.

Nobel Prize-winning economist Ronald Coase's 1966 description of the regulatory process highlights the potential dangers of the FCC's massive new regulatory regime: "However fluid an organization may be in its beginning, it must inevitably adopt certain policies and organizational forms which condition its thinking and limit the range of its policies. Within limits, the regulatory commission may search for what is in the public interest, but it is not likely to find acceptable any solutions which imply fundamental changes in its settled policies."

Given the disruptive nature of the digital revolution, the sclerotic pace of bureaucracy may pose significant challenges to further innovation in the online world.

The Internet did not just happen. Since 1996, private investors have sunk more than $1.2 trillion into creating the networks that tie us together. In that time, there have been only a handful of cases where anticompetitive practices have been deployed, and these were handily resolved without the need for a massive new regulatory regime. And over this time period, consumers have benefited from an expanding Internet that provides services not even imagined in 1996.

Network engineers have done a far better job at optimizing the Internet than an army of regulators in Washington, D.C. But the FCC has rewritten the rules, and now, as regulator-in-chief of the Internet, the FCC is secure in its mission for the next century.