Last fall the FCC moved to reclassify its categorization of broadband service as a common carrier service under Title II of the Communications Act. This move effectively reinstates net neutrality, whereby internet service providers (ISPs) must provide equal access to all content and applications. The Commission initially passed an order establishing net neutrality in 2015, but after Republicans gained a majority of the Commissioners in 2017 the FCC then moved to repeal it.
Under net neutrality, internet service providers cannot provide different tiers of service for different customers, meter access, or slow down service for services that are taking a lot of bandwidth.
While its proponents argue that this regulatory action is needed to protect consumers from somehow being discriminated against, the whole net neutrality issue has long been a solution in search of a problem. Fears that once motivated consumers to take to the streets were overblown. As we go down this road with Title II again, there are significant potential costs that could depress future investment in broadband capacity.
One main difference between the net neutrality order enacted during the Obama Administration and the current proposed rulemaking is related to the application of Section 214, which requires common carriers to have an FCC certificate to construct new lines and extend others. Carriers would also need FCC permission to discontinue any existing services.
Today, the FCC classifies broadband providers as Title I information service providers, which are not subject to Section 214. Once moved to Title II with the current FCC’s “Safeguarding and Securing the Open Internet” rules, ISPs will need to comply. That is, unless the FCC forbears from Section 214, which is what the Wheeler FCC did.
That was a smart move. Here’s why: One problem with forcing Section 214 onto broadband providers is that the FCC will have literally thousands of decisions to make in order to meet the expected demand for permits. One comment to the proposed rulemaking suggested that the number of applications for approval under Section 214 would at least quadruple. Given that the Commission already struggles with responding in a timely manner to such requests, we should expect the delays for expanding internet capacity due to regulatory barriers to metastasize. Such bureaucratic delays will inevitably depress investment in broadband capacity.
Another problem with Section 214’s expansion is that needing permission to exit a market also threatens to deter investment. If an ISP has reason to believe that it may find it impossible to abandon an outdated investment once it is no longer cost-effective for it to be maintained--perhaps because it has been largely replaced with faster technology--it will rationally think twice before making a new investment altogether, fearing that it may be a cost it will be stuck with indefinitely even after it is no longer necessary or useful to do so.
Given that the FCC is eyeing Section 214 with national security in mind, there is also little compelling rationale for the FCC to approve new investments or the removal of outdated investments. There already exists a number of ways for the government to determine whether new telecom investments engender foreign-investment and supply-chain risks to communications networks. For instance, the interagency Committee on Foreign Investment in the United States and the interagency Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector reviews international licenses. New rules also allow the Commerce Department to restrict transactions with “foreign adversary” tech suppliers.
The FCC and the Biden Administration have made a point of prioritizing investment in broadband deployments, especially to those parts of the country currently seen as being underserved. Establishing a new bureaucratic regime that would require additional government approval of these investments, and that will inevitably depress future investments, is a puzzling way to go about achieving this goal.
