It’s hard to imagine an issue in today’s media/telecom policy universe that has sparked more controversy or inspired more passion than the innocuous-sounding Net Neutrality. How could such a seemingly simple concept – that Internet access should be open to everyone and that services should be provided on a neutral basis without discrimination by type, price, speed, or quality – create such a firestorm?
One need look no further than the cover of this edition of Inside the FCC for the answer, or at least a major clue: “The Pros and Cons of Internet Regulation.” Many advocates of Net Neutrality believe this goal can’t be achieved without the regulatory hand of government exerting its grip on the Internet – and the more forcefully, the better. In contrast, other advocates of Net Neutrality believe it is a goal best achieved through the workings of the marketplace, and point to the successful operation of the Internet for years prior to any regulation.
Net Neutrality, then, is one of those issues that is hard to oppose in principle until the details creep in. It would be easy to frame this issue in classic policy terms of government regulation v. the marketplace. It would also be easy to frame it as a struggle to protect the average consumer from the excesses of big companies that control Internet access. And, of course, it is all too easy to characterize this as yet another attempt by the Trump Administration to throw out a policy engineered by the Obama Administration – especially since the Federal Communications Commission (FCC) under Chairman Ajit Pai is in the midst of a proceeding aimed at reversing the heavy-handed Title II regulatory approach. But Net Neutrality has become more nuanced than any one of these simple formulas.
The articles that follow will look at Net Neutrality – and Internet regulation – from a variety of perspectives. First, however, it might be helpful to offer a bit of background and context on some of the elements in this debate.
How Did We Get Here? We might begin by trying to identify the justification for imposing government regulation on the Internet. In other words, what was the problem that needed to be solved? It turns out there wasn’t much of a problem after all. In the United States, a handful of instances were identified involving Internet service providers (ISPs) slowing transmission speeds (“throttling”) or limiting access to competitors’ services, but those cases were resolved through existing means by the FCC or the courts. Regulating the Internet to achieve Net Neutrality had become a solution in search of a problem.
The FCC, however, was undaunted at the prospect of extending its regulatory grasp to yet another electronic realm. In its 2010 Open Internet Order,[1] the Commission claimed authority to regulate ISPs under Section 706 of the Telecommunications Act of 1996, and used this authority to establish no-blocking and no-unreasonable-discrimination rules. The U.S. Court of Appeals for the D.C. Circuit vacated those rules in 2014, but upheld the FCC’s regulatory authority over broadband ISPs under Section 706.[2] The precedent set in 2010 giving the FCC authority to regulate the Internet had now been affirmed by the judiciary – and there would be no turning back.
The FCC had for many years, going back to its Computer Inquiries of 1966, drawn a distinction between basic services (common carrier transmission services) and “enhanced services,” which involved computer applications. Basic services were subject to heavy common carrier regulation under Title II of the Communications Act of 1934, while enhanced services, the Commission determined, “should not be regulated under the Act.”[3] That distinction and policy approach (now including the Internet as an enhanced service) was affirmed in the Telecommunications Act of 1996[4] and restated in a number of FCC orders pertaining to wireline and wireless services in the early to mid-2000s. To its credit, the FCC in its 2010 Open Internet Order eschewed regulating ISPs as common carriers under Title II, sticking to its longstanding and oft-repeated position that the Internet was an information service. The Commission opted for a “light touch” approach by asserting its regulatory authority under Section 706. However, once the D.C. Circuit affirmed the FCC’s regulatory authority over ISPs in 2014, the leap to Title II would prove to be a short one.
Then-FCC Chairman Tom Wheeler proposed another “light touch” approach in late 2014, again relying on Section 706. However, he ran headlong into President Barack Obama in November 2014, who urged the Commission to “reclassify consumer broadband service under Title II of the Telecommunications Act.”[5] Wheeler turned on his heels and acceded to the president. In February 2015, the FCC adopted the Title II Order.[6]
One of the intriguing aspects of all this has been the remarkable army of Internet companies, public interest groups, liberal philanthropists, and foundations that have enlisted in the fight to push the Title II agenda. The advocacy groups have been the most predictable: Free Press, Media Access Project, Public Knowledge, Media Matters, New America’s Open Technology Institute, and like-minded leftist groups. Also predictable: foundations like Ford, Knight, and MacArthur. And could philanthropist George Soros and his Open Society Institute be far behind? The liberal agenda of taking power away from corporations under the guise of protecting the “little guy” has been much in evidence, and of course an issue that lends itself to populist sound bites is good for advocacy-group fundraising. However, some critics have wondered if there were a more sinister agenda in play.
Writing in April 2015, Media Institute President Patrick Maines offered an unsettling insight: “It should now be clear, even to those who weren’t paying attention earlier, that the primary interest these groups had, and have, in net neutrality is their desire to insinuate government in the regulation of speech on the Internet.”[7] He quoted remarks published in The Hill by the policy counsel of the Open Technology Institute, who said: “A net neutrality regime that relies solely on antitrust analysis … cannot address the non-economic goals of net neutrality such as free speech, political participation, and viewpoint diversity.”[8] One can only hope that future Commissions remember the FCC has no mandate to pursue such goals through Net Neutrality regulation.
Puzzling to some (yet utterly predictable to others) has been the support for Title II regulation among major players in Silicon Valley. Organizers of a pro-Title II “Day of Action” in July 2017 numbered among their participants Google, Facebook, Netflix, and Amazon. One can assume that these companies, which are not ISPs and thus not subject to Title II regulation, would like to make sure their ISP brethren are restrained from conduct that could impact the delivery of their services. But as Bret Swanson asked last July, do these tech giants really want to invite Washington to get more involved in the technology business? Especially when it is tech giants like these, rather than the ISPs, that have been charged with some of the most blatant non-neutral business behaviors? As Swanson noted:
“As the issue was politicized over the past 15 years, Google and the others radicalized their own employees, their fan-boys, and the Democratic base against a phantom menace. Although there wasn’t an actual problem to solve, it became a partisan cause and a successful fundraising tool…. So Silicon Valley finds itself backing a partisan mob who cheer a policy – Title II – which they don’t understand and the firms never contemplated.”[9]
According to financial analysts, the switch to Title II regulation has had a significant negative impact on telecom investment. Economist George S. Ford studied investment data from 2011 to 2015, by which time fears of Title II reclassification had been factored into most investment decisions. During this five-year period, actual investment averaged $126 billion annually – but would have been about $160 billion annually if Title II reclassification had not occurred, Ford estimated. “That is, over the interval 2011 to 2015, another $150-$200 billion in additional investment would have been made ‘but for’ the regulatory revival at the FCC,” Ford said. He also estimated that the telecom sector lost approximately 100,000 jobs between 2010 and 2016 because of this “regulatory revival” of the Obama Administration.[10]
Financial analyst Anna-Maria Kovacs has cited figures from CTIA showing that annual capital investment in wireless increased every year from $24.9 billion in 2010 to $33.1 billion in 2013, decreased slightly in 2014 and 2015, and then fell sharply to $26.4 billion in 2016. “[F]or the mobile broadband industry, this period encompassed radical regulatory change, with the industry moving from light-touch regulation in 2010 to the threat of and then imposition of Title II common carrier regulation in 2014-2015,” she stated.[11]
One of the main reasons Title II regulation is such an onerous factor in management and investment decisions is that it leaves open the possibility of rate regulation and other intrusive actions by government. Title II was never intended to regulate information services, and thus “the Commission found it necessary to forbear from enforcing the ‘vast majority of rules adopted under Title II,’ including ‘30 statutory provisions[,] and render over 700 codified rules inapplicable,’” the FCC itself has noted.[12] But that doesn’t mean the Commission couldn’t enforce some of these provisions – like rate regulation – in the future. Telecom investment becomes a much riskier proposition given this level of uncertainty.
Where Are We Going? The FCC announced a change of direction on May 18, 2017, when it opened a proceeding titled “Restoring Internet Freedom.”[13] Chairman Ajit Pai, a longtime believer that less regulation can benefit investment and innovation, had this to say in a statement:
“Today, we propose to repeal utility-style regulation of the Internet. We propose to return to the Clinton-era light-touch framework that has proven to be successful. And we propose to put technologists, rather than lawyers and accountants, at the center of the online world.”[14]
Chairman Pai’s Republican colleague, Commissioner Michael O’Rielly, also supported the action:
“[T]he prior Commission changed course so abruptly that it did not take the time to sufficiently examine the law and record and did not adequately respond to opposing viewpoints and alternative proposals…. Now the Commission presents the case that it previously ignored – that the text of the Act, Commission precedent, and public policy support classification of broadband Internet service as an information service.”[15]
The Commission’s proceeding sparked a predictable outcry from Title II supporters and led to a “Day of Action” on July 12, 2017, where tech titans and liberal advocacy groups urged citizens to contact the FCC and complain about the proposed rollback. What was missing in most of the rhetoric, however, was the distinction between the goal of net neutrality and the means of achieving that goal. The FCC was not proposing an outright abandonment of Net Neutrality regulation – just a lighter framework without Title II as the centerpiece. But one would never know that from the doomsday predictions.
Is a light-touch approach the best way to go? Title II supporters think not, obviously. Those of us who favor marketplace solutions (where problems actually exist, that is) would like to see Internet regulation totally repealed. However, that is unlikely at best, as the FCC has never been good at giving up regulatory authority once asserted.
Another option might involve Congress. Both AT&T and Verizon have suggested that open Internet principles should be codified into law as a way of providing continuity and protecting against regulatory flip-flops. AT&T would favor the codification of rules that ensure transparency while prohibiting blocking, discriminatory throttling, and censorship. Likewise, Verizon would favor an “open Internet” that achieved the goals of Net Neutrality without Title II regulation, or “1930s utility regulation,” as a company official put it.[16] But again the prospects for a legislative outcome are murky, given the current state of Congress.
One thing is certain: Net Neutrality is not going away any time soon. (For an instructive precedent, just think of the FCC’s newspaper/broadcast cross ownership rules.) The debate in this edition of Inside the FCC is not the first, nor will it be the last you encounter on this topic.
Richard T. Kaplar is Executive Director of The Media Institute. This article originally appeared in a special edition of Inside the FCC titled “Whither Net Neutrality?” edited and published by Adonis Hoffman.
[1] Preserving the Open Internet: Broadband Industry Practices, GN Docket No. 09-191, WC Docket No. 07-52, Report and Order, 25 FCC Recd 17905 (2010) (Open Internet Order).
[2] Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014).
[3] Amendment of Section 64.702 of the Commission’s Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC 2d 384, 420, 428, para. 114 (1980).
[4] Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).
[5] President Barack Obama, Statement on Net Neutrality (Nov. 10, 2014).
[6] In the Matter of Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Recd 5601 (2015) (Title II Order).
[7] Patrick Maines, “Is this what net neutrality is really about?” The Hill (April 7, 2015), http://thehill.com/blogs/pundits-blog/technology/238042-is-this-what-net-neutrality-is-really-about.
[8] Joshua Stager, “Net neutrality hearing examines a false choice on antitrust,” The Hill (March 25, 2015), http://thehill.com/blogs/pundits-blog/technology/236937-net-neutrality-hearing-examines-a-false-choice-on-antitrust.
[9] Bret Swanson, “Silicon Valley’s Dangerous Political Game,” Entropy Economics (July 10, 2017), http://entropyeconomics.com/wp-content/uploads/2017/07/EE-Tech-Note-Silicon-Valleys-Dangerous-Political-Game-07.10.17.pdf.
[10] George S. Ford, Ph.D., “Revisiting the ‘Virtuous Circle’ Two Years Later,” Bloomberg BNA (July 10, 2017), https://www.bna.com/revisiting-virtuous-circle-n73014461420.
[11] Anna-Maria Kovacs, Ph.D., “The Effect of Title II Classification on Wireless Investment,” Georgetown University Center for Business & Public Policy, policy paper (July 2017), http://cbpp.georgetown.edu/publications/anna-maria-kovacs-effect-title-ii-classification-wireless-investment.
[12] Title II Order at 5616, para. 51.
[13] In the Matter of Restoring Internet Freedom, Notice of Proposed Rulemaking, WC Docket No. 17-108 (adopted May 18, 2017).
[14] Statement of Chairman Ajit Pai Re: Restoring Internet Freedom, WC Docket No. 17-108 (May 18, 2017).
[15] Statement of Commissioner Michael O’Rielly Re: Restoring Internet Freedom, WC Docket No. 17-108 (May 18, 2017).
[16] Will Johnson, “A time for real action,” Verizon, blog post (July 12, 2017), http://www.verizon.com/about/news/time-real-action.