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Economic Perspectives on an Open Internet

Harold Furchtgott-Roth

Click here to watch the video. (Remarks begin at roughly 101 minutes.)

It is a great honor to appear before the Consumer Advisory Committee of the Federal Communications Commission to speak about economic perspectives of what some call “open internet” and what others call “network neutrality.” I will primarily call it “network neutrality” because most people who speak about the issue call it that.

Whatever its label, it is an important topic. It has captured the imagination of many people. It appears on the editorial pages of leading publications.

And ultimately it is an economic issue.

I am an economist by training, by professional practice, and by temperament. I am currently a senior fellow at the Hudson Institute where I founded and direct the Center for the Economics of the Internet. I will also be an adjunct professor of law at Brooklyn Law School this fall where I will teach a class on communications law. Among the topics I will cover is network neutrality.

During my career, I have had occasion to think about the network neutrality issues before the Commission, and about the Commission itself. From 1995-1997, I was the chief economist of the House Commerce Committee where, among responsibilities, I was one of the principal staff members working on a bill that ultimately became the Telecommunications Act of 1996. I worked on various provisions of what was to become the Act, including Title II and Section 706.

The Telecommunications Act of 1996 was a non-partisan bill, passed by vast majorities in both houses of Congress. It was written with words that had meanings, words that were intended to be followed in those meanings, not in tortured, stretched, or fantastic interpretations.

It is painful for me to read the Act today, or read the Communications Act generally. The pain is not that the words are dated, even archaic. Some are; but most are not. The pain is more that vast sections of the Act have been hollowed out of any meaning by years of Commission rules and practice that have little if any foundation in statute. It is as if the decades of Congressional work that went into the passage of the Act were for naught because the FCC largely ignores the language anyway.

For much of two decades, the search for good policy has trumped adherence to the law. Rather than begin with: “What does the law say, and how do we implement rules narrowly within the law?” the commission has said: “What do we believe is good policy and how do we shoehorn that policy into the inconvenient language of the statute? Let’s hire a few clever lawyers to do just that.”

I fear that “network neutrality” is just another example of a search for policy rather than crafting rules to follow narrowly the statute. You won’t find the terms “Open Internet” or “Network neutrality” in the statute. They simply are not there. Nor are the underlying concepts. This is not just my view, but the substance of not one but two D.C. Circuit Court orders. The FCC’s proper role is not to promote what it considers to be good policy but to write, to enforce, and to adjudicate rules narrowly that comply with statute.

Subsequently to serving as a House staffer, I served as a commissioner of the FCC. I spoke and wrote almost continuously about the implementation of the Act, about the importance of the precise implementation of Title II, and about the precise implementation of all aspects of the Communications Act, including Section 706.

As a commissioner, I met with anyone who wanted to meet with me. And I met members of the House and Senate, a great many of them on both sides of the aisle. A recurring theme I heard was why does the FCC not follow the law that they worked so hard to pass. Republican, Democrat, liberal, conservative, rural, urban: the consistent message was palpable.

That reaction is understandable for many reasons. Partly, it was a reaction of personal disappointment. Members who work for years on a bill are personally invested in it and want to see it implemented.

Partly the disappointment is also political in the sense of politics that only a member of Congress fully understands: their constituents were not happy. Constituents who read the Act to mean one thing found the FCC writing entirely different rules. Constituents who invested billions of dollars in one business model only to find, years later, that courts had thrown it out. Consumers who put their faith in a new law and new service only to find it did not work as promised.

Partly, the disappointment is that being a member of Congress has little meaning if laws can mean whatever a government agency wills them to mean. When government agencies can write and interpret their own laws, Congress has little meaning. We, the people who elect them are disenfranchised.

Make no mistake: everyone loses when laws are not properly implemented. Businesses, investors, consumers, and even members of Congress.

Among the biggest losers are consumers. The best friend a consumer has today is a competitor offering better service at a lower price. The best friend a consumer has tomorrow is a competitor, likely a different one, offering even better service at even lower price.

Noticeably absent is a government agency. In a perfect world, consumers never see government agencies. When consumers have to go to government agencies, it is because something is wrong.

Consumers have many remedies at law if there are problems such as those that advocates of network neutrality claim exist. They can file antitrust claims against companies for abuse of market power.

I am not aware that any such claims have been lodged with the Justice Department or the Federal Trade Commission. Indeed, I am not aware that any of the parade of horribles mentioned in the context of network neutrality is an actual market problem today. They all seem to be hypothetical problems tomorrow.

And none of the proposed remedies, either Title II or Section 706, is in the context of network neutrality squarely within the Communications Act. These remedies are shoehorned in hoping that some court somewhere will let it happen.

I call it the casino-form of government. It is gambling. You take a risk that some court somewhere will call you a winner.

Casinos are where people go to forget about realties of a responsible life. Real life is constraining, even boring. At a casino, one pretends to be someone different, to take risks that one ordinarily would not take. One knows the deck is stacked, that the odds are the house will win and that the individual will go home a loser. No matter. There is hope for a win against all odds.

It is one matter for an individual to go to a casino, to enjoy risk-taking. It is an entirely different matter for a government agency to play casino. It is particularly irresponsible for a government agency to play casino with taxpayers’ money and with consumer interests at stake.

Who in this room knows with confidence the FCC will win its next round of Network Neutrality fights in court? Who in this universe has that confidence in our government? You know there is a great risk. We all know there is great risk.

And yet there are those among us who encourage the FCC to play casino with the hopes and aspirations of the American public, to put at risk the good name of this government.

All too often the government loses in court. This agency has lost twice on network neutrality. Is it trying for a trifecta in a horse race? The FCC lost not because the courts were wrong, but because the FCC was wrong. And it knew that a court was likely to find it wrong. And yet it went ahead anyway. It was playing casino. Rolling the dice.

We are a better nation than that, and the FCC is and should be a better agency than that. A better form of government for everyone, consumers in particular, would be an agency that writes rules narrowly within statute. No one would dare take them court because they know the government agency is right.

There are those who say we need Title II in network neutrality. I don’t agree. But if it were true, there is a solution. Have Congress pass a law. It is not up to the FCC to write laws that Congress will not pass. The courts have said no.

Adopting a Title II approach to network neutrality is not costless. For the past 15 years, the FCC has consistently held that Title II does not apply to broadband or the Internet. Even if the courts approved of such a move, for the FCC now to say that, yes, Title II does apply to broadband and the internet would undermine much of the past 15 years of rulemakings and adjudications. All of those rules and decisions would now be subject to review. Is that what the FCC really wants to do?

Nor is Section 10 a remedy to Title II. Section 10 reviews take years and have uncertain outcomes. Why put edge industries under Title II and then tell them to spend the next many years and countless millions of dollars in legal expenses trying to escape those rules and fees and oversight.

Others say that the FCC can use Section 706 to regulate at will. That is not what Section 706 says, nor is it what the DC Circuit said Section 706 says. I believe Section 706 gives the FCC authority to deregulate, not to regulate. But if the regulatory view of Section 706 has some meaning, there is a solution. Have Congress pass a law. It is not up to the FCC to write laws that Congress will not pass. The courts have said no to a broad interpretation of Section 706.

And Section 706 has not been fully briefed to the courts. To give but one example, 706 applies only to “switched” broadband services. Is “switched” a foundation for network neutrality?

The FCC Commissioners in this proceeding have two choices:

(1) They can view this proceeding as an opportunity to advance political agendas for network neutrality rather than the rule of law. They can play casino. They can pass new network neutrality rules larded with phrases of “Title II” and “common carriage” and 706 that almost certainly will not pass court review. The commissioners, however, will not personally pay the cost of the agency they head losing in court. The commissioners will not even pay the cost of exposing the agency to the risk of losing, even if the Commission were miraculously to win. The commissioners will not pay the price of legal and regulatory uncertainty paid every day in the form of less innovation, higher prices, and poor service by hundreds of millions of consumers and thousands of businesses. Some of the commissioners likely won’t even be on the commission the next time the D.C. Circuit throws out the next batch of network neutrality rules. It is a great game: go to a casino on someone else’s dime and lose.

Or (2), The commissioners can seriously take their responsibility for the FCC to include writing rules that are predictably and unmistakably within the Communications Act. They can write network neutrality rules consistent with court guidance. If the American public finds that those rules written within the Communications Act are inadequate, it is for Congress to rewrite the Communications Act, not for the FCC to write rules outside it. American consumers and businesses have never had the benefit of FCC rules that were unambiguously beyond court reproach, that Americans could count on being in place tomorrow and a year from now rather than just until the next court session. The benefits of predictable rules are unimaginable only because we have never had a group of commissioners guided exclusively by keeping rules within the predictable limits of the law.

I suggest that this Commission give it a try. The winners will be the American economy and the American consumer. The losers will be those who benefit from a government agency addicted to gambling with good name and substantial resources of this great nation. I say: give it a try.

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