At its core, network neutrality is a struggle to see which, if any, federal agency has the legal authority to regulate the Internet. In the worst possible way, the Federal Communications Commission would like to be that federal agency. But this might be the worst possible outcome for consumers.
For more than a decade in countless decisions, the FCC has repeatedly held that broadband is not subject to the same costly and punishing common carriage regulations that the FCC imposes on telephone companies. Courts have consistently upheld those decisions.
Over the past four years, the FCC has yet to convince even one court that it lawfully can have broad network neutrality rules. It has lost twice. Most recently in January 2014, a federal court said that the FCC cannot use backdoor methods to impose burdensome common carriage regulation on broadband providers. The FCC is considering how to respond to the court.
The most straightforward reading of the court decision would be for the FCC to abandon its pursuit of network neutrality. Let Congress decide if a federal agency should regulate the Internet and if that agency should be the FCC.
But the FCC seeks a more complicated interpretation of the court ruling, one in which there is a path for FCC regulation of the Internet. That more complicated, and unpersuasive, interpretation might include some combination of technical findings or, problematically, deeming some or all of the Internet as a telecommunications service subject to the FCC jurisdiction.
This more complicated interpretation, uninvited by the federal court, is what many observers thought the FCC would pursue. It would be unlikely to succeed, but it would be close enough to the court order that the FCC could argue that it addressed the court’s concerns.
The federal courts might accept the interpretation, or more likely, they would not. But in either case, the court would likely not have decided for years. By this time the current set of FCC commissioners would have moved along, leaving a new set of commissioners to answer to a likely defeat.
Whether it is gamesmanship or politics as usual in Washington, the strategy of using courts to kick the can down the road is a sad form of government. Call it a casino government: gambling on the public dime in which everyone except the public wins.
But many Americans, and even a few on Capitol Hill, have counseled the FCC to try an unapologetic form of network neutrality yet again, court decisions notwithstanding. Now comes word that the FCC is going to try an entirely new form of network neutrality in blazing glory. The FCC has floated an idea that the FCC will redefine parts, but not all, of Internet services as a form of “telecommunications service,” which would fall under FCC jurisdiction.
The partition the FCC has in mind would leave the retail Internet as an unregulated Internet service but would regulate as a “telecommunications service” the wholesale transactions between Internet service providers and content companies such as Google, Amazon, and Netflix.
The partition, which sounds simple on paper, would be difficult to implement in practice. To begin with, the boundaries between wholesale and retail are not clear on the Internet. For example, Google might have a wholesale arrangement with a broadband service provider, and Google might also have a retail arrangement for services ranging from search to email accounts to video downloads with consumers who access Google through a broadband service provider. It is not obvious which if any of the Google services would be subject to FCC network neutrality regulation.
The FCC asserts that it is merely trying to protect the ability of “content” providers to reach consumers through the Internet without being blocked or paying extra for priority service to broadband service providers. But paying extra for better service is the norm in most markets. It is not a sign of ill-functioning markets. Major firms already have a wide range of avenues for their content to reach the Internet, many of which are based on paying more for higher quality, faster transmission to the Internet. Broadband firms are already disciplined by competitive wholesale markets in providing Internet access. It is not clear what additional advantage is provided by FCC regulation of these competitive markets.
Nor would there be any advantage to FCC regulation of retail markets. All but residents in truly rural areas have access to not one but several broadband providers. Practically all of these broadband service providers, usually in quite competitive markets outside of rural areas, allow consumers to pay more for better services. Regulating these competitive markets would have little value to consumers.
Finally, the statutory definition of telecommunications service does not support the artificial partition of the Internet into retail and wholesales services that the FCC envisions. By statute, “The term ‘telecommunications’ means the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” In turn, “telecommunications service” is the offering of telecommunications to the public for a fee.
Historically, the FCC has never found a wholesale service but not the retail service to be a telecommunications service. It seems difficult, if not impossible, to explain to a court that a wholesale but not a retail service to a customer—a “user”—is a telecommunications service, when that customer is initiating “the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and receive.” In contrast, the wholesale link between content companies and broadband companies may often have little if anything to do specifically with the transmission controlled by a “user.”
When federal agencies “float” ideas, they are trial balloons to judge public reaction. The initial public reaction to the FCC’s retail/wholesale split for broadband regulation has been negative from parties on all sides.
With its unlawful and backwards interpretation of partitioning the Internet, the FCC has little if any chance of winning in court. But the FCC will succeed in holding much of the Internet and Internet investment hostage for a few years while the FCC’s rule works its way through court to an inevitable defeat.
If it is determined to harm a sector of the economy with excessive regulation and unwinnable court cases, the FCC should find a less critical sector than the Internet. The Internet and the broader information sector contribute disproportionately to the American economic growth, which could use help rather than governmental interference. The FCC appears determined to take its casino form of government to a different level—Russian roulette.