Rethinking Net Neutrality

 

tim brennan is professor of public policy at the University of Maryland, Baltimore County, and a senior fellow at Resources for the Future. A version of this article was published in The Conversation, a non-profit site for independent journalism. Tim Brennan was chief economist at the Federal Communications Commission during 2014 and did unrelated consulting work for the FCC on the AT&T/DirecTV merger during the first half of 2015.

Illustration by James Fryer

Published November 30, 2017

 

The public argument over how best to keep the internet open and free – and what exactly “open” and “free” mean – has dragged on for more than a decade. The principle that internet service providers should deliver all online content without favoritism seems straightforward. Yet it has been obscured in a maze of economic, technological and legal questions.

The argument came to a head in 2015, when the Federal Communications Commission issued its Open Internet Order requiring transparency and banning blocking, throttling of content and paid prioritization – that is, offering higher quality service at a price. But what the FCC giveth, it can taketh away. Under its current chair appointed since the past election, Ajit Pai, the Commission is proposing to revise and reverse some or all of these rules.

Of course, others can play this game – and probably will, if and when a Democrat is elected president. The resulting uncertainty, as well as policy disagreement, has led to calls for Congress to settle the matter. Without legislating specific net neutrality rules, Congress could clear away irrelevant legal impediments and make the debate more productive for regulators and the public alike. Even if the FCC essentially rescinds the 2015 Open Internet Order, this issue is not going to go away.

The Ghost of Dated Legislation

Some of the problems of devising net neutrality rules come from the fact that, in adopting the Telecommunications Act of 1996, Congress was responding to changing circumstances created by the 1984 breakup of AT&T’s telephone monopoly, not to the still largely nascent internet. The law classified communications businesses as engaged in either “telecommunications” or “information” services – either operating the wires that the data flow through or providing the data.

Congress decreed that only the former could be subject to regulation of prices, access and services, including under Title II of the Communications Act of 1934. Many have noted that the 1996 Act also stated that the internet has “flourished, to the benefit of all Americans, with a minimum of government regulation” and under “the vibrant and competitive free market, unfettered by Federal or State regulation.” However, in both of these oft-cited clauses, the internet is lumped with “interactive computer services,” suggesting that Congress was treating the internet as an information service, leaving internet delivery as possibly a telecommunications service subject to regulation.

That decision explains why the net neutrality debate often turns on the issue of whether internet service providers are telecommunications or information service providers. This isn’t a new discussion: 15 years ago a deregulation-inclined FCC classified broadband cable service as an information service and thus not subject to regulation. And in 2005, the Supreme Court upheld the FCC’s authority to classify broadband internet delivery as either a telecommunications or information service. Notably, though, Justice Antonin Scalia dissented, arguing that the 1996 Act clearly classified broadband internet as a telecommunications service – and that the FCC couldn’t decide otherwise.

The FCC’s 2015 Order “reclassified” broadband service as a telecommunications service in order to give it the authority the D.C. Court of Appeals said it needed to adopt its net neutrality rules. The current FCC proposes, in effect, to “re-reclassify” broadband as an information service. Looking forward to the likelihood of a court challenge, the Commission indulged in some excruciating legal contortions to offer a convincing rebuttal to Justice Scalia’s 2005 dissent.

 
In retrospect, the FCC made a mistake in treating net neutrality as a competition problem rather than a tool to protect speech.
 

Congress can fix this mess. The economic case for whether and how a firm should be regulated has nothing to do with what service it provides. Rather, the question should be about market fundamentals: Is the company a monopoly, or do alternative suppliers provide adequate competitive discipline on price and service quality? And on the other side, can a regulator obtain demand, quality and cost information in a sufficiently timely manner to set reasonable prices and terms of service in a timely and effective way?

Unfortunately, the 1996 Act ignored economics and relied on service classifications. Returning the focus to market fundamentals should be a high priority.

Eyes on the Prize

But is net neutrality really about economic regulation? While the classification battle has been driving the net neutrality yo-yo, looking at the issue solely in terms of regulating market power may be looking in the wrong place. While both Republican and Democratic Commissions have tended to assess all communications policy issues in antitrust terms, arguments based on competition here have not been.

A much better approach for the FCC would be to focus squarely on the public interest. And here, many factors come into play. One example comes from the observation, by open-internet advocate Harold Feld at the communications policy nonprofit Public Knowledge, that communication via social media was crucial to the successes of the Arab Spring protesters. And while the FCC’s jurisdiction does not extend to Egypt, the ability of the public to freely share news and ideas through the internet is no less important in the United States.

In retrospect, the FCC made a mistake in treating net neutrality as a competition problem rather than a tool to protect speech. Because speech rights were never central in the FCC’s net neutrality review, there is no record of what, if any, policies would be necessary to protect people’s rights to communicate. The current regulations might be sufficient or excessive, but until they are evaluated under a broader public interest standard, we will not know. Congress should clarify the issue by requiring the Commission to put the public interest ahead of the narrower questions of competitive effects.

Let Antitrust Agencies Do Their Job

Focusing the FCC on the public interest would be easier if the first line of protectors of competition, the Department of Justice’s Antitrust Division and the Federal Trade Commission, could guard against monopolistic practices on the part of the internet service providers. At present, it’s not clear whether the antitrust agencies have jurisdiction. In 2004, the Supreme Court ruled that if a regulator has authority over a practice (in that specific case, the FCC’s authority over how telephone companies provide access to their facilities to competitors), antitrust laws should not apply.

Notably, that decision came despite an explicit clause in the 1996 Act preserving “the applicability of any of the antitrust laws.” The current FCC’s proposed order, while not based on the public interest test suggested here, finds that antitrust can “sufficiently address” competitive harms. To ensure antitrust could serve as a backup, even for rules grounded in rights to communicate, Congress should make it clear (including to the Supreme Court) that antitrust authorities do in fact have the power to investigate and remedy any competition problems that may result from broadband provider practices.

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If Congress could enact legislation that removed the distinction between “telecommunications” and “information” services, reinforced the importance of the public interest in communications and restored antitrust enforcement power for regulators, the FCC would be better able to develop net neutrality regulations – whatever they may turn out to be – with solid substantive and legal foundations. That would be an improvement over simply rescinding the 2015 Order, as the FCC is likely to do soon.

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