Federal Appeal Courts have twice tossed the FCC’s attempts to impose populist regulations called Net Neutrality on the Internet Service providers offering broadband service.  The FCC was harangued into forbidding providers from the notion of offering “fast lanes” for services that work better at higher speed.  Populists powered by “one-size-fits-all” thinking refuse to pay for better service, and they insist that it be denied to anyone who is willing to pay for it.  The Appeals Court suggests that only if the broadband providers were declared common carriers under the Telecommunications Act, could they be regulated as the FCC elects.

It may seem simple for the FCC to proclaim that Internet service providers are “common carriers,” but for consumers that means bitter consequences as we relearn how to dislike regulatory thinking from 1934.

Some consumers recall 5-pound rotary-dial telephones, long distance rates above 35 cents per minute, and the glacial pace of innovation that came from Title II regulation of rates, speeds, subsidies, and investments. If you remember that bleak, 1934-1996 period of telephone history, you are still healing from overpriced and uninspiring common carrier services.

Title II regulations allow government to adopt rules that rob Peter to pay Paul. For example, long distance was forced to subsidize local service.  Business services subsidized residential service.  Urban areas subsidized rural areas.  So-called “advanced” services subsidized regular phone service.  The price of overseas calls was set hideously high and they subsidized everything else.  Government had the right to obtain service for free, bumping up everyone else’s costs.  Business was able to include any subsidy costs into prices they charged consumers.  Consumers’ bills bore the full weight of the vipers’ nest of subsidies.

Since 1996, regulators found new Title II ways to give away subsidies and freebies — paid for by a 16.1% federal universal service fund tax on consumers’ bill totals.  Taxes and Fees do not end with 16%.  Under Title II, state and local jurisdictions also have the right to tax common carrier customers, and they aggressively do.  Carriers are sometimes forced to collect taxes and fees for government, and they pass through taxes imposed on the carrier.

Regulators and tax authorities never run out of schemes to seize other peoples’ money.  For example carriers include these on consumer bills – Telecommunications Relay Service; E911; Federal Excise Tax; Federal Subscriber Line Charge; Franchise Costs; MA Buried Cable Surcharge; NY Metropolitan Transit Authority Surcharge; Municipal Franchise Fees; Right-of-Way Fees; PEG Grant Fees; PEG Support Fees; Regulatory Recovery Fee; Federal and State Infrastructure Maintenance Fees; State and Local Sales Tax; State and Federal Universal Service Fees, State Utility Gross Receipts Tax Surcharge, and others.  A letter to the FCC explains that Title II regulation will bring many of these taxes to broadband services for the first time, which could increase broadband prices by 17%.

While most consumers will resentfully pay the taxes, they will push some people over the brink.  An FCC commissioner is warning us of this outcome, and a study by two experts at the FCC, shows that in households without broadband, a price increase of 15% would deter 10% of them from buying.  That implies that the Title II Universal Service tax of 16.1% would deter more than 10% of unserved households from getting broadband, and it will cause some subscribers to unsubscribe.  When all the taxes and fees that Title II encourages are layered on top of the 16%, not to mention all of the additional tax exposure from Title II regulation, much more than 10% of households will be priced out of the broadband market.

No doubt, some regulator’s reaction to such damage will be to invent yet another subsidy program – that is the PC populist reflex.  Title II is far too much regulation and taxes to address the issue of fast lanes on the internet.  If imposed, the only economic beneficiaries will be regulatory attorneys and tax accountants.

Alan Daley writes for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org