Lesson Learned from Net Neutrality Regulations

After years of trying to regulate information services based on fear, the FCC has decided to look at the behavioral record of Internet service providers (ISPs) and the diminished broadband investment due to the FCC’s prophylactic regulations for Net Neutrality. The nation’s economy relies on broadband capacity but since the threat of net neutrality regulations, “among large Internet providers, domestic capital investment has dropped by 5.6% between 2014 and 2016.” This swoon in investment occurred during a period where most other drivers of the economy were recovering from the great recession of 2009.

Net Neutrality regulations were intended to forbid ISPs (including mobile wireless broadband providers) from blocking access or choking download speeds for any application or website. The regulations were also intended to forbid prioritization for applications or websites that pay extra.

Unfortunately, those intentions were not a result of ISP misdeeds, rather they were based on fears among Netflix, Google, Facebook and other content providers that ISPs might misbehave. The ISP industry’s benign behavior proved those fears imaginary. The drop in broadband investment calls for clear thinking on what, if anything needs regulating.

The FCC imposed Net Neutrality rules three separate times. In succession, two sets of rules were stricken by courts because the Telecommunications Act does not authorize the FCC to subject the information service providers to harsh telephone-style rules. To sidestep that inconvenient limit on its authority, the FCC redefined the nature of information service providers, making them subject to the Telecommunications Act’s “Title II” rules dating back to the 1930s – a slick lawyering gambit.

ISPs are currently in a Title II dungeon that permits the FCC to regulate prices, enforce subsidies, limit the pace of technological change and foster industrial policy considered stylish in the 1930s. The FCC said that it would forebear from price controls (permitted under Title II), but no law requires the FCC to steer a steady or sane course. Indeed, ISPs for many years were subjected to “light regulation” imposed during the Clinton era until the FCC changed its mind and started grasping for draconian net neutrality rules. The FCC’s promise not to regulate prices cannot be taken to the bank – and the dive in broadband investment proves that savvy investors don’t believe the promise.

In the recent past, some FCC commissioners even regarded zero rating as a net neutrality violation. Consumers were very pleased to receive some kinds of programming that did not count against their data cap, i.e. data that was zero rated. An AT&T’s version called Sponsored Data allows AT&T or streaming programmers to absorb the charge for consumer’s use of promotional materials that would normally be charged against the wireless consumer’s data cap. Promotional innovations such as these are clearly in the consumer’s interest and they are available to AT&T’s many competitors, and therefore they should be permitted.

Unless the FCC soon releases ISPs from the likelihood of stern Title II regulation, it may cause them to languish without any reduction in shackles. Such a calamity is not imaginary. It has been the fate of wireline telephone service providers and their competitors.

Today, only 5.8% of adults use only a landline service for voice services (including services provided by incumbents and competing local exchange carriers) and half use wireless only. Competition between providers and competition between technologies gives consumers multiple choices. Consumers are voting for mobile services in droves.

Despite evidence of dwindling demand for wireline telephone service, the FCC uses its Title II authority to control incumbent prices and slow the pace of technology innovation. One example is the regulation that the prior FCC Commission put in place which slows and complicates the process by which incumbents receive permission to replace their aging copper lines for an all-IP fiber network.

With the new Commission in place, there will be a fresh look at ISP regulations. In that process, we hope the FCC will take a hard look at actual behavior of ISPs, and consider evidence of the broadband investment climate caused by oppressive net neutrality regulations. Furthermore, we hope the FCC can be mindful of archaic and punitive Title II regulations that also suffocate the incumbent telephone industry.

The lesson learned from all of this is that subjecting ISPs to the prospect of a Title II future was not in the consumer’s interest, and that consumers benefit most when ISPs are encouraged to aggressively invest in innovation.

Alan Daley writes for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.theAmericanConsumer.Org or follow us on Twitter @ConsumerPal.

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