Title II for broadband is desperate and ill-conceived

by on July 16, 2010 · 2 comments

Julius Genachowski is in a hurry.

He is arguing that the commission must act quickly to “restore the longstanding deregulatory—as opposed to ‘no-regulatory’ or ‘over-regulatory’—compact” that governed broadband Internet access services prior to a recent court decision.  Such an approach is urgently needed to “restore the status quo,” he claims.

If the Federal Communications Commission cannot regulate the Internet, it may die.   The telephone and television industries are declining, whereas communications industries which the FCC monitors to some extent but does not regulate, e.g., the Internet backbone, broadband Internet access and wireless, are thriving.  The Internet, which the FCC cannot regulate, is subsuming legacy communications services which the commission can regulate.  That spells doom for legacy regulation.  Career regulators are worried.

Genachowski’s plan would reclassify broadband as a “telecommunications” service subject to blunt, onerous, industrial-era regulation under Title II of the Communications Act of 1934 – which governs common carriers – and then forbear from enforcing most of Title II’s heavy-handed provisions.

Broadband services haven’t been subject to Title II regulation for several years, so reclassification would not restore the status quo.   It would harken back to a bygone era.

Broadband services provided by cable operators have thrived in the absence of common carrier regulation since before 1999, when William E. Kennard (designated FCC chairman by President Bill Clinton) declared:

If we’ve learned anything about the Internet in government over the last 15 years, it’s that it thrived quite nicely without the intervention of government.

If fact, the best decision government ever made with respect to the Internet was the decision that the FCC made 15 years ago NOT to impose regulation on it. This was not a dodge; it was a decision NOT to act. It was intentional restraint born of humility. Humility that we can’t predict where this market is going.

Though under significant pressure to do so, Kennard refused to regulate broadband services provided by cable operators like the broadband services provided by telecommunications carriers.  In 2005 and 2007, respectively, the commission finally admitted that neither telecommunications carriers nor wireless providers provided broadband services that met the statutory definition of a “telecommunications” service under Title II, either.

Genachowski’s proposal is desperate because usually when a statute which confers agency jurisdiction becomes obsolete the agency asks Congress to update it, and if Congress thinks the agency does good work it will pass a new law.  In this case, the agency seems to be trying to expand its jurisdiction on its own.  The proposal is ill-conceived because Genachowski is promising more than he can deliver.  He is promising forbearance from the heavy-handed provisions of Title II in exchange for subjecting broadband to other expansive though undefined provisions.  Genachowski cannot bind his successor.  His agreement becomes worthless when he leaves office, or even before that if he believes circumstances have changed and he chooses to alter the terms.

To imply that there is a “compact” of support for the “status quo” is not true.  Groups like Free Press, MoveOn.org and others have been fighting the FCC’s deregulatory actions for years.  The whole purpose of network neutrality is to regulate broadband like a public utility.  Likewise, no-regulation and over-regulation are false choices.

For the squeamish, there is zero danger of no-regulation of broadband.  Aside from the Federal Trade Commission – which protects consumers and competition in broadband just as in every other competitive industry – not to mention the Antitrust Division, the FCC has always had jurisdiction to regulate broadband under Title I of the Communications Act, a fact noted by the Supreme Court in 2005 in the Brand X decision (“the Commission remains free to impose special regulatory duties on facilities-based ISPs under its Title I ancillary jurisdiction”).  But a recent decision of the Court of Appeals for the D.C. Circuit in Comcast v. FCC emphasized that this authority is not unlimited.

Network neutrality proponents didn’t like that, so by a 3-2 vote along partisan lines the FCC issued a Notice of Inquiry to consider reclassifying broadband as a “telecommunications” service under Title II and then forbearing from enforcing most of Title II’s requirements.

Sound a bit convoluted?  The FCC is working backward from an objective of regulating the Internet.  It is struggling to work with a statute that was written before broadband services existed.  It’s not a good fit.

Congress added the forbearance procedure (Section 10) to the Communications Act in 1996 to encourage timely deregulation as a result of competition in the telecommunications market.  It is now being used for the opposite of its intended purpose by a bare majority of FCC commissioners who are seeking to preserve their agency’s mission and budget even though that means applying the bluntest tools in the regulatory arsenal to one of the most dynamic industries in the global economy.

What the FCC ought to do is develop a set of recommendations for Congress’ consideration.

Instead, Genachowski is specifically proposing to preserve sections 201 (“Service and Prices”), 202 (“Discrimination and Preferences”), 208 (“Complaints to the Commission”), 222 (“Privacy of Customer Information”), 254 (“Universal Service”), 255 (“Access by Persons with Disabilities”) and possibly a few others (including anything that affects the commission’s duty to carry out its national defense and homeland security missions, or its duty to produce various reports for Congress and the public).

According to the Notice of Inquiry,

Applying sections 201 and 202 could provide the Commission direct statutory authority to protect consumers and promote fair competition, yet allow the Commission to avoid burdensome regulation.  For example, while [wireless] providers are subject to sections 201 and 202, they do not file tariffs because the Commission forbore from section 203.

Sections 201, 202 and 208 are the “fundamental provisions [which] collectively forbid unreasonable denials of service and other unjust or unreasonable practices, and allow the commission to enforce the prohibition,” according to the current FCC general counsel.  In other words, if the FCC preserves these fundamental provisions, it is not giving up any real authority.

If it broadly forbears from enforcing many or most of the remaining provisions within Title II, what goes are numerous terms which, in the Commission’s own words, “relate directly or indirectly to the effective application and enforcement of the six provisions we have identified.”  Translation: these provisions contain the policies and rules comprising the substantive and procedural safeguards that protect the public and the entities the commission regulates.

Genachowski seems to imply that the regulatory framework he and two of his fellow commissioners are proposing for broadband is either deregulatory – or at least it won’t be a slippery slope – when he points out that it is “familiar and has worked well in an analogous context—wireless communications.”

But Congress’ intention in the early 1990s was deregulatory, i.e., to substitute competition for regulation of wireless providers.  The current FCC has a different purpose for applying a similar framework to broadband.  Either it wants to expand regulation or it wants to please advocates of more regulation.  If either of those weren’t the FCC’s purpose, the commission needn’t have taken any action.

Not Like Wireless

In 1993, there were only two cellphone companies serving each geographic area.  Congress told the FCC to auction four new licenses in each market in the Omnibus Budget Reconciliation Act of that year, which also gave the commission discretion to forbear from enforcing any provision of Title II with respect to wireless services – except for sections 201, 202 and 208.

The memoirs of former FCC Chairman Reed E. Hundt (another Clinton designee) proudly relate how in 1993 a Democratic Congress, with Al Gore’s tie-breaking Senate vote, “totally deregulated the wireless industry.”  It wasn’t total deregulation in theory, but history proves that it was in practice.  As Hundt’s comment suggests, the intention then, unlike now, was totally deregulatory.

Genachowski observes that

… the telecommunications industry has repeatedly and resoundingly lauded this approach as well-suited to an emerging technology and welcoming to investment and innovation.

It should be noted that wireless providers exercise significant control over the use of their networks and routinely favor particular handsets, applications and services.

As Genachowski should know, there are some loud and aggressive stakeholders who don’t like the deregulatory framework governing wireless and certainly haven’t signed on to the “longstanding deregulatory compact” the chairman seeks to defend for broadband.  For example, there are people like Free Press co-founder Robert W. McChesney who want to fully regulate, if not nationalize, the entire Internet.  According to McChesney,

The battle for network neutrality is to prevent the Internet from being privatized by telephone and cable companies. Privatization would give them control over the Internet, would allow these firms to privilege some information flows over others. We want to keep the Internet open. What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don’t have to have a password and that you don’t pay a penny to use. It is your right to use the Internet.

McChesney and others would probably not be supporting Title II reclassification unless they believed it could be a useful stepping stone to further regulation in the future.

Intentions are relevant in this context, because a decision by the commission to forbear for the purpose of reducing political opposition to a Title II reclassification could be revisited and reversed by a future commission.  That creates uncertainty for investors.  What the FCC really needs, from an investment perspective, is narrowly-targeted and clearly defined authority.

Rep. John D. Dingell, Jr. (D-MI), an expert in communications policy who incidentally has supported network neutrality legislation in the past, advises that Congress ought to clarify how much regulatory authority the FCC should have for the Internet and warns that a declaratory ruling risks reversal by the courts in, any event, plus it could endanger “significant past and future investments…”  Letters signed by 74 Democratic and 171 Republican members of Congress express similar concerns and a strong preference for a legislative process as opposed to the rulemaking approach being pushed by opposition groups like Free Press and others.

Free Press, for one, isn’t persuaded.

“While couched in the rhetoric of democracy,” Free Press notes in a recent paper, “these appeals for congressional action are nothing more than a stall tactic.”

Why is Free Press in such a hurry?

Maybe Free Press is anxious to avoid scrutiny.  National Journal recently reported ($) that Free Press, which frequently taps the media to paint its opponents as fronts for special interests, is firmly allied with media companies and conceals most of its own funding.

Or maybe Free Press fears there is insufficient public support for net neutrality regulation.  For example, 65 percent of respondents in an NBC/Wall Street Journal survey last month thought Internet service providers either needed less regulation or the same amount of regulation as they have today.  Who knows?

If broadband is shoe-horned into a regulatory classification that was invented for a legacy communications service and which affords the FCC wide discretion to regulate, it risks upsetting investment and innovation by creating unnecessary uncertainty and unpredictability.

What would happen if imaginative entrepreneurs and innovators conceive new opportunities for broadband providers to partner with lawful content, application and/or service providers to offer improved functionality, reliability, convenience and/or better prices?  Google CEO Eric Schmidt has predicted, for instance, that advertising could support free mobile phone service.  Presumably if Google subsidized free mobile phone service it would insist on the right to serve the ads.  Would such efforts be prohibited as a result of section 202, which prevents “unjust or unreasonable” discrimination and “undue or unreasonable” preferences or advantages?   In other words, would section 202 prevent broadband providers from partnering with Google?  The answer is, quite possibly. It would be up to the Federal Internet Commission.

Regulatory Uncertainty

Everyone agrees that the FCC could undo broadband forbearance in the future.  The FCC’s general counsel counters that “unforbearing” would be difficult.

The difficulty of overcoming section 10’s deregulatory mandate and a prior agency finding in favor f forbearance is illustrated by the fact the FCC has never reversed a forbearance determiniation made under section 10, nor one made for wireless under the similar criteria of section 332(c)(1).

There is no predictability, a point which Commissioner Mignon L. Clyburn recently confirmed in an address entitled “Broadband Authority and the Illusion of Regulatory Certainty,”

Beyond constitutional constraints, certainty is just not a reality under any regulatory framework.  Nothing in administrative law prevents the Commission from altering its course.

Exactly.  There is no guarantee the commission’s decision to forbear will be long-lasting.  It could very well become the subject of endless lobbying and litigation, with entrepreneurs and innovators facing a constant threat that the rules upon which their investments were made could suddenly change.

But not as suddenly if they aren’t subject to Title II to begin with.  Before the commission can regulate broadband providers under Title II it first has to classify them as telecommunications carriers.  So as long as the commission doesn’t take the first step, it cannot take the second.

Reclassification would not preserve the status quo, since broadband hasn’t been subject to heavy-handed regulation – or the risk of it – under Title II for several years.

Reclassification and forbearance are not necessary to prevent no-regulation or over-regulation.  The FCC has limited regulatory authority under Title I already, and the possibility of over-regulation is diminished if there is no reclassification.  The Federal Trade Commission has independent regulatory authority for broadband services.

Reclassification and forbearance of broadband is only superficially analogous to the wireless regulatory framework, which was for a deregulatory purpose and not intended as a crucial first step to future regulation.

There are no guarantees that forbearance – which even supporters of Title II reclassification admit is necessary to avoid heavy-handed regulation of the Internet – will be permanent.  Once broadband is reclassified, it will be easier for regulatory enthusiasts to start pushing for more regulation.

The FCC is struggling to extend an obsolete statute, whereas Congress has the power to write on a blank slate.

Regulation should be narrowly-tailored, clearly defined and it should originate in Congress.  The FCC is attempting to apply a legacy statute to a fast-evolving communications service that didn’t even exist when Congress drafted the law.

Rather than issuing a declaratory ruling which the commission will have to defend in court and which some experts believe could be reversed, the FCC should instead develop a set of recommendations and let elected officials do their job.

Democracy maybe slow, but if activists attempt to cram change down the public’s throat instead of persuading the pubic of the virtues of change,  activists risk being ignored.

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