Net Neutrality and the Dangers of Title II

by on September 26, 2014 · 1 comment

There are several “flavors” of net neutrality–Eli Noam at Columbia University estimates there are seven distinct meanings of the term–but most net neutrality proponents agree that reinterpreting the 1934 Communications Act and “classifying” Internet service providers as Title II “telecommunications” companies is the best way forward. Proponents argue that ISPs are common carriers and therefore should be regulated much like common carrier telephone companies. Last week I filed a public interest comment about net neutrality and pointed out why the Title II option is unwise and possibly illegal.

For one, courts have defined “common carriers” in such a way that ISPs don’t look much like common carriers. It’s also unlikely that ISPs can be classified as telecommunications providers because Congress defines “telecommunications” as the transmission of information “between or among points specified by the user.” Phone calls are telecommunications because callers are selecting the endpoint–a person associated with the known phone number. Even simple web browsing, however, requires substantial processing by an ISP that often coordinates several networks, servers, and routers to bring the user the correct information, say, a Wikipedia article or Netflix video. Under normal circumstances, this process is completely mysterious to a user. By classifying ISPs as common carriers and telecommunications providers, therefore, the FCC invites immense legal risk.

As I’ve noted before, prioritized data can provide consumer benefits and stringent net neutrality rules would harm the development of new services on the horizon. Title II–in making the Internet more “neutral”–is anti-progress and is akin to putting the toothpaste back in the tube. The Internet has never been neutral, as computer scientist David Clark and others point out, and it’s getting less neutral all the time. VoIP phone service is already prioritized for millions of households. VoLTE will do the same for wireless phone customers.

It’s a largely unreported story that many of the most informed net neutrality proponents, including President Obama’s former chief technology officer, are fine with so-called “fast lanes”–particularly if it’s the user, not the ISP, selecting the services to be prioritized. There is general agreement that prioritized services are demanded by consumers, but Title II would have a predictable chilling effect on new services because of the regulatory burdens.

MetroPCS, for example, a small wireless carrier with about 3% market share attempted selling a purportedly non-neutral phone plan that allowed unlimited YouTube viewing and was pilloried for it by net neutrality proponents. MetroPCS, chastened, dropped the plan. With Title II, a small ISP or wireless carrier wouldn’t dream of attempting such a thing.

In the comment, I note other undesirable effects of Title II, including that it undermines the position the US has held publicly for years that the Internet is different than traditional communications.

If the FCC further intermingles traditional telecommunications with broadband, it may increase the probability of the [International Telecommunications Union] extending sender-pays or other tariffing and tax rules to the exchange of Internet traffic. Several countries proposed instituting sender-pays at a contentious 2012 ITU forum and the United States representatives vigorously fought sender-pays for the Internet. Many developing countries, particularly, would welcome such a change in regulations, because, as Mercatus scholar Eli Dourado found, sender-pays rules “allow governments to export some of their statutory tax burden.” New foreign tariffing rules would function essentially as a transfer of wealth from popular US-based companies like Facebook and Google to corrupt foreign governments and telephone cartels.

Finally, I note that classifying ISPs as common carriers weakens the enforcement of antitrust and consumer protection laws. Generally, it is difficult to bring antitrust lawsuits in extensively regulated industries. After filing my comment, I learned that the FTC also filed a comment noting, similarly, that its Section 5 authority would be limited if the FCC goes the Title II route. Brian Fung and others have since written about this interesting political and legal development. This detrimental effect on antitrust enforcement should weigh against Title II regulation.

There are substantial drawbacks to Title II regulation of ISPs and the FCC should exercise regulatory humility and its traditional hands-off approach to the Internet. In the end, Title II would harm investment in nascent technologies and network upgrades. The harms to consumers and small carriers, particularly, would be immense. It almost makes one think that comedy sketches and “death of the Internet” reporting don’t lead to good public policy.

More Information

See my presentation (36 minutes) on net neutrality and “fast lanes” on the Mercatus website.

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