Chairman Thomas E. Wheeler of the Federal Communications Commission unveiled his proposal this week for regulating broadband Internet access under a 1934 law. Since there are three Democrats and two Republicans on the FCC, Wheeler’s proposal is likely to pass on a party-line vote and is almost certain to be appealed.
Free market advocates have pointed out that FCC regulation is not only unnecessary for continued Internet openness, but it could lead to years of disruptive litigation and jeopardize investment and innovation in the network.
Writing in WIRED magazine, Wheeler argues that the Internet wouldn’t even exist if the FCC hadn’t mandated open access for telephone network equipment in the 1960s, and that his mid-1980s startup either failed or was doomed because the phone network was open whereas the cable networks (on which his startup depended) were closed. He also predicts that regulation can be accomplished while encouraging investment in broadband networks, because there will be “no rate regulation, no tariffs, no last-mile unbundling.” There are a number of problems with Chairman Wheeler’s analysis. First, let’s examine the historical assumptions that underlie the Wheeler proposal.
The FCC had to mandate open access for network equipment in the late 1960s only because of the unintended consequences of another regulatory objective—that of ensuring that basic local residential phone service was “affordable.” In practice, strict price controls required phone companies to set local rates at or below cost. The companies were permitted to earn a profit only by charging high prices for all of their other services including long-distance. Open access threatened this system of cross-subsidies, which is why the FCC strongly opposed open access for years. The FCC did not seriously rethink this policy until it was forced to do so by a federal appeals court ruling in the 1950s. That court decision set the stage for the FCC’s subsequent open access rules. Wheeler is trying to claim credit for a heroic achievement, when actually all the commission did was clean up a mess it created.
The failure of Wheeler’s Canadian government-subsidized startup in 1985 had nothing to do with open access, according to Wikipedia. NABU Network was attempting to sell up to 6.4 Mbps broadband service over Canadian cable networks notwithstanding the extremely limited capabilities of the network at the time. For one thing, most cable networks of that era were not bi-directional. The reason Wheeler’s startup didn’t choose to offer broadband over open telephone networks is because under-investment rendered those networks unsuitable. The copper loop simply didn’t offer the same bandwidth as coaxial cable. Why was there under-investment? Because of over-regulation.
Next, let’s examine Chairman Wheeler’s prediction that new regulation won’t discourage investment because there will be “no rate regulation, no tariffs, no last-mile unbundling.” Let’s be real. Wheeler simply cannot guarantee there will be no rate regulation, no tariffs, no last-mile unbundling nor other inappropriate regulation in the future. Anyone can petition the FCC to impose more regulation at any time, and nothing will prevent the commission from going down that road. The FCC will become a renewed target for special-interest pleading if Chairman Wheeler’s proposal is adopted by the commission and upheld by the courts.
Wheeler’s proposal would reclassify broadband as a “telecommunications” service notwithstanding the fact that the commission has previously found that broadband is an “information” service and the Supreme Court upheld that determination. These terms are clearly defined in the In the 1996 telecom act, in which bipartisan majorities in Congress sought to create a regulatory firewall. Communications services would continue to be regulated until they became competitive. Services that combine communications and computing (“information” services) would not be regulated at all. Congress wanted to create appropriate incentives for firms that provide communications service to invest and innovate by adding computing functionality. Congress was well aware that the commission tried over many years to establish a bright-line separation between communications and computing, and it failed. It’s an impossible task, because communications and computing are becoming more integrated all the time. The solution was to maintain legacy regulation for legacy network services, and open the door to competition for advanced services. The key issue now is whether or not broadband is a competitive industry. If the broadband offerings of cable operators, telephone companies and wireless providers are all taken into account, the answer is clearly yes.
In the view of Chairman Wheeler and others, regulation is needed to ensure the Internet is fast, fair and open. In reality, the Internet wants to be fast, fair and open. So called “walled garden” experiments of the past have all ended in failure. Before broadband, the open telephone network was significantly more profitable than the closed cable network. Now, broadband either is or soon will become more profitable than cable. Since open networks are more profitable than closed networks, legacy regulation is more than likely to be unnecessary and almost certain to be counter-productive. Internet openness is chiefly a function not of regulation but of innovation and investment in bandwidth abundance. With sufficient bandwidth, all packets travel at the speed of light.
Then again, this debate isn’t really about open networks. Republican leaders in Congress are offering to pass a bill that would prevent blocking and paid prioritization, and they can’t find any Democratic co-sponsors. That’s because the bill would prohibit reclassification of broadband as a “telecommunications” service, which would give the FCC a green light to regulate like it’s 1934. The idea that we need to give the commission unfettered authority so it can enact a limited amount of “smart” regulation that can be accomplished while encouraging private investment–and that we can otherwise rely on the FCC to practice regulatory restraint and not abuse its power–sounds a lot like the sales pitch for the Affordable Care Act, i.e., that we can have it all, there are no trade-offs. Right.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.