The endless apocalyptic rhetoric surrounding Net Neutrality and many other tech policy debates proves there’s no downside to gloom-and-doomism as a rhetorical strategy. Being a techno-Jeremiah nets one enormous media exposure and even when such a person has been shown to be laughably wrong, the press comes back for more. Not only is there is no penalty for hyper-pessimistic punditry, but the press actually furthers the cause of such “fear entrepreneurs” by repeatedly showering them with attention and letting them double-down on their doomsday-ism. Bad news sells, for both the pundit and the press.

But what is most remarkable is that the press continues to label these preachers of the techno-apocalypse as “experts” despite a track record of failed predictions. I suppose it’s because, despite all the failed predictions, they are viewed as thoughtful & well-intentioned. It is another reminder that John Stuart Mill’s 1828 observation still holds true today: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”

Additional Reading:

• Regarding the Use of Apocalyptic Rhetoric in Policy Debates (10/29/14)
• The Problem with “Pessimism Porn” (5/23/14)
• Journalists, Technopanics & the Risk Response Continuum (7/15/12)
• How & Why the Press Sometimes “Sells Digital Fear” (4/8/12)
• law review article: “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle” (2013)

One year ago, the FCC majority passed the 2017 Restoring Internet Freedom Order, largely overturning the 2015 Open Internet Order. I consider the 2017 Order the most significant FCC action in a generation. The FCC did a rare thing for an agency—it voluntarily narrowed its authority to regulate a powerful and massive industry.

In addition to returning authority to the Federal Trade Commission and state attorneys general, the 2017 Order restored common-sense regulatory humility, despite the court’s blessing the Obama FCC’s unconvincing, expansive interpretation of FCC authority. National policy, codified in law, is that the Internet and Internet services should be “unfettered by Federal or State regulation,” which, if it means anything, means Internet services cannot be regulated as common carriers.

Net neutrality is dead

Net neutrality advocates who want the FCC to have common carriage powers over Internet applications and networking practices were outraged by the approval of the 2017 Order. Joe Kane at R Street has a good roundup of some of the death-of-the-Internet hyperbole from the political class and advocates. Some disturbed net neutrality supporters took it too far, including threats to the lives and families of the Republican commissioners, especially Chairman Pai.

But the 2017 Order hadn’t killed net neutrality. It was already dead. A few hours after the passage of the Restoring Internet Freedom Order, I was on a net neutrality panel in DC for an event about the First Amendment and the Internet. (One of my co-panelists dropped out out of caution because of the credible bomb threat at the FCC that day.) I pointed out at that event that while you wouldn’t know it from the news coverage, the Obama FCC had already killed net neutrality’s core principle—the prohibition against content blocking. The 2015 “net neutrality” Order allowed ISPs to block content. Attributing things to the 2015 Order that it simply doesn’t do is what Commissioner Carr has called the “Title II head fake.” The 2017 Order simply freed ISPs and app companies to invest and innovate without fear of plodding scrutiny and inconclusive findings from a far-off FCC bureau.

Long live net neutrality

The net neutrality movement will live on, however. The main net neutrality proponents aren’t that concerned with ISP content blocking; they want FCC regulation of the Internet companies and new media. It’s no coincidence that most of the prominent net neutrality advocates come out of the media access movement, which urged the FCC’s Fairness Doctrine, equal time laws, and programming mandates for TV and radio broadcasts.

The newer net neutrality coalition, as then-FCC Chairman Wheeler conceded frankly, doesn’t know precisely what Internet regulation would look like. What they do know is that ISPs and Internet companies are operating with inadequate public supervision and government design. 

As Public Knowledge CEO Gene Kimmelman has said, the 2015 Order was about threatening the industry with vague but severe rules: “Legal risk and some ambiguity around what practices will be deemed ‘unreasonably discriminatory’ have been effective tools to instill fear for the last 20 years” for the telecom industry. Title II functions, per Kimmelman, as a “way[] to keep the shadow and the fear of ‘going too far’ hanging over the dominant ISPs.” Internet regulation advocates, he said at the time, “have to have fight after fight over every claim of discrimination, of new service or not.”

So it’s Internet regulation, not strict net neutrality, that is driving the movement. As former Obama administration and FCC adviser Kevin Werbach said last year, “It’s not just broadband providers that are fundamental public utilities, at some level Google is, at some level Facebook is, at some level Amazon is.” 

Fortunately, because of the Restoring Internet Freedom Order, IP networks and apps companies have a few years of regulatory reprieve at a critical time. Net neutrality was invented in 2003 and draws on common carriage principles that cannot be applied sensibly to the various services carried on IP networks. Unlike the “single app” phone network regulated with common carriage, these networks transmit thousands of services and apps–like VoIP, gaming, conferencing, OTT video, IPTV, VoLTE, messaging, and Web–that require various technologies, changing topologies, and different quality-of-service requirements. 5G wireless will only accelerate the service differentiation that is at severe tension with net neutrality norms.

Rather than distract agency staff and the Internet industry with metaphysical debates about “reasonable network” practices, the Trump FCC has prioritized network investment, spectrum access, and rural broadband. Hopefully the next year is like the last.

Addendum: The net neutrality reprieve has not only freed up FCC staff to work on more pressing matters, it’s freed  up my time to write about tech policy areas that the public will benefit from. In November I published a Mercatus working paper and a Wall Street Journal op-ed about flying car policy.

Until recently, I wasn’t familiar with Freedom House’s Freedom on the Net reports. Freedom House has useful recommendations for Internet non-regulation and for protecting freedom of speech. Their Freedom on the Net Reports make an attempt at grading a complex subject: national online freedoms.

However, their latest US report came to my attention. Tech publications like TechCrunch and Internet regulation advocates were trumpeting the report because it touched on net neutrality. Freedom House penalized the US score in the US report because the FCC a few months ago repealed the so-called net neutrality rules from 2015.

The authors of the US report reached a curious conclusion: Internet deregulation means a loss of online freedom. In 2015, the FCC classified Internet services as a “Title II” common carrier service. In 2018, the FCC, reversed course, and shifted Internet services from one of the most-regulated industries in the US to one of least-regulated industries. This 2018 deregulation, according to the Freedom House US report, creates an “obstacle to access” and, while the US is still “free,” regulation repeal moves the US slightly in the direction of “digital authoritarianism.”  

The authors of the US report resort to net neutrality platitudes and don’t actually examine the 2015 Title II order. It’s never encouraging when a substantive report begins with an inaccurate summation of the 2015 Order: that the Order “ensured that internet service providers treated internet traffic equally.” That’s not what the Order does. (The “treat all traffic equally” aspiration is “happy little bunny rabbit dreams,” in the words of early Internet developer David Clark.) Despite branding efforts by Internet regulation advocates, the 2015 Order wouldn’t be recognizable as net neutrality to the average net neutrality supporter. The Obama FCC was quite clear that the Order allowed ISP content blocking and prioritization of services.

Relatedly, as pro-net neutrality publications like TechCrunch have noted, the net neutrality policies in the 2015 Order are optional for ISPs. 

[A] tiny ISP in Texas called Alamo . . . wanted to offer a “family-friendly” edited subset of the internet to its customers. Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly—an ISP can opt out of the rules by changing its business model. They are . . . essentially voluntary.

The current FCC cited this optional nature of the 2015 rules as a good reason to repeal the rules:

In practice, the Title II Order deregulates curated Internet access relative to conventional Internet access and may induce ISPs to filter content more often, rendering the no-blocking and no-throttling rules ineffectual as long as an ISP disclosed it was offering curated services.

I noticed that this report isn’t the first time that advocate talking points have clouded what should be substantive regulatory analysis from Freedom House. In November 2017, Freedom House issued a statement when the FCC announced plans to repeal the 2015 Title II order:

This change . . . could also set a dangerous precedent for countries that model their policy on Washington’s. In less democratic countries, where most providers of online content are state-owned and censored, authorities would have an excuse to give faster lanes of access to progovernment outlets.

Their apparent unfamiliarity with US telecom laws means they got this exactly backwards. It was the 2015 Title II order that increased the amount of control that the President of the US has over Internet access, as Berin Szoka has explained.   If there was a model to would-be despots around the world, it was the Title II classification in 2015, which gave greater war power authority to the President to prioritize the President’s favored communications over the Internet. (Left unexplained by Freedom House: why the FCC’s non-Title II policy from roughly 1996 to 2015 had not already inspired authoritarians.)

The 2018 deregulation reduced Presidential power over Internet services. Yet, according to Freedom House, the President’s loss of power to prioritize communications is also a loss of freedom to Internet users.

The Freedom House US report omits these details, uncritically endorses net neutrality maxims, and therefore slightly downgrades the US score to 22 (lower is better). That puts the US in the same class as the UK (score: 23), a country that is arresting thousands of online trolls and posters annually for “grossly offensive” social media posts. This includes convictions for

• a teenage girl who posted the lyrics from Snap Dogg’s I’m Trippin’ to pay tribute to a boy who died in a road crash.
• a young man’s tasteless attempt to annoy his girlfriend, including by teaching her pug to do a Nazi salute.

Needless to say, nothing in the US, and certainly not the recent Internet deregulation, compares to these mass arrests and convictions for online behavior.

Ironically, the Freedom House US Internet report reveals the same deficiency as the 2015 Internet regulations: creating a standard that is aspirational, occasionally internally inconsistent, and multi-factor means that, too often, advocates can reach whatever pre-determined result they wish.

A few states have passed Internet regulations because the Trump FCC, citing a 20 year US policy of leaving the Internet “unfettered by Federal or State regulation,” decided to reverse the Obama FCC’s 2015 decision to regulate the Internet with telephone laws.

Those state laws regulating Internet traffic management practices–which supporters call “net neutrality”–are unlikely to survive lawsuits because the Internet and Internet services are clearly interstate communications and FCC authority dominates. (The California bill also likely violates federal law concerning E-Rate-funded Internet access.) 

However, litigation can take years. In the meantime ISP operators will find they face fewer regulatory headaches if they do exactly what net neutrality supporters believe the laws prohibit: block Internet content. Net neutrality laws in the US don’t apply to ISPs that “edit the Internet.”

The problem for net neutrality supporters is that Internet service providers, like cable TV providers, are protected by the First Amendment. In fact, Internet regulations with a nexus to content are subject to “strict scrutiny,” which typically means regulations are struck down. Even leading net neutrality proponents, like the ACLU and EFF, endorse the view that ISP curation is expressive activity protected by First Amendment.

As I’ve pointed out, these First Amendment concerns were raised during the 2016 litigation and compelled the Obama FCC to clarify that its 2015 “net neutrality” Order allows ISPs to block content. As a pro-net neutrality journalist recently wrote in TechCrunch about the 2015 rules,  

[A] tiny ISP in Texas called Alamo . . . wanted to offer a “family-friendly” edited subset of the internet to its customers. Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly — an ISP can opt out of the rules by changing its business model. They are . . . essentially voluntary.

The author wrote this to ridicule Judge Kavanaugh, but the joke is clearly not on Kavanuagh.

In fact, under the 2015 Order, filtered Internet service was less regulated than conventional Internet service. Note that the rules were “essentially voluntary”–ISPs could opt out of regulation by filtering content. The perverse incentive of this regulatory asymmetry, whereby the FCC would regulate conventional broadband heavily but not regulate filtered Internet at all, was cited by the Trump FCC as a reason to eliminate the 2015 rules. 

State net neutrality laws basically copy and paste from the 2015 FCC regulations and will have the same problem: Any ISP that forthrightly blocks content it doesn’t wish to transmit–like adult content–and edits the Internet is unregulated.

This looks bad for net neutrality proponents leading the charge, so they often respond that the Internet regulations cover the “functional equivalent” of conventional (heavily regulated) Internet access. Therefore, the story goes, regulators can stop an ISP from filtering because an edited Internet is the functional equivalent of an unedited Internet.

Curiously, the Obama FCC didn’t make this argument in court. The reason the Obama FCC didn’t endorse this “functional equivalent” response is obvious. Let’s play this out: An ISP markets and offers a discounted “clean Internet” package because it knows that many consumers would appreciate it. To bring the ISP back into the regulated category, regulators sue, drag the ISP operators into court, and tell judges that state law compels the operator to transmit adult content.

This argument would receive a chilly reception in court. More likely is that state regulators, in order to preserve some authority to regulate the Internet, will simply concede that filtered Internet drops out of regulation, like the Obama FCC did.

As one telecom scholar wrote in a Harvard Law publication years ago, “net neutrality” is dead in the US unless there’s a legal revolution in the courts.  Section 230 of the Telecom Act encourages ISPs to filter content and the First Amendment protects ISP curation of the Internet. State law can’t change that. The open Internet has been a net positive for society. However, state net neutrality laws may have the unintended effect of encouraging ISPs to filter. This is not news if you follow the debate closely, but rank-and-file net neutrality advocates have no idea. The top fear of leading net neutrality advocates is not ISP filtering, it’s the prospect that the Internet–the most powerful media distributor in history–will escape the regulatory state.

The Internet is a great tool for women’s empowerment, because it gives us the freedom to better our lives in ways that previously far more limited. Today, the FCC’s Restoring Internet Freedom Order helped the Internet become even freer.

There is a lot of misinformation and scare tactics about the previous administration’s so-called “net neutrality” rules. But the Obama-era Open Internet Order regulations were not neutral at all. Rather, they ham-handedly forced Internet Service Providers (ISPs) into a Depression-era regulatory classification known as a Title II common carrier. This would have slowed Internet dynamism, and with it, opportunities for women.

Today’s deregulatory move by the FCC reverses that decision, which will allow more ISPs to enter the market. More players in the market make Internet service better, faster, cheaper, and more wildly available. This is especially good for women who have especially benefited from the increased connectivity and flexibility that the Internet has provided.

The growth of the Internet has enabled women to connect with others and pursue economic opportunities like operating a small business that had higher cost and more barriers in the pre-digital age. From 2007 to 2015, the number of women-owned businesses grew by more than 65%. For minority women, the rate of business ownership has nearly tripled since 1997. This is in no small part thanks to how much faster and easier the Internet makes it to sell goods or services across the country or around the world. Now, the mom who does monogramming on the side or makes awesome salsa is no longer limited to selling locally, but can become a global entrepreneur through platforms like Etsy. While there are still many barriers to entry facing female entrepreneurs, the Internet has knocked down startup costs and broadened the market for their goods.

Faster Internet also allows more companies to offer flexible working opportunities. These are especially useful for working moms who need  more choices to balance parenting and work. A 2016 survey by Working Mother magazine found that 80% of mothers were more productive when allowed to use some type flexwork, much of which has been enabled by faster, better, and cheaper Internet. As companies invest more in 5G and expand access to broadband, the ability to connect will only get faster and easier. More does need to be done to ensure that women aren’t punished in their careers for taking advantage of flexwork opportunities. But the increase in flexwork gives everyone, but especially women, more options to pursue what is best for them and their families.

Finally, there has been a lot of fearmongering that ISPs will block access to feminist websites in a post-regulatory world. This is nonsense. For one, ISPs were already legally allowed to block content under the original regulations. In fact, some small ISPs purposefully marketed their blocking of questionable content for religious families.

As my colleague Brent Skorup has explained, the “net neutrality” that most people claim to support is not at all what the 2015 regulations accomplished. We all want an Internet that gives people access to the vast array of information available. But when someone says that most people favor “net neutrality” or that “net neutrality” protects women or marginalized groups; well, to quote The Princess Bride: “You keep using that word. I do not think it means what you think it means.” It’s easy to be in favor of the version of “net neutrality” that is portrayed in some surveys and media, but the reality is the Title II restrictions were far more about regulating the Internet like an old school landline than they were about promoting access or preventing throttling.

The great thing about the freedom of the Internet is that it allows people to connect and pursue new opportunities. From beauty vloggers to Etsy entrepreneurs to the mother who wants to help her children with homework, the Internet has especially opened new opportunities for women.

ISPs will still have to engage in competition under the watch of the Federal Trade Commission, but it will become more affordable and easier for smaller ISPs to enter the market. We should not act like Chicken Little and assume the sky is falling now that some two-year-old regulations are being repealed. Rather, we should be excited for the increasing opportunities that Restoring Internet Freedom Order will provide. And for those who want to empower women, the greater chance for more services is likely to provide them with an easier, better, and faster way to do so.

Lawmakers frequently hear impressive-sounding stats about net neutrality like “83% of voters support keeping FCC’s net neutrality rules.”   This 83% number (and similar “75% of Republicans support the rules”) is based on a survey from the Program for Public Consultation released in December 2017, right before the FCC voted to repeal the 2015 Internet regulations.

These numbers should be treated with skepticism. This survey generates these high approval numbers by asking about net neutrality “rules” found nowhere in the 2015 Open Internet Order. The released survey does not ask about the substance of the Order, like the Title II classification, government price controls online, or the FCC’s newly-created authority to approve of and disapprove of new Internet services.

Here’s how the survey frames the issue:

Under the current regulations, ISPs are required to:    provide customers access to all websites on the internet.    provide equal access to all websites without giving any websites faster or slower download speeds.  

The survey then essentially asks the participant if they favor these “regulations.” The nearly 400-page Order is long and complex and I’m guessing the survey creators lacked expertise in this area because this is a serious misinterpretation of the Order. This framing is how net neutrality advocates discuss the issue, but the Obama FCC’s interpretations of the 2015 Order look nothing like these survey questions. Exaggeration and misinformation is common when discussing net neutrality and unfortunately these pollsters contributed to it. (The Washington Post Fact Checker column recently assigned “Three Pinocchios” to similar net neutrality advocate claims.)

Let’s break down these rules ostensibly found in the 2015 Order.

“ISPs are required to provide customers access to all websites on the internet”

This is wrong. The Obama FCC was quite clear in the 2015 Order and during litigation that ISPs are free to filter the Internet and block websites. From the oral arguments:

FCC lawyer: “If [ISPs] want to curate the Internet…that would drop them out of the definition of Broadband Internet Access Service.” Judge Williams: “They have that option under the Order?” FCC lawyer: “Absolutely, your Honor. …If they filter the Internet and don’t provide access to all or substantially all endpoints, then…the rules don’t apply to them.”

As a result, the judges who upheld the Order said, “The Order…specifies that an ISP remains ‘free to offer ‘edited’ services’ without becoming subject to the rule’s requirements.”

Further, in the 1996 Telecom Act, Congress gave Internet access providers legal protection in order to encourage them to block lewd and “objectionable content.” Today, many ISPs offer family-friendly Internet access that blocks, say, pornographic and violent content. An FCC Order cannot and did not rewrite the Telecom Act and cannot require “access to all websites on the internet.”

“ISPs are required to provide equal access to all websites without giving any websites faster or slower download speeds”

Again, wrong. There is no “equal access to all websites” mandate (see above). Further, the 2015 Order allows ISPs to prioritize certain Internet traffic because preventing prioritization online would break Internet services.

This myth–that net neutrality rules require ISPs to be dumb pipes, treating all bits the same–has been circulated for years but is derided by networks experts. MIT computer scientist and early Internet developer David Clark colorfully dismissed this idea as “happy little bunny rabbit dreams.”  He pointed out that prioritization has been built into Internet protocols for years and “[t]he network is not neutral and never has been.” 

Other experts, such as tech entrepreneur and investor Mark Cuban and President Obama’s former chief technology officer Aneesh Chopra, have observed that the need for Internet “fast lanes” as Internet services grow more diverse. Further, the nature of interconnection agreements and content delivery networks mean that some websites pay for and receive better service than others.

This is not to say the Order is toothless. It authorizes government price controls and invents a vague “general conduct standard” that gives the agency broad authority to reject, favor, and restrict new Internet services. The survey, however, declined to ask members of the public about the substance of the 2015 rules and instead asked about support for net neutrality slogans that have only a tenuous relationship with the actual rules.

“Net neutrality” has always been about giving the FCC, the US media regulator, vast authority to regulate the Internet.  In doing so, the 2015 Order rejects the 20-year policy of the United States, codified in law, that the Internet and Internet services should be “unfettered by Federal or State regulation.” The US tech and telecom sector thrived before 2015 and the 2017 repeal of the 2015 rules will reinstate, fortunately, that light-touch regulatory regime.

Internet regulation advocates lost their fight at the FCC, which voted in December 2017 to rescind the 2015 Open Internet Order. Regulation advocates have now taken their “net neutrality” regulations to the states.

Some state officials–via procurement contracts, executive order, or legislation–are attempting to monitor and regulate traffic management techniques and Internet service provider business models in the name of net neutrality. No one, apparently, told these officials that government-mandated net neutrality principles are dead in the US.

As the litigation over the 2015 rules showed, o ur national laissez faire policy towards the Internet and our First Amendment guts any attempt to enforce net neutrality.  Recall that the 1996 amendments to the Communications Act announce a clear national policy about the Internet:

It is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.

In fact, that 1996 law was passed in order to encourage ISPs to filter objectionable content.

Further, regulators cannot prevent ISPs from exercising their First Amendment rights to curate the Internet. As Prof. Stuart Minor Benjamin wrote for the Harvard Law Review Forum in 2014,

If we really want to prevent Internet access providers from being speakers, we are going to have to radically reshape the Supreme Court’s First Amendment jurisprudence and understandings.

No radical reshaping of the First Amendment has occurred. For all these reasons, the Obama FCC attorney was forced to concede that

If they [that is, ISPs] filter the Internet . . . the [2015 Open Internet] rules don’t apply to them. 

Even Title II supporters EFF and the ACLU acknowledge in their FCC joint filing that ISPs are speakers who can filter content and escape Title II regulation.

ACLU & EFF throw in the towel—ISPs may block content under the 1st Amend. & are exempt from Title II. #netneutrality https://t.co/xU7uWfPIn4 pic.twitter.com/ZrXjs8bUtS

— Brent Skorup (@bskorup) September 1, 2017

At the end of the day, net neutrality, having lost its original definition, is simply a re-branding of Internet regulation.

State Internet regulations, therefore, are at odds with federal law and policy.  Let’s set aside federal preemption for the moment (Seth Cooper explained why preemption likely kills most of these state Internet regulations). There are other arguments for why states can’t impose baby “net neutrality” bills. 

Net neutrality bills likely violate the law

The state “net neutrality” bills and executive orders represent common carriage regulation. State officials make no attempt to hide this since they largely copy-and-paste the nondiscrimination obligations directly from the 2015 Open Internet Order. Here’s the problem for states: regulators can’t impose common carrier obligations on non-common carriers.

When nondiscrimination principles deprive operators of control of content, that amounts to common carriage. This was established in a 1979 Supreme Court case, Midwest Video II. In that case, the Supreme Court struck down common carriage obligations on cable operators, who are non-common carriers. The Court said ,

With its access rules, however, the Commission has transferred control of the content of access cable channels from cable operators to members of the public who wish to communicate by the cable medium. …The access rules plainly impose common-carrier obligations on cable operators.

The FCC, the Court said, had no authority to transform them into common carriers.

In fact, this is why the 2010 Open Internet Order was struck down in Verizon v. FCC. There, relying on Midwest Video II, the DC Circuit held that the net neutrality principles couldn’t be enforced on non-common carriers. As the DC Circuit said of the FCC’s common carrier obligations for ISPs: “Midwest Video II is indistinguishable.”

State “net neutrality” regulations will likely fail for the same reason.  The 2015 rules were upheld because “broadband Internet access service” was classified as a Title II common carrier service. “Broadband Internet access service” providers will no longer be common carriers once the 2017 Restoring Internet Freedom Order takes effect. By imposing common carrier rules on non-common carriers, states run afoul of Midwest Video II and Verizon.

Net neutrality bills balkanize the Internet

State-based Internet regulation is also bad policy, and many who support net neutrality principles–like Google–oppose this legal regime. Internet regulation advocates, by encouraging regulation state-by-state and city-by-city, have finally dispensed with the fiction that “net neutrality” is about the “open Internet.” In their eagerness to have someone, anyone regulate the Internet, these advocates are willing to balkanize the US Internet into dozens, or even hundreds, of splinternets, each with a different local or state regulator.

The Montana governor, for instance, encouraged every state and city to regulate the Internet, even providing a customizable template:

Any city or state can do this. We made you a template: https://t.co/yYgQTWdat1 #NetNeutrality https://t.co/dz3BFiN0uN

— Steve Bullock (@GovernorBullock) January 22, 2018

Further, net neutrality rules are not easy to apply and interpret, particularly the “catch-all” Internet conduct standard. Net neutrality supporters take vastly different stances on identical ISP conduct.

One illustration: the common practice of zero rating by mobile providers. One prominent net neutrality supporter (then-FCC chairman Tom Wheeler) said T-Mobile’s zero rating was “highly innovative and highly competitive.” Another (Prof. Susan Crawford) said it is “anti-competitive,” “dangerous,” and “malignant” and should be ended immediately. There were many advocates in both camps and everywhere in between.

Given the wide divergence of views on a single issue, dozens of “net neutrality” laws would create innumerable contradictions about what is allowed and disallowed online. The fragmented Internet and legal uncertainty would be particularly damaging to small app companies and competitive ISPs, who don’t have hallways of lawyers to ensure compliance, and who use or plan to use traffic priority techniques for gaming, disability services, VoIP, and driverless cars.

For the global, stateless Internet, having state and city CIOs create their own custom Internet regulation interpretations would destroy what made the Internet transformative–a permissionless, global network free of legacy regulations. State legislatures and governors, by ramming through “net neutrality,” are committing to waste countless taxpayer dollars in battling the federal government and telecom companies in (probably unwinnable) litigation. Their “best-case” scenario: a few states win in court and splinter the Internet.

Hopefully cooler heads will prevail and put state energies and treasure into doing something constructive about broadband, like urging reform of the $8.8 billion universal service fund or improving permitting processes and competition.

Last week the FCC commissioners voted to restructure the agency and create an Office of Economics and Analytics. Hopefully the new Office will give some rigor to the “public interest standard” that guides most FCC decisions. It’s important the FCC formally inject economics in to public interest determinations, perhaps much like the Australian telecom regulator’s “total welfare standard,” which is basically a social welfare calculation plus consideration of “broader social impacts.”

In contrast, the existing “standard” has several components and subcomponents (some of them contradictory) depending on the circumstances; that is, it’s no standard at all. As the first general counsel of the Federal Radio Commission, Louis Caldwell, said of the public interest standard, it means

as little as any phrase that the drafters of the Act could have used and still comply with the constitutional requirement that there be some standard to guide the administrative wisdom of the licensing authority.

Unfortunately, this means public interest determinations are largely shielded from serious court scrutiny. As Judge Posner said of the standard in Schurz Communications v. FCC,

So nebulous a mandate invests the Commission with an enormous discretion and correspondingly limits the practical scope of responsible judicial review.

Posner colorfully characterized FCC public interest analysis in that case:

The Commission’s majority opinion … is long, but much of it consists of boilerplate, the recitation of the multitudinous parties’ multifarious contentions, and self-congratulatory rhetoric about how careful and thoughtful and measured and balanced the majority has been in evaluating those contentions and carrying out its responsibilities. Stripped of verbiage, the opinion, like a Persian cat with its fur shaved, is alarmingly pale and thin.

Every party who does significant work before the FCC has agreed with Judge Posner’s sentiments at one time or another.

Which brings us to the Office of Economics and Analytics. Cost-benefit analysis has its limits, but economic rigor is increasingly important as the FCC turns its attention away from media regulation and towards spectrum assignment and broadband subsidies.

The worst excesses of FCC regulation are in the past where, for instance, one broadcaster’s staff in 1989 “was required to review 14,000 pages of records to compile information for one [FCC] interrogatory alone out of 299.” Or when, say, FCC staff had to sift through and consider 60,000 TV and radio “fairness” complaints in 1970. These regulatory excesses were corrected by economists (namely, Ronald Coase’s recommendation that spectrum licenses be auctioned, rather than given away for free by the FCC after a broadcast “beauty contest” hearing), but history shows that FCC proceedings spiral out of control without the agency intending it.

Since Congress gave such a nebulous standard, the FCC is always at risk of regressing. Look no further than the FCC’s meaningless “Internet conduct standard” from its 2015 Open Internet Order. This “net neutrality” regulation is a throwback to the bad old days, an unpredictable conduct standard that–like the Fairness Doctrine–would constantly draw the FCC into social policy activism and distract companies with interminable FCC investigations and unknowable compliance requirements.

In the OIO’s mercifully short life, we saw glimpses of the disputes that would’ve distracted the agency and regulated companies. For instance, prominent net neutrality supporters had wildly different views about whether a common practice, “zero rating” of IP content, by T-Mobile violated the Internet conduct standard. Chairman Tom Wheeler initially called it “highly innovative and highly competitive” while Harvard professor Susan Crawford said it was “dangerous” and “malignant” and should be outlawed “immediately.” The nearly year-long FCC investigations into zero rating and the equivocal report sent a clear, chilling message to ISPs and app companies: 20 years of permissionless innovation for the Internet was long enough. Submit your new technologies and business plans to us or face the consequences.

Fortunately, by rescinding the 2015 Order and creating the new economics Office, Chairman Pai and his Republican colleagues are improving the outlook for the development of the Internet. Hopefully the Office will make social welfare calculations a critical part of the public interest standard.

In 2015 after White House pressure, the FCC decided to take the radical step of classifying “broadband Internet access service” as a heavily-regulated Title II service. Title II was created for the AT&T long-distance monopoly and telegraph network and “promoting innovation and competition” is not its purpose. It’s ill-suited for the modern Internet, where hundreds of ISPs and tech companies are experimenting with new technologies and topologies.

Commissioner Brendan Carr was gracious enough to speak with Chris Koopman and me in a Mercatus podcast last week about his decision to vote to reverse the Title II classification. The podcast can be found at the Mercatus website. One highlight from Commissioner Carr:

Congress had a fork in the road. …In 1996, Congress made a decision that we’re going to head down the Title I route [for the Internet]. That decision has been one of the greatest public policy decisions that we’ve ever seen. That’s what led to the massive investment in the Internet. Over a trillion dollars invested. Consumers were protected. Innovators were free to innovate. Unfortunately, two years ago the Commission departed from that framework and moved into a very different heavy-handed regulatory world, the Title II approach.

Along those lines, in my recent ex parte meeting with Chairman Pai’s office, I pointed to an interesting 2002 study in the Review of Economics and Statistics from MIT Press about the stifling effects of Title II regulation:

[E]xisting economics scholarship suggests that a permissioned approach to new services, like that proposed in the [2015] Open Internet Order, inhibits innovation and new services in telecommunications. As a result of an FCC decision and a subsequent court decision in the late 1990s, for 18 to 30 months, depending on the firm, [Title II] carriers were deregulated and did not have to submit new offerings to the FCC for review. After the court decision, the FCC required carriers to file retroactive plans for services introduced after deregulation. This turn of events allowed economist James Preiger to analyze and compare the rate of new services deployment in the regulated period and the brief deregulated period. Preiger found that “some otherwise profitable services are not financially viable under” the permissioned regime. Critically, the number of services carriers deployed “during the [deregulated] interim is 60%-99% larger than the model predicts they would have created” when preapproval was required. Finally, Preiger found that firms would have introduced 62% more services during the entire study period if there was no permissioned regime. This is suggestive evidence that the Order’s “Mother, May I?” approach will significantly harm the Internet services market.

Thankfully, this FCC has incorporated economic scholarship into its Restoring Internet Freedom Order and will undo the costly Title II classification for Internet services.

It’s becoming clearer why, for six years out of eight, Obama’s appointed FCC chairmen resisted regulating the Internet with Title II of the 1934 Communications Act. Chairman Wheeler famously did not want to go that legal route. It was only after President Obama and the White House called on the FCC in late 2014 to use Title II that Chairman Wheeler relented. If anything, the hastily-drafted 2015 Open Internet rules provide a new incentive to ISPs to curate the Internet in ways they didn’t want to before. 

The 2016 court decision upholding the rules was a Pyrrhic victory for the net neutrality movement. In short, the decision revealed that the 2015 Open Internet Order provides no meaningful net neutrality protections–it allows ISPs to block and throttle content. As the judges who upheld the Order said, “The Order…specifies that an ISP remains ‘free to offer ‘edited’ services’ without becoming subject to the rule’s requirements.” 

The 2014 White House pressure didn’t occur in a vacuum. It occurred immediately after Democratic losses in the November 2014 midterms. As Public Knowledge president Gene Kimmelman tells it, President Obama needed to give progressives “a clean victory for us to show that we are standing up for our principles.” The slapdash legal finessing that followed was presaged by President Obama’s November 2014 national address urging Title II  classification of the Internet, which cites the wrong communications law on the Obama White House website to this day.

The FCC staff did their best with what they were given but the resulting Order was aimed at political symbolism and acquiring jurisdiction to regulate the Internet, not meaningful “net neutrality” protections. As internal FCC emails produced in a Senate majority report show, Wheeler’s reversal that week caught the non-partisan career FCC staff off guard. Literally overnight FCC staff had to scrap the “hybrid” (non-Title II) order they’d been carefully drafting for weeks and scrape together a legal justification for using Title II. This meant calling in advocates to enhance the record and dubious citations to the economics literature.  Former FCC chief economist, Prof. Michael Katz, whose work was cited in the Order, later stated to Forbes that he suspected the “ FCC cited my papers as an inside joke, because they know how much I think net neutrality is a bad idea.” 

Applying 1934 telegraph and telephone laws to the Internet was always going to have unintended consequences, but the politically-driven Order increasingly looks like an own-goal, even to supporters. Former FCC chief technologist, Jon Peha, who supports Title II classification of ISPs almost immediately raised the alarm that the Order offered “massive loopholes” to ISPs that could make the rules irrelevant.  This was made clear when the FCC attorney defending the Order in court acknowledged that ISPs are free to block and filter content and escape the Open Internet regulations and Title II. These concessions  from the FCC surprised even AT&T VP Hank Hultquist:

Wow. ISPs are not only free to engage in content-based blocking, they can even create the long-dreaded fast and slow lanes so long as they make their intentions sufficiently clear to customers.

So the Open Internet Order not only permits the net neutrality “nightmare scenario,” it provides an incentive to ISPs to curate the Internet. Despite the activist PR surrounding the Order, so-called “fast lanes”–like carrier-provided VoIP, VoLTE, and IPTV–have existed for years and the FCC rules allow them.  The Order permits ISP blocking, throttling, and “fast lanes”–what remains of “net neutrality”?

Prof. Susan Crawford presciently warned in 2005: 

I have lost faith in our ability to write about code in words, and I’m confident that any attempt at writing down network neutrality will be so qualified, gutted, eviscerated, and emptied that it will end up being worse than useless.

Aside from some religious ISPs, ISPs don’t want to filter Internet content. But the Obama FCC, via the “net neutrality” rules, gives them a new incentive: the Order deregulates ISPs that filter. ISPs will fight the rules because they want to continue to offer their conventional Internet service without submitting to the Title II baggage. This is why ISPs favor scrapping the Order–not only is it the FCC’s first claim to regulate Internet access, if the rules are not repealed, ISPs will be compelled to make difficult decisions about their business models and technologies in the future.

There is reporting suggesting that the Trump FCC may move to eliminate the FCC’s complex Title II regulations for the Internet and restore the FTC’s ability to police anticompetitve and deceptive practices online. This is obviously welcome news. These reports also suggest that FCC Chairman Pai and the FTC will require ISPs add open Internet principles to their terms of service, that is, no unreasonable blocking or throttling of content and no paid priority. These principles have always been imprecise because federal law allows ISPs to block objectionable content if they wish (like pornography or violent websites) and because ISPs have a First Amendment right to curate their services.

Whatever the exact wording, there shouldn’t be a per se ban of paid priority. Whatever policy develops should limit  anticompetitive paid priority, not all paid priority. Paid prioritization is simply a form of consideration payment, which is economists’ term for when upstream producers pay downstream retailers or distributors for special treatment. There’s economics literature on consideration payments and it’s an accepted business practice in many other industries. Further, consideration payments often benefit small providers and niche customers. Some small and large companies with interactive IP services might be willing to pay for end-to-end service reliability.

The Open Internet Order’s paid priority ban has always been short sighted because it attempts to preserve the Internet as it existed circa 2002. It resembles the FCC’s unfounded insistence for decades that subscription TV (ie, how the vast majority of Americans consume TV today) was against “the public interest.” Like the defunct subscription TV ban, the paid priority ban is an economics-free policy that will hinder new services. 

Despite what late-night talk show hosts might say, “fast lanes” on the Internet are here and will continue. “Fast lanes” have always been permitted because, as Obama’s US CTO Aneesh Chopra noted, some emerging IP services need special treatment. Priority transmission was built into Internet protocols years ago and the OIO doesn’t ban data prioritization; it bans BIAS providers from charging “edge providers” a fee for priority.

The notion that there’s a level playing field online needing preservation is a fantasy. Non-real-time services like Netflix streaming, YouTube, Facebook pages, and major websites can mostly be “cached” on servers scattered around the US. Major web companies have their own form of paid prioritization–they spend millions annually, including large payments to ISPs, on transit agreements, CDNs, and interconnection in order to avoid congested Internet links.

The problem with a blanket paid priority ban is that it biases the evolution of the Internet in favor of these cache-able services and against real-time or interactive services like teleconferencing, live TV, and gaming. Caching doesn’t work for these services because there’s nothing to cache beforehand. 

When would paid prioritization make sense? Most likely a specialized service for dedicated users that requires end-to-end reliability. 

I’ll use a plausible example to illustrate the benefits of consideration payments online–a telepresence service for deaf people. As Martin Geddes described, a decade ago the government in Wales developed such a service. The service architects discovered that a well-functioning service had quality characteristics not supplied by ISPs. ISPs and video chat apps like Skype optimize their networks, video codecs, and services for non-deaf people (ie, most customers) and prioritize consistent audio quality over video quality. While that’s useful for most people, deaf people need basically the opposite optimization because they need to perceive subtle hand and finger motions. The typical app that prioritizes audio, not video, doesn’t work for them.

But high-def real-time video quality requires upstream and downstream capacity reservation and end-to-end reliability. This is not cheap to provide. An ISP, in this illustration, has three options–charge the telepresence provider, charge deaf customers a premium, or spread the costs across all customers. The paid priority ban means ISPs can only charge customers for increased costs. This paid priority ban unnecessarily limits the potential for such services since there may be companies or nonprofits willing to subsidize such a service.

It’s a specialized example but illustrates the idiosyncratic technical requirements needed for many real-time services. In fact, real-time services are the next big challenge in the Internet’s evolution. As streaming media expert Dan Rayburn noted, “ traditional one-way live streaming is being disrupted by the demand for interactive engagement.”  Large and small edge companies are increasingly looking for low-latency video solutions. Today, a typical “live” event is broadcast online to viewers with a 15- to 45-second delay. This latency limits or kills the potential for interactive online streaming services like online talk shows, pet cams, online auctions, videogaming, and online classrooms.

If the FTC takes back oversight of ISPs and the Internet it should, as with any industry, permit any business practice that complies with competition law and consumer protection law. The agency should disregard the unfounded belief that consideration payments online (“paid priority”) are always harmful.

US telecommunications laws are in need of updates. US law states that “the Internet and other interactive computer services” should be “unfettered by Federal or State regulation,” but regulators are increasingly imposing old laws and regulations onto new media and Internet services. Further, Federal Communications Commission actions often duplicate or displace general competition laws. Absent congressional action, old telecom laws will continue to delay and obstruct new services. A new Mercatus paper by Roslyn Layton and Joe Kane shows how governments can modernize telecom agencies and laws.

Legacy Laws

US telecom laws are codified in Title 47 of the US Code and enforced mostly by the FCC. That the first eight sections of US telecommunications law are devoted to the telegraph, the killer app of 1850, illustrates congressional inaction towards obsolete regulations.

In the last decade, therefore, several media, Internet, and telecom companies inadvertently stumbled into Communications Act quagmires. An Internet streaming company, for instance, was bankrupted for upending the TV status quo established by the FCC in the 1960s;  FCC precedents mean broadcasters can be credibly threatened with license revocation for airing a documentary critical of a presidential candidate;  and the thousands of Internet service providers across the US are subjected to laws designed to constrain the 1930s AT&T long-distance phone monopoly .

US telecom and tech laws, in other words, are a shining example of American “kludgeocracy”–a regime of prescriptive and dated laws whose complexity benefits special interests and harms innovators.  These anti-consumer results led progressive Harvard professor Lawrence Lessig to conclude in 2008 that “it’s time to demolish the FCC.”  While Lessig’s proposal goes too far, Congress should listen to the voices on the right and left urging them to sweep away the regulations of the past and rationalize telecom law for the 21st century.

Modern Telecom Policy in Denmark

An interesting new Mercatus working paper explains how Denmark took up that challenge. The paper, “Alternative Approaches to Broadband Policy: Lessons on Deregulation from Denmark,” is by Denmark-based scholar Roslyn Layton, who served on President Trump’s transition team for telecom policy, and Joe Kane, a masters student in the GMU econ department. 

The “Nordic model” is often caricatured by American conservatives (and progressives like Bernie Sanders) as socialist control of industry. But as AEI’s James Pethokoukis and others point out, it’s time both sides updated their 1970s talking points. “[W]hen it comes to regulatory efficiency and business freedom,” Tyler Cowen recently noted, “Denmark has a considerably higher [Heritage Foundation] score than does the U.S.”

Layton and Kane explore Denmark’s relatively free-market telecom policies. They explain how Denmark modernized its telecom laws over time as technology and competition evolved. Critically, the center-left government eliminated Denmark’s telecom regulator in 2011 in light of the “convergence” of services to the Internet. Scholars noted,

Nobody seemed to care much—except for the staff who needed to move to other authorities and a few people especially interested in IT and telecom regulation.

Even-handed, light telecom regulation performs pretty well. Denmark, along with South Korea, leads the world in terms of broadband access. The country also has a modest universal service program that depends primarily on the market. Further, similar to other Nordic countries, Denmark permitted a voluntary forum, including consumer groups, ISPs, and Google, to determine best practices and resolve “net neutrality” controversies.

Contrast Denmark’s tech-neutral, consumer-focused approach with recent proceedings in the United States. One of the Obama FCC’s major projects was attempting to regulate how TV streaming apps functioned–despite the fact that TV has never been more abundant and competitive. Countless hours of staff time and industry time were wasted (Trump’s election killed the effort) because advocates saw the opportunity to regulate the streaming market with a law intended to help Circuit City (RIP) sell a few more devices in 1996.  The biggest waste of government resources has been the “net neutrality” fight, which stems from prior FCC attempts to apply 1930s telecom laws to 1960s computer systems. Old rules haphazardly imposed on new technologies creates a compliance mindset in our tech and telecom industries. Worse, these unwinnable fights over legal minutiae prevent FCC staff from working on issues where they can help consumers. 

Americans deserve better telecom laws but the inscrutability of FCC actions means consumers don’t know what to ask for. Layton and Kane illuminate that alternative frameworks are available. They highlight Denmark’s political and cultural differences from the US. Nevertheless, Denmark’s telecom reforms and pro-consumer policies deserve study and emulation. The Danes have shown how tech-neutral, consumer-focused policies not only can expand broadband access, they reduce government duplication and overreach.

If Congress and the President wanted to prevent intrusive regulation of the Internet, how would they do it? They know that silence on the issue wouldn’t protect Internet services. As Congress learned in the 1960s and 1970s with cable TV, congressional silence, to the FCC, looks like permission to enact a far-reaching regulatory regime.

In the 1990s, Congress knew the FCC would be tempted to regulate the Internet and Internet services and that silence would be seen as an invitation to regulate the Internet. Congress and President Clinton therefore passed a 1996 law, Section 230 of the Communications Decency Act, which stated:

It is the policy of the United States… to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.

But this statement raised the possibility that the FCC would regulate Internet access providers and would claim (as FCC defenders do today) they were not regulating “the Internet,” only access providers. To preempt such sophistry, Congress added that the “interactive computer services” shielded from regulation include:

specifically a service or system that provides access to the Internet….

Congress proved prescient. For over a decade, as the FCC’s traditional areas of regulation waned in importance, advocates and FCC officials have sought to regulate Internet access providers and the Internet. After two failed attempts to regulate providers and enforce net neutrality norms, the FCC decided to regulate Internet access providers with Title II, the same provisions regulating telephone and telegraph providers. Section 230 featured prominently in the dissents of commissioners Pai and O’Rielly who both noted that the Open Internet Order was a simple rejection of the plain words of Congress. Nevertheless, two judges on DC Circuit Court of Appeals blessed those regulations and the Open Internet Order in 2016.

If “unfettered from Federal regulation” means anything, doesn’t it mean that the FCC cannot use Title II, its most stringent regulatory regime, to regulate Internet access providers?  Is there any combination of words Congress could draft that would protect Internet access providers and Internet services from Title II?

There is a pending appeal challenging the Open Internet Order before the DC Circuit and after that is appeal to the Supreme Court. The Supreme Court, in particular, might be receptive to a common-sense argument that “unfettered from Federal regulation” is hazy around the edges but it cannot mean regulation of ISPs’ content, services, protocols, network topology, and business models.

I understand the sentiment that a net neutrality compromise is urgently needed to save the Internet from Title II. But until the Open Internet Order appeals have concluded, I think it’s premature to compromise and grant the FCC permanent authority to regulate the Internet with vague standards (e.g., no one knows what “reasonable throttling” means). A successful appeal could mean a third and final court loss for net neutrality purists, thereby restoring Section 230’s free-market protections for the Internet. Until the Supreme Court denies cert or agrees with the FCC that up is down, black is white, and agencies can ignore clear statutes, I’m not persuaded that Congress should nullify its own deregulatory language of Section 230 with a net neutrality compromise.

Title II allows the FCC to determine what content and media Internet access providers must transmit on their own private networks, so the First Amendment has constantly dogged the FCC’s “net neutrality” proceedings. If the Supreme Court agrees to take up an appeal from the DC Circuit Court of Appeals, which rejected a First Amendment challenge this summer, it will likely be because of Title II’s First Amendment deficiencies.

Title II has always been about handicapping ISPs qua speakers and preventing ISPs from offering curated Internet content. As former FCC commissioner Copps said, absent the Title II rules, “a big cable company could block access to an investigative report about its less-than-stellar customer service.” Tim Wu told members of Congress that net neutrality was intended to prevent ISPs from favoring, say, particular news sources or sports teams.

But just as a cable company chooses to offer some channels and not others, and a search engine chooses to promote some pages and not others, choosing to offer a curated Internet to, say, children, religious families, or sports fans involves editorial decisions. As communications scholar Stuart Benjamin said about Title II’s problem, under current precedent, ISPs “can say they want to engage in substantive editing, and that’s enough for First Amendment purposes.”

Title II – Bringing Broadcast Regulation to the Internet

Title II regulation of the Internet is frequently compared to the Fairness Doctrine, which activists used for decades to drive conservatives out of broadcast radio and TV. As a pro-net neutrality media professor explained in The Atlantic last year, the motivation for the Fairness Doctrine and Title II Internet regulation is the same: to “rescue a potentially democratic medium from commercial capture.” This is why there is almost perfect overlap between the organizations and advocates who support the Fairness Doctrine and those who lobbied for Title II regulation of the Internet.

These advocates know that FCC regulation of media has proceeded in similar ways for decades. Apply the expansive “gatekeeper” label to a media distributor and then the FCC will regulate distributor operations, including the content transmitted. Today, all electronic media distributors–broadcast TV and radio, satellite TV and radio, cable TV, and ISPs–whether serving 100 customers or 100 million customers, are considered “gatekeepers” and their services and content are subject to FCC intervention.

With broadband convergence, however, the FCC risked losing the ability to regulate mass media. Title II gives the FCC direct and indirect authority to shape Internet media like it shapes broadcast media. In fact, Chairman Wheeler called the Title II rules “must carry–updated for the 21st century.”

The comparison is apt and suggests why the FCC can’t escape the First Amendment challenges to Title II. Must-carry rules require cable TV companies to transmit all local broadcast stations to their cable TV subscribers. Since the must-carry rules prevent the cable operator editorial discretion over their own networks, the Supreme Court held in Turner I that the rules interfered with the First Amendment rights of cable operators.

But the Communications Act Allows Internet Filtering

Internet regulation advocates faced huge problem, though. Unlike other expansions of FCC authority into media, Congress was not silent about regulation of the Internet. Congress announced a policy in the 1996 update to the Communications Act that Internet access providers should remain “unfettered by State and Federal regulation.”

Regulation advocates dislike Section 230 because of its deregulatory message and because it expressly allows Internet access providers to filter the Internet.

Professor Yochai Benkler, in agreement with Lawrence Lessig, noted that Section 230 gives Internet access providers editorial discretion. Benkler warned that because of 230, “ISPs…will interject themselves between producers and users of information.” Further, these “intermediaries will be reintroduced not because of any necessity created by the technology, or because the medium requires a clearly defined editor. Intermediaries will be reintroduced solely to acquire their utility as censors of morally unpalatable materials.”  

Professor Jack Balkin noted likewise that “…§ 230(c)(2) immunizes [ISPs] when they censor the speech of others, which may actually encourage business models that limit media access in some circumstances.” 

Even the FCC acknowledges the consumer need for curated services and says in the Open Internet Order that Title II providers can offer “a service limited to offering ‘family friendly’ materials to end users who desire only such content.”

While that concession represents a half-hearted effort to bring the Order within compliance of Section 230, it simply exposes the FCC to court scrutiny. Allowing “family friendly” offers but not other curated offers is content-based distinction. Under Supreme Court RAV v. City of St. Paul, “[c]ontent-based regulations are presumptively invalid.”  Further, the Supreme Court said in US v. Playboy, content-based burdens must satisfy the same scrutiny as content-based bans on content. 

Circuit Split over the First Amendment Rights of Common Carriers

Hopefully the content-based nature of the Title II regulations are reason enough for the Supreme Court to take up an appeal. Another reason is that there is now a circuit split regarding the extent of First Amendment protections for common carriers.

The DC Circuit said that the FCC can prohibit content blocking because ISPs have been labeled common carriers.

In contrast, other courts have held that common carriers are permitted to block content on common carrier lines. In Information Providers Coalition v. FCC, the 9th Circuit held that common carriers “are private companies, not state actors…and accordingly are not obliged to continue…services of particular subscribers.” As such, regulated common carriers are “free under the Constitution to terminate service” to providers of offensive content. The Court relied on its decision a few years earlier in  Carlin Communications v. Mountain States Telephone and Telegraph Company that when a common carrier phone company is connecting thousands of subscribers simultaneously to the same content, the “phone company resembles less a common carrier than it does a small radio station” with First Amendment rights to block content. 

Similarly, the 4th Circuit in Chesapeake & Potomac Telephone Co. v. US held that common carrier phone companies are First Amendment speakers when they bundle and distribute TV programming, and that a law preventing such distribution “impairs the telephone companies’ ability to engage in a form of protected speech .” 

The full DC Circuit will be deciding whether to take up the Title II challenges. If the judges decline review, the Supreme Court would be the final opportunity for a rehearing. If appeal is granted, the First Amendment could play a major role. The Court will be faced with a choice: Should the Internet remain “unfettered” from federal regulation as Congress intended? Or is the FCC permitted to perpetuate itself by bringing legacy media regulations to the online world?

The FCC’s transaction reviews have received substantial scholarly criticism lately. The FCC has increasingly used its license transaction reviews as an opportunity to engage in ad hoc merger reviews that substitute for formal rulemaking. FCC transaction conditions since 2000 have ranged from requiring AOL-Time Warner to make future instant messaging services interoperable, to price controls for broadband for low-income families, to mandating merging parties to donate $1 million to public safety initiatives.

In the last few months alone,

• Randy May and Seth Cooper of the Free State Foundation wrote a piece that the transaction reviews contravene rule of law norms.
• T. Randolph Beard et al. at the Phoenix Center published a research paper about how the FCC’s informal bargaining during mergers has become much more active and politically motivated in recent years.
• Derek Bambauer, law professor at the University of Arizona, published a law review article that criticized the use of informal agency actions to pressure companies to act in certain ways. These secretive pressures “cloak what is in reality state action in the guise of private choice.”

This week, in the Harvard Journal of Law and Public Policy, my colleague Christopher Koopman and I added to this recent scholarship on the FCC’s controversial transaction reviews.

We echo the argument that the FCC merger policies undermine the rule of law. Firms have no idea which policies they’ll need to comply with to receive transaction approval. We also note that the FCC is motivated to shift from formal regulation, which is time consuming and subject to judicial review, to “regulation by transaction,” which has fewer restraints on agency action. The FCC and the courts have put few meaningful limits on what can be coerced from merging firms. Many concessions from merging firms are policies that the FCC is simply unwilling to accomplish via formal rulemaking or, sometimes, is outright prohibited by law from regulating. Since a firm’s concessions in this coercive process are nominally voluntary, they typically can’t sue.

We point out, further, that the FCC has a potentially damaging legal issue on its hands. Since the agency is now extracting concessions related to content distribution and TV and radio programming, its transaction review authority may be presumptively unconstitutional and subject to facial First Amendment challenges. That means many parties can challenge the law, not simply the ones burdened by conditions (who fear FCC retaliation).

Content-neutral licensing laws, like the FCC’s transaction review authority, are presumptively unconstitutional when there’s a risk  that public officials will intimidate speakers about content. We cite for this proposition the Supreme Court’s decision in City of Lakewood v. Plain Dealer Publishing Co., a 1988 case striking down as unconstitutional a city requirement that newspapers seek a public interest determination from public officials before installing newsracks. As the Court said, for rules with a “nexus to expression,”

a facial [First Amendment] challenge lies whenever a licensing law gives a government official or agency substantial power to discriminate based on the content or viewpoint of speech by suppressing disfavored speech or disliked speakers.

The public officials in City of Lakewood hadn’t even pressured newspapers about content; the mere potential for intimidation was a constitutional violation. If the agency’s authority was challenged, the FCC would be in worse shape than the public officials in City of Lakewood. Unlike those local officials, the FCC has used licensing to pressure firms to add certain types of programming. So the law certainly has the nexus to expression that the Supreme Court requires for a facial challenge.

We highlight, for instance, the many concessions related to content in the 2010 Comcast-NBCU merger. Comcast-NBCU conceded to create children’s, public interest, and Spanish-language TV and video-on-demand programming, relinquish editorial control over Hulu programming, and spend millions of dollars on digital literacy and FDA nutritional TV public service announcements. In that merger and many others, the FCC conditioned approval on compliance with open access and net neutrality policies. As I and others have pointed out, net neutrality rules also threaten free speech rights.

We conclude with some policy recommendations to avoid a constitutional problem for the FCC, including congressional repeal of the FCC’s transaction review authority. We point out that the FCC actually has Clayton Act authority to review common carrier mergers, but the FCC refuses to use it, likely because the agency views traditional competition analysis as too constraining. In our view, unless or until the FCC promulgates predictable guidelines about what is relevant in a transaction review and stays away from content distribution issues, the FCC’s transaction review authority is vulnerable to legal challenge.

Yesterday, almost exactly one year after the FCC classified Internet service as a common carrier service, Sen. Mike Lee and his Senate cosponsors (including presidential candidates Cruz and Rubio) introduced the Restoring Internet Freedom Act. Sen. Lee also published an op-ed about the motivation for his bill, pointing out the folly of applying a 1930s AT&T Bell monopoly law to the Internet. It’s a short bill, simply declaring that the FCC’s Title II rules shall have no force and it precludes the FCC from enacting similar rules absent an act of Congress.

It’s a shame such a bill even has to be proposed, but then again these are unusual times in politics. The FCC has a history of regulating new industries, like cable TV, without congressional authority. However, enforcing Title II, its most intrusive regulations, on the Internet is something different altogether. Congress was not silent on the issue of Internet regulation, like it was regarding cable TV in the 1960s when the FCC began regulating.

Former Clinton staffer John Podesta said after Clinton signed the 1996 Telecom Act, “Congress simply legislated as if the Net were not there.” That’s a slight overstatement. There is one section of the Telecommunications Act, Section 230, devoted to the Internet and it is completely unhelpful for the FCC’s Open Internet rules. Section 230 declares a US policy of unregulation of the Internet and, in fact, actually encourages what net neutrality proponents seek to prohibit: content filtering by ISPs.

The FCC is filled with telecom lawyers who know existing law doesn’t leave room for much regulation, which is why top FCC officials resisted common carrier regulation until the end. Chairman Wheeler by all accounts wanted to avoid the Title II option until pressured by the President in November 2014. As the Wall Street Journal reported last year, the White House push for Title II “blindsided officials at the FCC” who then had to scramble to construct legal arguments defending this reversal. The piece noted,

The president’s words swept aside more than a decade of light-touch regulation of the Internet and months of work by Mr. Wheeler toward a compromise.

The ersatz “parallel version of the FCC” in the White House didn’t understand the implications of what they were asking for and put the FCC in a tough spot. The Title II rules and legal justifications required incredible wordsmithing but still created internal tensions and undesirable effects, as pointed out by the Phoenix Center and others. This policy reversal, to go the Title II route per the President’s request, also created First Amendment and Section 230 problems for the FCC. At oral argument the FCC lawyer disclaimed any notion that the FCC would regulate filtered or curated Internet access. This may leave a gaping hole in Title II enforcement since all Internet access is filtered to some degree, and new Internet services, like LTE Broadcast, Free Basics, and zero-rated video, involve curated IP content. As I said at the time, the FCC “is stating outright that ISPs have the option to filter and to avoid the rules.”

Nevertheless, Title II creates a permission slip regime for new Internet services that forces tech and telecom companies to invest in compliance lawyers rather than engineers and designers. Hopefully in the next few months the DC Circuit Court of Appeals will strike down the FCC’s net neutrality efforts for a third time. In any case, it’s great to see that Sen. Lee and his cosponsors have made innovation policy priority and want to continue the light-touch regulation of the Internet.

People are excited about online TV getting big in 2016. Alon Maor of Qwilt predicts in Multichannel News that this will be “the year of the skinny bundle.” Wired echoes that sentiment. The Wall Street Journal’s Geoffrey A. Fowler said, “it’s no longer the technology that holds back cable cutting–it’s the lawyers.”

Well, I’m here to say, lawyers can’t take all the blame. In my experience, it’s the technology, too. Some of the problem is that most discussion about the future of online TV and cable cutting fails to distinguish streaming video-on-demand (SVOD) and streaming linear TV (“linear” means continuous pre-programmed and live “channels”, often with commercials, much like traditional cable).

SVOD includes Netflix, HBO Go, and Hulu. Yes, SVOD technology is very good. The major SVOD players spend millions on networks and caching so that their (static) content is as close to consumers as possible.

But streaming linear TV–like Sling and live sports–cannot be cached like static content and appears to have kinks to iron out before mass-market adoption. Read online video analysts and you realize that streaming linear and live TV online is an entirely different animal from SVOD. In August, Ben Popper at the Verge had a fascinating longform piece about the MLB’s streaming TV operation, Major League Baseball Advanced Media (BAM), which is the industry leader doing live streaming video. (HBO hired BAM for streaming the latest Game of Thrones season after HBO Go’s in-house streaming offering suffered from outages.)

Linear online TV is hard! As one BAM executive explains vividly,

What people forget is that the internet, as a technology was never designed to do something like this–deliver flawless video simultaneously to millions of people. I liken it to trying to live on Mercury. The planet is completely inhospitable. Every day all you’re doing is [fighting] a battle for survival in a place that really does not want you.

So I say this understanding the significant technical difficulties they face: in my experience, streaming linear TV is not ready for prime-time yet. (If I could find information about how firms do it, I would also distinguish pre-recorded linear TV–like Sling’s HGTV channel–from live online TV, because firms likely use different network topologies. Another time, perhaps.) Perhaps I’m an outlier, but media reports about Sling outages suggest that I’m not. I used Sling TV for the past few months and had high hopes but I just dropped my subscription. My test for acceptable streaming quality is: “Would I invite friends over to watch something using this streaming service?” Most SVOD services pass that test. Through caching and streaming protocols, SVOD operators can assure pretty consistent streaming even during times of moderate congestion.

Since linear TV typically has programming that is transmitted (nearly) live, operators can’t really do the distributed caching of content that makes SVOD function well. As a result, streaming linear TV like Sling TV and WatchESPN (a Sling subscription gives you access to ESPN’s online sports portal) currently do not pass my test. Frankly, the streaming quality varied from excellent to unwatchable. Punching into the app and casting it to my TV, I was never sure which Sling would show up that day: Good Sling or Bad Sling. On good days, the Monday Night Football game looked better than cable TV. Other days, the stream would, for instance, work well and then fail at every commercial break (perhaps the commercials were stored on another, overwhelmed server?).

Now, it’s impossible to know for sure where the network bottleneck is and why a video stream is stuttering. To be more certain that the problem was with Sling TV or WatchESPN and not, say, my Chromecast, my Wifi, or my ISP, every time Sling or WatchESPN had several severe streaming problems in a period of short time, I did an unscientific test. I would close down the Sling app, open up Netflix, and start streaming Netflix via my Chromecast. Without exception for the past three months, Netflix loaded quickly and streamed well. Keeping everything the same except the source of content suggests (but doesn’t prove) that the problem was not a local network or device problem.

There are ways of using network architecture and protocols to improve linear TV on broadband, typically with dedicated servers and last-mile bandwidth reservation. Comcast Stream TV is an example and LTE Broadcast might someday soon provide linear and live TV for mobile customers. But given so-called net neutrality rules, these services are controversial and regulated. ISPs can have their own proprietary TV service like Stream TV but, given net neutrality hysteria, probably won’t offer dedicated bandwidth to distributors like Sling. In this narrow area, the FCC’s rules are a pretty good deal for larger, vertically integrated firms that can put programming bundles together. It’s not so great for the small ISPs and WISPs who want to respond to cable cutter demands and offer a quality TV product from another company via broadband.

So I expect linear online TV to remain niche until the quality improves. A big draw of Sling is the cancel-at-any-time policy which lowers the risk if you’re dissatisfied with programming and allows single-season sports fans like me to subscribe for a season or two. I subscribed in the fall and winter to watch NCAA and NFL football. Sling recognizes that a lot of its subscribers are like me. But if Sling and other linear TV programmers want to expand beyond niche, they’ll need higher-quality streams. (And Sling might wish to remain niche so they don’t upset their programmers by cannibalizing traditional subscription TV.) Would I sign up for Sling again? Sure. Maybe the prognosticators are right, and the technology will develop rapidly in 2016. I have my doubts.

The FCC’s Open Internet Order is long and complex and the challenge to it is likewise difficult to untangle. The agency regularly engages in ad hoc rulemaking that results, per Judge Posner, in “unprincipled compromises of Rube Goldberg complexity among contending interest groups viewed merely as clamoring suppliants who have somehow to be conciliated.” The Open Internet Order is no exception and therefore faces several legal vulnerabilities.

In my view, the soft underbelly of the Order is the agency’s position that ISPs are not First Amendment speakers. While courts are generally very deferential to agencies, they are not deferential on constitutional questions. Further, the court panel (two Democrat appointees, one Republican appointee), unfortunately, was not in the carriers’ favor. The major carriers, however, have focused their arguments on whether the agency should receive deference in classifying Internet access as a telecommunications service.

That said, it’s possible the major carriers could get at least a partial win with their arguments. That likelihood is increased because Alamo Broadband and Dan Berninger raised the First Amendment problems with the Order. Given the strength of the First Amendment arguments, the Court might shy away from reaching the issue of whether ISPs are speakers. Below, some thoughts on the moments during oral arguments that surprised me and what went according to predictions.

The Unexpected

A receptive ear in Judge Williams re: the First Amendment arguments. (Good for: ISPs) The First Amendment arguments went better than I’d expected. Alamo and Berninger’s counsel, Brett Shumate, argued the First Amendment issues well and had good responses for skeptical questions. Shumate found a receptive ear in Judge Williams, who seemed to understand the serious First Amendment risks posed by the Order. Williams repeatedly brought up the fact that MetroPCS a few years ago tried to curate the Internet and provide its customers free YouTube, only to face resistance from the FCC and net neutrality activists.

The other two judges were more skeptical but Shumate corrected some misconceptions. The biggest substantive objection from Srinivasan, who sounded the most skeptical of the First Amendment arguments, was that if the Court reaches the First Amendment issues, it has determined that the FCC has reasonably classified Internet access as a common carrier service. He suggested that this means the First Amendment issues mostly disappear. No, Shumate explained. Congress and the FCC can call services whatever they want. They could declare Google Search or Twitter feeds a common carrier service tomorrow and that would have zero effect on whether filtering by Google and Twitter is protected by the First Amendment. Tatel asked whether Section 230’s liability protections suggest ISPs are common carriers and Shumate corrected that misconception, a subject I have written on before.

A major FCC concession that ISPs have to option to change their offerings and escape common carrier regulation. (Good for: ISPs) Title II advocates are spinning the terse First Amendment exchanges as a victory. I’m not convinced. The reason the arguments didn’t generate more heat was because the FCC lawyer made a huge concession at the outset: ISPs that choose to filter the Internet are not covered by the Open Internet Order.

FCC lawyer: “If [ISPs] want to curate the Internet…that would drop them out of the definition of Broadband Internet Access Service.” Judge Williams: “They have that option under the Order?” FCC lawyer: “Absolutely, your Honor. …If they filter the Internet and don’t provide access to all or substantially all endpoints, then they drop out of the definition of [BIAS] and the rules don’t apply to them.”

This admission seriously undermines the purposes of the Order. The FCC is stating outright that ISPs have the option to filter and to avoid the rules. That seems to mean that Comcast’s Stream Internet protocol television service, where it is curating streaming TV programs, is not covered by the rules. If Facebook’s Free Basics or a similar service launched in the US giving free, limited access to the Web, that is not covered by the Order. Finally, this means that the many broadband packages that offer family-friendly filtering are outside of the FCC’s rules. It’s not clear how much remains to be regulated since all ISPs reserve the right to filter content and each filters at least some content.

Judge Tatel directing most questioning. (Good for: wash) Many view Judge Tatel as the “swing vote” but I was surprised at the relative quiet from Williams and Srinivasan. Tatel was the most inquisitive, by my listening. He was much more skeptical of some of the FCC’s arguments regarding interconnection than I expected but also more skeptical of the First Amendment arguments than I expected.

Little discussion of Chevron Step 0. (Good for: FCC) Many on the free-market side wanted to make this case about Chevron Step 0 and the notion that Title II is too economically and socially significant to warrant deference. Unfortunately, at oral argument there was very little discussion of Chevron Step 0.

The Expected

Focus on agency discretion. (Good for: FCC) The judges generally seem to see this as a straightforward Chevron case and the questions focused on Chevron Step 1, whether there is ambiguity in the statute about “offering telecommunications” for the FCC to interpret. As expected, the FCC did fairly well in their arguments because these technical issues are very hard to untangle.

On Chevron Step 2, whether the reinterpretation of “telecommunications service” to include Internet access was reasonable, the US Telecom attorney was strong. He leaned heavily on the fact that in Section 230, which amends the Communications Act, Congress announces a national policy that the Internet and specifically Internet access services, should remain “unfettered by Federal regulation.” That would seem to preclude the FCC from using, at the very least, its most powerful regulatory weapon–common carriage–against Internet access providers. Even if “telecommunications service” is ambiguous, he stated, it was unreasonable to include Internet access in that definition.

Focus on whether mobile broadband can be properly classified under Title II. (Benefit: ISPs) As many commentators have noted, the idea that the traditional phone network and the mobile broadband network can be classified as the same interconnected network is far-fetched. Each judge seemed very skeptical of the FCC’s argument and Tatel suggested there was a lack of adequate notice.

Srinivasan pointed out that striking down the wireless rules and maintaining the wireline rules would mean that using the same tablet in different areas of your house would lead to different regulatory treatment, depending on whether you’re on the cellular broadband network or Wifi. Title II supporters think this is pretty clever gotcha but communications law already abounds with seemingly absurd FCC- and court-created legal distinctions. (The FCC invents its own absurd distinction and offers vastly different regulatory treatment for DNS operated by an ISP v. DNS operated by literally anyone else.)

Conclusion

Predictions about major regulatory cases are notoriously difficult. I’ve read (and made) enough predictions about big court cases to know that prognosticators almost always get it wrong. If that’s the case, at least consider one thought-provoking outcome: the rules are largely struck down because the FCC provided inadequate notice on most of the major issues of classification.

If the rules, in contrast, were sustained under Chevron and judged to have had adequate notice, the Court would likely need to confront the First Amendment issues. I don’t think Tatel and Srinivasan, especially, want to rule on these hard constitutional questions. The judges must know the Supreme Court has, as Prof. Susan Crawford says, an “absolutist approach” to the First Amendment that protects speakers of all kinds. Sustaining the rules means the FCC risks a loss on First Amendment grounds on appeal that would nearly eliminate the ability of the FCC to regulate the Internet. For that reason, and because of the notice problems, the Court may strike down the rules on notice and comment grounds, thereby preserving the ability of the FCC to take a fourth bite at the apple.

On October 7th I appeared on a webinar hosted by Prof. Barry Umansky and Ball State’s Digital Policy Institute about the FCC’s Title II case before the DC Circuit Court of Appeals, US Telecom Association v. FCC. The other panelists were Andrew Schwartzman of Georgetown University and Stuart Brotman of Harvard Law School and the Brookings Institution. Check it out, but here’s a brief summary of our hour-long discussion.

Much of our discussion was about whether and how the Court will analyze the FCC’s Open Internet rules under the Chevron doctrine. Andrew argues that this is a Chevron case, that “telecommunications service” is ambiguous in the Communications Act, and that the FCC’s reinterpretation of telecommunications to include Internet access is reasonable. I disagreed and argued that classifying Internet access service as a “telecommunications service” is unreasonable given technical realities and Sections 620, 230, and 231 of the Communications Act.

Later, Andrew contended that ISPs are clearly common carriers and the FCC is simply codifying this reality. Again, I disagreed. ISPs, for instance, reserve the right to revoke service from people based on the content they send or post (like being abusive, harassing, or hateful online). Common carriers don’t do that. ISPs filter content they suspect customers don’t want (like spam). Common carriers don’t do that. ISPs offer customized access services (like parental controls and Web whitelists and blacklists). Common carriers don’t do that.

Stuart raises the point that the deferential Chevron doctrine might not be applied at all. Making this case to the Court–that regulating most of the Internet is too socially and economically significant to receive Chevron deference–seems to be dominant legal strategy for Title II opponents. As Prof. Dan Lyons, points out in a blog post this week, the Supreme Court seems to be increasingly hostile to agencies’ major reinterpretations of law.

We’ll see. I actually agree with my copanelist Andrew that the DC Circuit will tend to view this as a garden-variety administrative law case. Courts are generally deferential to expert agencies on reinterpreting the law and, as Lyons notes, it’s still pretty rare for courts to find that an agency decision does not get substantial deference.

For that reason, I point out in the webinar that the perhaps the strongest argument for the ISPs is raised by Alamo Broadband and Dan Berninger–that the Open Internet rules violate the First Amendment. I wrote recently why the Open Internet rules may violate the First Amendment. I note in the webinar that, unlike administrative law questions, courts are not deferential to agencies when the First Amendment is at issue. Courts interpret the coverage of the First Amendment broadly and the First Amendment is increasingly an effective tool to strike down regulations that implicate speech.

We wrap up the webinar by discussing whether a legislative compromise is possible before the 2016 elections (no). There will more analysis of the legal briefs before the December oral arguments and I’d expect two major issues, whether Chevron applies and whether the rules violate the First Amendment, to be in the conversation.

As FCC Commissioner Jessica Rosenworcel said of the Internet, “It is our printing press.” Unfortunately, for First Amendment purposes, regulators and courts treat our modern printing presses — electronic media — very differently from the traditional ones. Therefore, there is persistent political and activist pressure on regulators to rule that Internet intermediaries — like social networks and search engines — are not engaging in constitutionally-protected speech.

Most controversial is the idea that, as content creators and curators, Internet service providers are speakers with First Amendment rights. The FCC’s 2015 Open Internet Order designates ISPs as common carriers and generally prohibits ISPs from blocking Internet content. The agency asserts outright that ISPs “are not speakers.” These Title II rules may be struck down on procedural grounds, but the First Amendment issues pose a significant threat to the new rules.

ISPs are Speakers Courts and Congress, as explained below, have long recognized that ISPs possess editorial discretion. Extensive ISP filtering was much more common in the 1990s but still exists today. Take JNet and DNet. These ISPs block large portions of Internet content that may violate religious principles. They also block neutral services like gaming and video if the subscriber wishes. JNet offers several services, including DSL Internet access, and markets itself to religious Jews. It is server-based (not client-based) and offers several types of filters, including application-based blocking, blacklists, and whitelists. Similarly, DNet, targeted mostly to Christian families in the Carolinas, offers DSL and wireless server-based filtering of content like pornography and erotic material. A strict no-blocking rule on the “last mile” access connection, which most net neutrality proponents want enforced, would prohibit these types of services.

The extensive filtering these ISPs do is not as common as it once was, but they illustrate the reality that ISPs do have editorial discretion and they do exercise it. For that reason, scholars have pointed out for nearly a decade that any meaningful no-blocking rule compels speech from ISPs and other Internet platforms. ISPs would be forced to transmit content that they object to.

Therefore, the Title II rules, especially a no-blocking rule, may not survive a First Amendment challenge. Title II proponents frequently assert that ISPs are “dumb pipes” and must be prohibited from exercising any editorial control over what is transmitted from consumers. Net neutrality activists around the globe, for instance, want to prohibit Internet.org, a free app jointly produced by Facebook and wireless carriers, because it “blocks” access to content that is is not selected to be included within the package.

To avoid scrutiny from a court, the FCC will need to show that ISPs resemble common carriers like telephone companies and FedEx that — though transmitting speech — don’t have editorial discretion and have essentially no First Amendment rights. However, if ISPs instead resemble electronic media like cable TV companies or search engines that exercise editorial control over transmitted content, the Title II rules represent compelled speech and will receive significant court scrutiny.

Internet Platforms and Curation A court holding that ISPs are speakers for First Amendment purposes is important because Internet-based, curated distribution is replacing traditional ways consumers accessed news and media — bookstores, newsstands, broadcast radio, cable TV. The nature of “publication” and “speakers” has changed rapidly in a short time because information is much more accessible in the Internet age. Clay Shirky notes that the traditional formula of “Filter, then publish,” has been replaced with “Publish, then filter.”

While the nature of media changed, many still want to regulate the intermediaries. Google’s algorithm is a common target for regulation. Politico recently published a piece calling for search engine regulation because of Google’s ostensible ability to sway close elections through opaque algorithm tweaks. Many online companies and media companies likewise want to regulate the order in which Search results appear, an effort gaining traction in Europe. Further, some academics and activists would like to extend neutrality rules to Twitter’s and Facebook’s curation of user streams.

Fortunately, those efforts would likely fail in the US because Internet intermediaries receive constitutional protection. As Eugene Volokh persuasively argues, “search engines are speakers” and regulations affecting Google’s algorithms must withstand First Amendment scrutiny. Law professor Jonathan Zittrain advises regulatory caution and notes that “content curators…have a First Amendment right to present their content as they see fit.” ISPs likewise have an existing right (seldom exercised) to curate and filter content. As net neutrality supporter Harold Feld says, if the FCC doesn’t classify ISPs as common carriers, “nothing requires your ISP to deliver [Internet content]. If Comcast decides I am evil and blocks [my website], they can do it.”

Courts call this ability to filter, anachronistically, “editorial discretion.” In this new media world of content abundance, “curation” better represents what defines protected speech because most of the actual messages transmitted originate from third parties. Certainly, print organizations have substantial editorial control over what is published, but radio and TV is less controlled and newer media platforms display a wide range of editorial controls. Many of the most important modern speakers in this “publish, then filter” environment are curators. New media, like aggregators, cable companies, search engines, and ISPs, often use an intentional, semi-automated, iterative process to decide what content to omit and what to transmit.

Constitutional protection of curators means regulators likely cannot force a Christian cable operator to carry Cinemax. Likewise, Apple can continue to block apps containing Confederate flags or nudity in the App Store. Even though ISP filtering of content may be a blunter tool, like a WISP operated by Christians or Jews that blocks websites for its religious users, or like Internet.org that transmits only select Internet content, the First Amendment protects that ability to tailor content.

The Dumb Pipes Myth Readers of law review articles from net neutrality advocates and of the Open Internet Order are left with the false impression that ISPs are passive transmitters — dumb pipes — that never block content. Title II supporters have to maintain this facade because if they suggest that ISPs exercise editorial control, the no-blocking rules trigger First Amendment scrutiny. Fortunately for First Amendment purists, there is sufficient evidence of ISPs filtering content to raise serious questions about the constitutionality of the Open Internet Order. Internet service providers can and do engage in filtering, and some curate content in ways that are much more intentional than First Amendment-protected speech activity like cable TV distribution and Google search results.

There are, as mentioned, small ISPs like JNet and Clean Internet that provide Internet access marketed to religious users. In addition to its wireline service, DNet is also a wireless ISP and advertises that they filter pornography and other content. Sprint, one of the Big Four national wireless carriers, last year offered social media plans and parental controls, including whitelists and blacklists, through its Virgin Mobile subsidiary.

I’ve posed this question to Title II advocates several times — Aren’t religious ISPs engaged in First Amendment-protected speech? To date, none have denied it and seem content to pretend server-based filtering by wired and wireless access providers doesn’t exist. Susan Crawford, for instance, wrote a law review piece about ISPs’ purported lack of First Amendment protection. She noted, correctly, that if ISPs were engaged in editorial decisions about filtering content, that would pose a problem for the FCC regulations. However, she abruptly discontinued a Twitter back-and-forth with me when I pointed out she omitted instances of religious ISPs exercising the editorial discretion she fears.

It’s not just smaller ISPs that filter. AT&T, for instance, like nearly every major ISP and Web company, reserves the right in its acceptable use policy to pull down content “that is determined by AT&T to be obscene, indecent, hateful, malicious, racist, defamatory, fraudulent, libelous, treasonous, excessively violent or promoting the use of violence or otherwise harmful to others.” This is not idle language. Groups like the Anti-Defamation League, for instance, knowing that they have enforceable acceptable use policies actively lobby and persuade ISPs and Web companies to remove content from anti-Semites and groups like the KKK.

Title II proponents like to point out that the large ISPs engage in relatively little of the curation and filtering that I’ve described. Therefore, they reason, ISPs are common carriers. I’m not persuaded. That distinction appears immaterial considering the FCC made no such distinction in its Open Internet Order. Further, large ISP reluctance to offer, say, family-friendly Internet packages is entirely predictable considering the FCC has for a decade chilled that exercise of free speech through ham-fisted attempts at net neutrality enforcement, merger conditions, and punitive fines.

Congress Intended to Encourage ISPs to Filter Content with Section 230 The FCC faces another obstacle to its conclusory determination that ISPs are not speakers. The 2015 Open Internet Order largely adopts net neutrality proponents’ First Amendment arguments and concludes that ISPs “serve as mere conduits for the messages of others, not as agents exercising editorial discretion.” However, Section 230 of the Communications Decency Act has a Good Samaritan provision that suggests ISPs are speakers, a view that several courts have endorsed.

For better or for worse, Section 230 makes ISPs and other Internet platforms that primarily rely on third-party content “super speakers.” Internet platforms can exercise editorial control and get all the benefits of being a speaker, like First Amendment protection, yet are immunized from many of the burdens, like liability for distributing online defamation and libel.

Why did Congress take this dramatic step in the mid-1990s? Quite simply, the drafters wanted to encourage ISPs to continue to block offensive content online. At that time, ISPs and bulletin board operators like Prodigy marketed themselves as family friendly and (inconsistently) blocked content that Prodigy administrators judged to be in bad taste. Because of this editorial discretion, in 1995 Prodigy faced costly liability in a defamation suit for defamatory statements one of its users posted, in a case called Stratton Oakmont v. Prodigy. Because of Stratton Oakmont and a few similar cases, Internet intermediaries faced two undesirable options to avoid liability for transmitted content:

1. become conduits and exercise no editorial control — thereby leaving even offensive content online; or
2. constantly police Internet content and take down all questionable material.

Congress disliked both options and quickly responded with Section 230 protections in 1996 to protect Internet-based distributors from becoming mere conduits. The statute protects “interactive computer services,” which includes, “specifically a service or system that provides access to the Internet….” Congress, therefore, preserved ISPs’ editorial role in cleaning up the Internet.

Several court cases recognize that ISPs and other Internet platforms exercise editorial discretion and are not mere conduits. As the district court said in the 1998 case Blumenthal v. Drudge, 230’s protections serve “as an incentive to Internet service providers to self-police the Internet for obscenity and other offensive material.” Similarly, the 9th Circuit Court of Appeals noted in the 2008 Roommate.com case that through 230, “Congress sought to [allow ISPs] to perform some editing on user-generated content….” A 10th Circuit decision states that “Congress clearly enacted § 230 to forbid the imposition of publisher liability on a service provider for the exercise of its editorial and self-regulatory functions.” Finally, as the Fourth Circuit said in Zeran v. America Online, Section 230 “forbids the imposition of publisher liability on a service provider for the exercise of its editorial and self-regulatory functions.”

At the very minimum, we have several courts saying that ISPs exercise editorial discretion — directly contradicting the assertions by Title II proponents and the FCC. Further, not only can ISPs filter content, it is a practice that Congress wished to encourage. The Title II rules chill those editorial functions, and that is a problem for the FCC.

Finally, while not a Section 230 case, a majority of the Supreme Court has tacitly endorsed Congress’ view that ISPs are speakers that can and should serve as curators of online content. In Ashcroft v. ACLU, the Court cited ISP filtering favorably as an alternative to unconstitutional provisions of the Child Online Protection Act. Taking these cases together, it’s unlikely a court will sustain the net neutrality advocate view that ISPs are not speakers and cannot engage in filtering.

The 2015 Open Internet Order and its Content-Neutrality Problem Section 230 poses an additional problem for the FCC. Most courts construe Section 230(c)(2) broadly in terms of what services are protected and the kinds of liability providers are immunized from. A broad reading may protect ISPs from FCC regulations that restrain ISP filtering abilities.

The FCC’s hastily-written Title II order seems to recognize this but reveals some internal tensions in an effort to allow some Section 230-type ISP filtering. For example, while the Order says ISPs are not First Amendment speakers, the Order appears to accept the premise that Section 230 restrains agency action. Specifically, the Order likely allows ISPs to block offensive content and offer family-friendly packages because the FCC permits, in paragraph 220, ISPs to block “traffic that is unwanted by end users.” The FCC cites to the portions of the 2010 Open Internet Order that allowed Internet access packages that block, specifically, pornographic content. In those referenced portions of the 2010 Order, the FCC cites Section 230 and expressly states that the agency will not impose liability for good-faith actions by ISPs to restrict harassing and offensive content.

This exception to the no-blocking rule, if it is indeed an exception, puts the FCC in a bind when defending its no-blocking rule against First Amendment challenges. As an initial matter, this exception that allows ISPs to actively block the content described in Section 230 suggests FCC acknowledgement that ISPs are exercising editorial control and engaged in protected speech.

Further, if the FCC interprets this “unwanted traffic” exception narrowly, the agency would allow ISPs to block only lewd, harassing, and violent material (that is, the material specifically mentioned in Section 230), but would penalize ISPs for blocking, say, political, religious, and entertainment content. Such a distinction means that the Title II rules are not content-neutral regulations and therefore likely to be struck down on First Amendment grounds. In the words of the Supreme Court, courts will “apply the most exacting scrutiny to regulations that…impose differential burdens upon speech because of its content.” If, on the other hand, the FCC interprets “unwanted traffic” broadly in a content-neutral manner, the rules allow widespread filtering of Internet content, undermine the FCC’s assertion that ISPs are not speakers, and eviscerate the entire purpose of the Title II rules.

Before concluding, one aside is probably necessary: This position — that ISPs have a constitutional right to filter Internet packages for consumers — is often misrepresented and maligned by net neutrality advocates. To be clear, that ISPs or other Internet platforms have a First Amendment right to select which online content to transmit does not mean anticompetitive blocking or throttling of, say, Netflix is permissible. That is illegal. It likewise does not mean ISPs can promise subscribers access to Internet content and subsequently block that content. That is also illegal. This is a narrower claim: The First Amendment protects ISPs’ prerogative to transparently offer kid-friendly and other filtered Internet packages like Internet.org.

The future of the media is Internet-based and content is increasingly curated. It’s important that regulators don’t deprive ISPs of their First Amendment rights because ISPs represent the canary in the coalmine. First Amendment protection has generally been a one-way ratchet that’s expanded free speech protections for several decades and has been used successfully to fight regulations that affect speech. A setback for the First Amendment would encourage media access activists to seek more regulation for new media. The “gatekeeper” theory used to justify regulation of ISPs is just the warmed-over “scarcity” rationale for the Fairness Doctrine and other restraints on speech. The calls to regulate Twitter, Facebook, and Google algorithms and Internet television will grow even louder if courts accept the FCC’s First Amendment analysis in the Open Internet Order. Fortunately, the Open Internet Order suffers from several deficiencies and there is a good chance courts will again remind regulators to keep their hands off the Internet.

Article was originally posted on Plain Text on September 3.

As 2014 draws to a close, we take a look back at the most-read posts from the past year at The Technology Liberation Front. Thank you for reading, and enjoy.

10. New York’s financial regulator releases a draft of ‘BitLicense’ for Bitcoin businesses. Here are my initial thoughts.

In July, Jerry Brito wrote about New York’s proposed framework for regulating digital currencies like Bitcoin.

My initial reaction to the rules is that they are a step in the right direction. Whether one likes it or not, states will want to license and regulate Bitcoin-related businesses, so it’s good to see that New York engaged in a thoughtful process, and that the rules they have proposed are not out of the ordinary.

9. Google Fiber: The Uber of Broadband

In February, I noted some of the parallels between Google Fiber and ride-sharing, in that new entrants are upending the competitive and regulatory status quo to the benefit of consumers.

The taxi registration systems and the cable franchise agreements were major regulatory mistakes. Local regulators should reduce regulations for all similarly-situated competitors and resist the temptation to remedy past errors with more distortions.

8. The Debate over the Sharing Economy: Talking Points & Recommended Reading

In September, Adam Thierer appeared on Fox Business Network’s Stossel show to talk about the sharing economy. In a TLF post, he expands upon his televised commentary and highlights five main points.

7. CES 2014 Report: The Internet of Things Arrives, but Will Washington Welcome It?

After attending the 2014 Consumer Electronics Show in January, Adam wrote a prescient post about the promise of the Internet of Things and the regulatory risks ahead.

When every device has a sensor, a chip, and some sort of networking capability, amazing opportunities become available to consumers…. But those same capabilities are exactly what raise the blood pressure of many policymakers and policy activists who fear the safety, security, or privacy-related problems that might creep up in a world filled with such technologies.

6. Defining “Technology”

Earlier this year, Adam compiled examples of how technologists and experts define “technology,” with entries ranging from the Oxford Dictionary to Peter Thiel. It’s a slippery exercise, but

if you are going to make an attempt to either study or critique a particular technology or technological practice or development, then you probably should take the time to tell us how broadly or narrowly you are defining the term “technology” or “technological process.”

5. The Problem with “Pessimism Porn”

Adam highlights the tendency of tech press, academics, and activists to mislead the public about technology policy by sensationalizing technology risks.

The problem with all this, of course, is that it perpetuates societal fears and distrust. It also sometimes leads to misguided policies based on hypothetical worst-case thinking…. [I]f we spend all our time living in constant fear of worst-case scenarios—and premising public policy upon them—it means that best-case scenarios will never come about.

4. Mark T. Williams predicted Bitcoin’s price would be under $10 by now; it’s over $600

Professor Mark T. Williams predicted in December 2013 that by mid-2014, Bitcoin’s price would fall to below $10. In mid-2014, Jerry commends Prof. Williams for providing, unlike most Bitcoin watchers, a bold and falsifiable prediction about Bitcoin’s value. However, as Jerry points out, that prediction was erroneous: Bitcoin’s 2014 collapse never happened and the digital currency’s value exceeded $600.

3. What Vox Doesn’t Get About the “Battle for the Future of the Internet”

In May, Tim Lee wrote a Vox piece about net neutrality and the Netflix-Comcast interconnection fight. Eli Dourado posted a widely-read and useful corrective to some of the handwringing in the Vox piece about interconnection, ISP market power, and the future of the Internet.

I think the article doesn’t really consider how interconnection has worked in the last few years, and consequently, it makes a big deal out of something that is pretty harmless…. There is nothing unseemly about Netflix making … payments to Comcast, whether indirectly through Cogent or directly, nor is there anything about this arrangement that harms “the little guy” (like me!).

2. Muddling Through: How We Learn to Cope with Technological Change

The second most-read TLF post of 2014 is also the longest and most philosophical in this top-10 list. Adam wrote a popular and in-depth post about the social effects of technological change and notes that technology advances are largely for consumers’ benefit, yet “[m]odern thinking and scholarship on the impact of technological change on societies has been largely dominated by skeptics and critics.” The nature of human resilience, Adam explains, should encourage a cautiously optimistic view of technological change.

1. Help me answer Senate committee’s questions about Bitcoin

Two days into 2014, Jerry wrote the most-read TLF piece of the past year. Jerry had testified before the Senate Homeland Security and Governmental Affairs Committee in 2013 as an expert on Bitcoin. The Committee requested more information about Bitcoin post-hearing and Jerry solicited comment from our readers.

Thank you to our loyal readers for continuing to visit The Technology Liberation Front. It was busy year for tech and telecom policy and 2015 promises to be similarly exciting. Have a happy and safe New Years!

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.

The outrage over the FCC’s attempt to write new open Internet rules has caught many by surprise, and probably Chairman Wheeler as well. The rumored possibility of the FCC authorizing broadband “fast lanes” draws most complaints and animus. Gus Hurwitz points out that the FCC’s actions this week have nothing to do with fast lanes and Larry Downes reminds us that this week’s rules don’t authorize anything. There’s a tremendous amount of misinformation because few understand how administrative law works. Yet many net neutrality proponents fear the worst from the proposed rules because Wheeler takes the consensus position that broadband provision is a two-sided market and prioritized traffic could be pro-consumer.

Fast lanes have been permitted by the FCC for years and they can benefit consumers. Some broadband services–like video and voice over Internet protocol (VoIP)–need to be transmitted faster or with better quality than static webpages, email, and file syncs. Don’t take my word for it. The 2010 Open Internet NPRM, which led to the recently struck-down rules, stated,

As rapid innovation in Internet-related services continues, we recognize that there are and will continue to be Internet-Protocol-based offerings (including voice and subscription video services, and certain business services provided to enterprise customers), often provided over the same networks used for broadband Internet access service, that have not been classified by the Commission. We use the term “managed” or “specialized” services to describe these types of offerings. The existence of these services may provide consumer benefits, including greater competition among voice and subscription video providers, and may lead to increased deployment of broadband networks.

I have no special knowledge about what ISPs will or won’t do. I wouldn’t predict in the short term the widespread development of prioritized traffic under even minimal regulation. I think the carriers haven’t looked too closely at additional services because net neutrality regulations have precariously hung over them for a decade. But some of net neutrality proponents’ talking points (like insinuating or predicting ISPs will block political speech they disagree with) are not based in reality.

We run a serious risk of derailing research and development into broadband services if the FCC is cowed by uninformed and extreme net neutrality views. As Adam eloquently said, “Living in constant fear of hypothetical worst-case scenarios — and premising public policy upon them — means that best-case scenarios will never come about.” Many net neutrality proponents would like to smear all priority traffic as unjust and exploitative. This is unfortunate and a bit ironic because one of the most transformative communications developments, cable VoIP, is a prioritized IP service.

There are other IP services that are only economically feasible if jitter, latency, and slow speed are minimized. Prioritized traffic takes several forms, but it could enhance these services:

VoIP. This prioritized service has actually been around for several years and has completely revolutionized the phone industry. Something unthinkable for decades–facilities-based local telephone service–became commonplace in the last few years and undermined much of the careful industrial planning in the 1996 Telecom Act. If you subscribe to voice service from your cable provider, you are benefiting from fast lane treatment. Your “phone” service is carried over your broadband cable, segregated from your television and Internet streams. Smaller ISPs could conceivably make their phone service more attractive by pairing up with a Skype- or Vonage-type voice provider, and there are other possibilities that make local phone service more competitive.

Cloud-hosted virtual desktops. This is not a new idea, but it’s possible to have most or all of your computing done in a secure cloud, not on your PC, via a prioritized data stream. With a virtual desktop, your laptop or desktop PC functions mainly as a dumb portal. No more annoying software updates. Fewer security risks. IT and security departments everywhere would rejoice. Google Chromebooks are a stripped-down version of this but truly functional virtual desktops would be valued by corporations, reporters, or government agencies that don’t want sensitive data saved on a bunch of laptops in their organization that they can’t constantly monitor. Virtual desktops could also transform the device market, putting the focus on a great cloud and (priority) broadband service and less on the power and speed of the device. Unfortunately, at present, virtual desktops are not in widespread use because even small lag frustrates users.

TV. The future of TV is IP-based and the distinction between “TV” and “the Internet” is increasingly blurring, with Netflix leading the way. In a fast lane future, you could imagine ISPs launching pared-down TV bundles–say, Netflix, HBO Go, and some sports channels–over a broadband connection. Most ISPs wouldn’t do it, but an over-the-top package might interest smaller ISPs who find acquiring TV content and bundling their own cable packages time-consuming and expensive.

Gaming. Computer gamers hate jitter and latency. (My experience with a roommate who had unprintable outbursts when Diablo III or World of Warcraft lagged is not uncommon.) Game lag means you die quite frequently because of your data connection and this depresses your interest in a game. There might be gaming companies out there who would like to partner with ISPs and other network operators to ensure smooth gameplay. Priority gaming services could also lead the way to more realistic, beautiful, and graphics-intensive games.

Teleconferencing, telemedicine, teleteaching, etc. Any real-time, video-based service could reach critical mass of subscribers and become economical with priority treatment. Any lag absolutely kills consumer interest in these video-based applications. By favoring applications like telemedicine, providing remote services could become attractive to enough people for ISPS to offer stand-alone broadband products.

This is just a sampling of the possible consumer benefits of pay-for-priority IP services we possibly sacrifice in the name of strict neutrality enforcement. There are other services we can’t even conceive of yet that will never develop. Generally, net neutrality proponents don’t admit these possible benefits and are trying to poison the well against all priority deals, including many of these services.

Most troubling, net neutrality turns the regulatory process on its head. Rather than identify a market failure and then take steps to correct the failure, the FCC may prevent commercial agreements that would be unobjectionable in nearly any other industry. The FCC has many experts who are familiar with the possible benefits of broadband fast lanes, which is why the FCC has consistently blessed priority treatment in some circumstances.

Unfortunately, the orchestrated reaction in recent weeks might leave us with onerous rules, delaying or making impossible new broadband services. Hopefully, in the ensuing months, reason wins out and FCC staff are persuaded by competitive analysis and possible innovations, not t-shirt slogans.

Some recent tech news provides insight into the trajectory of broadband and television markets. These stories also indicate a poor prognosis for a net neutrality. Political and ISP opposition to new rules aside (which is substantial), even net neutrality proponents point out that “neutrality” is difficult to define and even harder to implement. Now that the line between “Internet video” and “television” delivered via Internet Protocol (IP) is increasingly blurring, net neutrality goals are suffering from mission creep.

First, there was the announcement that Netflix, like many large content companies, was entering into a paid peering agreement with Comcast, prompting a complaint from Netflix CEO Reed Hastings who argued that ISPs have too much leverage in negotiating these interconnection deals.

Second, Comcast and Apple discussed a possible partnership whereby Comcast customers would receive prioritized access to Apple’s new video service. Apple’s TV offering would be a “managed service” exempt from net neutrality obligations.

Interconnection and managed services are generally not considered net neutrality issues. They are not “loopholes.” They were expressly exempted from the FCC’s 2010 (now-defunct) rules. However, net neutrality proponents are attempting to bring interconnection and managed services to the FCC’s attention as the FCC crafts new net neutrality rules. Net neutrality proponents have an uphill battle already, and the following trends won’t help.

1. Interconnection becomes less about traffic burden and more about leverage.

The ostensible reason that content companies like Netflix (or third parties like Cogent) pay ISPs for interconnection is because video content unloads a substantial amount of traffic onto ISPs’ last-mile networks.

Someone has to pay for network upgrades to handle the traffic. Typically, the parties seem to abide by the equity principle that whoever is sending the traffic–in this case, Netflix–should bear the costs via paid peering. That way, the increased expense is incurred by Netflix who can spread costs across its subscribers. If ISPs incurred the expense of upgrades, they’d have to spread costs over its subscriber base, but many of their subscribers are not Netflix users.

That principle doesn’t seem to hold for WatchESPN, which is owned by Disney. WatchESPN is an online service that provides live streams of ESPN television programming, like ESPN2 and ESPNU, to personal computers and also includes ESPN3, an online-only livestream of non-marquee sports. If a company has leverage in other markets, like Disney does in TV programming markets, I suspect ISPs can’t or won’t charge for interconnection. These interconnection deals are non-public but Disney probably doesn’t pay ISPs for transmitting WatchESPN traffic onto ISPs’ last-mile networks. The existence of a list of ESPN’s “Participating Providers” indicates that ISPs actually have to pay ESPN for the privilege of carrying WatchESPN content.

Netflix is different from WatchESPN in significant ways (it has substantially more traffic, for one). However, it is a popular service and seems to be flexing its leverage muscle with its Open Connect program, which provided higher-quality videos to participating ISPs. It’s plausible that someday video sources like Netflix will gain leverage, especially as broadband competition increases, and ISPs will have to pay content companies for traffic, rather than the reverse. When competitive leverage is the issue, antitrust agencies, not the FCC, have the appropriate tools to police business practices.

2. The rise of managed services in video.

Managed services include services ISPs provide to customers like VoIP and video-on-demand (VOD). They are on data streams that receive priority for guaranteed quality assurance since customers won’t tolerate a jittery phone call or movie stream. Crucially, managed services are carried on the same physical broadband network but are on separate data streams that don’t interfere with a customer’s Internet service.

The Apple-Comcast deal, if it comes to fruition, would be the first major video offering provided as a managed service. (Comcast has experimented with managed services affiliated with Xbox and TiVo.) Verizon is also a potential influential player since it just bought an Intel streaming TV service. Future plans are uncertain but Verizon might launch a TV product that it could sell outside of the FiOS footprint with a bundle of cable channels, live television, and live sports.

Net neutrality proponents decry managed services as exploiting a loophole in the net neutrality rules but it’s hardly a loophole. The FCC views managed services as a social good that ISPs should invest in. The FCC’s net neutrality advisory committee last August released a report and concluded that managed services provide “considerable” benefits to consumers. The report went on to articulate principles that resemble a safe harbor for ISPs contemplating managed services. Given this consensus view, I see no reason why the FCC would threaten managed services with new rules.

3. Uncertainty about what is “the Internet” and what is “television.”

Managed services and other developments are blurring the line between the Internet and television, which makes “neutrality” on the Internet harder to define and implement. We see similar tensions in phone service. Residential voice service is already largely carried via IP. According to FCC data, 2014 will likely be the year that more people subscribe to VoIP service than plain-old-telephone service. The IP Transition reveals the legal and practical tensions when technology advances make the FCC’s regulatory silos–“phone” and “Internet”–anachronistic.

Those same technology changes and legal ambiguity are carrying over into television. TV is also increasingly carried via IP and it’s unclear where “TV” ends and “Internet video” begins. This distinction matters because television is regulated heavily while Internet video is barely regulated at all. On one end of the spectrum you have video-on-demand from a cable operator. VOD is carried over a cable operator’s broadband lines but fits under the FCC’s cable service rules. On the other end of the spectrum you have Netflix and YouTube. Netflix and YouTube are online-only video services delivered via broadband but are definitely outside of cable rules.

In the gray zone between “TV” and “Internet video” lies several services and physical networks that are not entirely in either category. These services include WatchESPN and ESPN3, which are owned by a cable network and are included in traditional television negotiations but delivered via a broadband connection.

IPTV, also, is not entirely TV nor Internet video. AT&T’s UVerse, Verizon’s FiOS, and Google Fiber’s television product are pure or hybrid IPTV networks that “look” like cable or satellite TV to consumers but are not. AT&T, Verizon, and Google voluntarily assent to many, but not all, cable regulations even though their service occupies a legally ambiguous area.

Finally, on the horizon, are managed video and gaming services and “virtual MSOs” like Apple’s or Verizon’s video products. These are probably outside of traditional cable rules–like program access rules and broadcast carriage mandates–but there is still regulatory uncertainty.

Broadband and video markets are in a unique state of flux. New business models are slowly emerging and firms are attempting to figure out each other’s leverage. However, as phone and video move out of their traditional regulatory categories and converge with broadband services, companies face substantial regulatory compliance risks. In such an environment, more than ever, the FCC should proceed cautiously and give certainty to firms. In any case, I’m optimistic that experts’ predictions will be borne out: ex ante net neutrality rules are looking increasingly rigid and inappropriate for this ever-changing market environment.

Related Posts

1. Yes, Net Neutrality is a Dead Man Walking. We Already Have a Fast Lane.
2. Who Won the Net Neutrality Case?
3. If You’re Reliant on the Internet, You Loathe Net Neutrality.

The Mercatus Center at George Mason University has released a new working paper by Daniel A. Lyons, professor at Boston College Law School, entitled “Innovations in Mobile Broadband Pricing.”

In 2010, the FCC passed net neutrality rules for mobile carriers and ISPs that included a “no blocking” provision (since struck down in FCC v. Verizon). The FCC prohibited mobile carriers from blocking Internet content and promised to scrutinize carriers’ non-standard pricing decisions. These broad regulations had a predictable chilling effect on firms trying new business models. For instance, Lyons describes how MetroPCS was hit with a net neutrality complaint because it allowed YouTube but not other video streaming sites on its budget LTE plan (something I’ve written on). Some critics also allege that AT&T’s Sponsored Data program is a net neutrality violation.

In his paper, Lyons explains that the FCC might still regulate mobile networks but advises against a one-size-fits-all net neutrality approach. Instead, he encourages regulatory humility in order to promote investment in mobile networks and devices and to allow new business models. For support, he points out that several developing and rich countries have permitted commercial arrangements between content companies and carriers that arguably violate principles of net neutrality. Lyons makes the persuasive argument that these “non-neutral” service bundles and pricing decisions on the whole, rather than harming consumers, expand online access and ease non-connected populations into the Internet Age. As Lyons says,

The wide range of successful wireless innovations and partnerships at the international level should prompt U.S. regulators to rethink their commitment to a rigid set of rules that limit flexibility in American broadband markets. This should be especially true in the wireless broadband space, where complex technical considerations, rapid change, and robust competition make for anything but a stable and predictable business environment.

Further,

In the rapidly changing world of information technology, it is sometimes easy to forget that experimental new pricing models can be just as innovative as new technological developments. By offering new and different pricing models, companies can provide better value to consumers or identify niche segments that are not well-served by dominant pricing strategies.

Despite the January 2014 court decision striking down the FCC’s net neutrality rules, it’s an issue that hasn’t died. Lyons’ research provides support for the position that a fixation on enforcing net neutrality, however defined, distracts policymakers from serious discussion of how to expand online access. Rules should be written with consumers and competition in mind. Wired ISPs get the lion’s share of scholars’ attention when discussing net neutrality. In an increasingly wireless world, Lyon’s paper provides important research to guide future US policies.

Verizon v. FCC, the court decision overturning the Federal Communications Commission’s (FCC) net neutrality rules, didn’t rule directly on the First Amendment issues. It did, however, reject the reasoning of net neutrality advocates who claim Internet service providers (ISPs) are not entitled to freedom of speech.

The court recognized that, in terms of the functionality that it offers consumers and the economic relationships among industry participants, the Internet is as similar to analog cable networks as it is to analog telephone networks. As a result, the court considered most of the issues in the net neutrality case to be “indistinguishable” from those addressed in  Midwest Video II, a seminal case addressing the FCC’s authority over cable systems. The court’s emphasis on the substantive similarities between analog cable services, which are clearly entitled to First Amendment protection, indicates that ISPs are likewise entitled to protection.

Net neutrality advocates argued that ISPs are not First Amendment “speakers” because ISPs do not exercise editorial discretion over Internet content. In essence, these advocates argued that ISPs forfeited their First Amendment rights as a result of their “actual conduct” in the marketplace.

Though the court didn’t address the First Amendment issues directly, the court’s reasoning regarding common carrier issues indicates that the “actual conduct” of ISPs is legally irrelevant to their status as First Amendment speakers.

In  Verizon v. FCC , the FCC argued that its net neutrality rules couldn’t be considered common carrier obligations with respect to edge providers because ISPs did not have direct commercial relationships with edge providers. But the court concluded that the nature of preexisting commercial relationships between ISPs and edge providers was irrelevant to the legal status of ISPs:

[T]he Commission appears to misunderstand the nature of the inquiry in which we must engage. The question is not whether, absent the [net neutrality rules], broadband providers would or did act as common carriers with respect to edge providers; rather, the question is whether, given the rules imposed by the [FCC], broadband providers are now obligated to act as common carriers.

FCC v. Verizon, No. 11-1355 at 52 (2014) (emphasis in original).

A court must engage in a similar inquiry when determining whether ISPs are “speakers” entitled to First Amendment protection. The question is not whether ISPs would or actually have exercised editorial discretion in the past. There is no Constitutional requirement that ISPs (or anyone else)  must speak at the earliest opportunity in order to preserve their right to speak in the future. The question is whether ISPs have the legal option of speaking — i.e., exercising editorial discretion.[2]

Of course, everyone knows ISPs have the ability to exercise such discretion. The court noted there was little dispute regarding the FCC’s finding that that ISPs have the technological ability to distinguish among different types of Internet traffic. Indeed, ISPs’ ability to exercise editorial discretion is the very reason the FCC adopted its net neutrality rules. It is also for this reason that, for First Amendment purposes, ISPs are substantially similar to television broadcasters and analog cable operators for whom First Amendment protections have already been applied.

Some net neutrality advocates attempt to skirt this fact by arguing that ISPs don’t “need” to exercise editorial discretion because today’s ISPs are less capacity constrained than broadcasters and analog cable operators. The essence of this argument is that the First Amendment permits the government to abridge a potential speaker’s freedom of speech if, in the government’s subjective view, the speaker would be able to get along just fine without speaking.

In their zeal to defend net neutrality, these advocates appear to have forgotten that, no matter how comfortable or familiar it may be, a muzzle is still a muzzle. The courts have not.

In  Verizon v. FCC, the court recognized that the relationships among ISPs, their subscribers, and edge providers are “indistinguishable” from those present in the analog cable market addressed by the Supreme Court in Midwest Video II:

The Midwest Video II cable operators’ primary “customers” were their subscribers, who paid to have programming delivered to them in their homes. There, as here, the Commission’s regulations required the regulated entities to carry the content of third parties to these customers—content the entities otherwise could have blocked at their discretion. Moreover, much like the rules at issue here, the Midwest Video II regulations compelled the operators to hold open certain channels for use at no cost—thus permitting specified programmers to “hire” the cable operators’ services for free.

FCC v. Verizon, No. 11-1355 at 54 (2014).

The court rejected the FCC’s arguments attempting to distinguish the Internet from cable — arguments that are substantially the same as those advanced by net neutrality advocates in the First Amendment context.

First, the court was unmoved by the argument that Internet content is delivered to end users only when an end user “requests” it, i.e., by clicking on a link. The court noted that cable customers could not actually receive content on a particular cable channel either unless they affirmatively chose to watch those channels, i.e., by changing the channel. ( See id.) The court recognized that, “The access requested by [cable video] programmers in Midwest Video II, like the access requested by edge providers here, is the ability to have their communications transmitted to end-user subscribers if those subscribers so desire.” (Id.)

Second, the court considered the capacity differences between the analog cable systems at issue in  Midwest Video II and the broadband Internet to be irrelevant to common carriage analysis:

Whether an entity qualifies as a carrier does not turn on how much content it is able to carry or the extent to which other content might be crowded out. A short train is no more a carrier than a long train, or even a train long enough to serve every possible customer.

FCC v. Verizon, No. 11-1355 at 55 (2014). The capacity issue is irrelevant to the applicability of the First Amendment for the same reason. A speaker has the right to refrain from speaking even if speaking would be undemanding.

Finally, the court concluded that the FCC could not distinguish its net neutrality rules from the rules at issue in  Midwest Video II using another variation on the “actual conduct” argument. In Midwest Video II, the Supreme Court emphasized that the FCC cable regulations in question “transferred control of the content of access cable channels from cable operators to members of the public.” Midwest Video II, 440 U.S. at 700. In Verizon v. FCC, the FCC argued that its net neutrality rules had not “transferred control” over the Internet content transmitted by ISPs because, “unlike cable systems, Internet access providers traditionally have not decided what sites their end users visit.” (FCC Brief at 65) The court did not consider the “actual conduct” of ISPs a relevant distinction:

The [net neutrality] regulations here accomplish the very same sort of transfer of control: whereas previously broadband providers could have blocked or discriminated against the content of certain edge providers, they must now carry the content those edge providers desire to transmit.

FCC v. Verizon, No. 11-1355 at 56 (2014).

Based on the court’s repeated emphasis on the substantive similarities between analog cable services, which the Supreme Court has held are “speakers”, and Internet services, it should now be obvious that ISPs are also “speakers” entitled to First Amendment protection. The use of Internet protocol rather than analog cable technology to deliver video services changes neither the economic nor the First Amendment considerations applicable to network operators, edge providers, and end users.

To be clear, application of the First Amendment to ISPs does not automatically mean that net neutrality rules would be unconstitutional. Whether a particular regulation is violative of the First Amendment depends on the applicable level of judicial scrutiny, the importance of the government interest at stake, and the degree of relatedness between the law and its purpose. Whether net neutrality rules would survive First Amendment scrutiny would thus depend in part on their own terms and the government’s rationale for adopting them.

That is why the applicability of the First Amendment to ISPs is so important. When Constitutional rights are at stake, the government has stronger incentives to adopt regulations that are well-reasoned and likely to achieve their intended goals than it does when it makes rules in the ordinary administrative context.

[1] The doctrine of constitutional avoidance counsels against deciding a constitutional question when a case can be resolved on some other basis. Once the court concluded that the FCC exceeded its authority in adopting the anti-blocking and anti-discrimination rules, the court had no need to address their constitutionality.

[2] Even if the “actual conduct” argument were valid, it would not control application of the First Amendment to ISPs. The fact that ISPs don’t exercise editorial discretion was motivated in part by FCC policies that chilled or prohibited the exercise of such discretion.

• In the dial-up era, telephone companies were subject to common carrier regulations prohibiting their exercise of editorial discretion over Internet content transmitted by third-party companies (e.g., America Online, who exercised editorial discretion over Internet content) while reducing economic incentives for telephone companies to provide their own Internet services;
• Though the FCC exempted cable broadband services from common carrier regulation relatively early in the broadband era, the FCC simultaneously asked whether and to what extent it should impose editorial restrictions on such services;
• In conjunction with its subsequent order extending the cable broadband exemption to telephone companies, the FCC issued a Broadband Policy Statement announcing that it would take action if it observed ISPs exercising editorial discretion; and
• After the DC Circuit ruled that the Broadband Policy Statement was unenforceable, the FCC adopted the net neutrality rules that the court struck down in Verizon v. FCC.

This history indicates that the “actual conduct” of ISPs evidences nothing more than their intent to comply with FCC rules and policies. It would be absurd to conclude that ISPs forfeited their right to First Amendment protection by virtue of their regulatory compliance.

On Saturday, C-SPAN aired a segment of The Communicators featuring me and Free Press’ Chance Williams. In the 30-minute segment, Chance and I discussed the future of net neutrality now that the FCC’s Open Internet rules are vacated. You can see the taping here or below.

The Internet is abuzz with news that Federal Communications Commission Chairman Tom Wheeler favors a case-by-case approach to addressing Internet competition issues. It is the wisest course, and perhaps the most courageous. Some on the right will say he is going too far, and some on the left will say he isn’t going far enough. That is one reason Wheeler’s approach should be commended. Staunch disagreements about net neutrality and other Internet governance issues reflect the uncertainty inherent in a dynamic market.

Chairman Wheeler’s comments this week echoed Socrates (“I’m not smart enough to know what comes next [in innovation]”) and, to my surprise, Virginia Postrel (the Chairman favors addressing Internet issues “in a dynamic rather than a static way”). He recognizes that, in a two-sided market, there is no reason to assume that ISPs will necessarily have the ability to charge content providers rather than the other way around. The potential for strategic behavior on the Internet today is radically different than in the dial-up Internet era, and the Chairman appears prepared to consider those differences in his approach to communications regulation.

The Chairman also noted that section 706 gives the FCC authority over the entire Internet. Though my friends at TechFreedom have expressed alarm that the Chairman thinks this is positive, an approach that recognizes the potential for strategic behavior by so-called edge providers is preferable to the one-sided approach embodied in net neutrality. The FCC’s decision to impose strict limitations on only one side of the two-sided Internet marketplace was bound to create market distortions and always smacked of cronyism. A broader approach, fairly applied, is more likely to discourage strategic behavior and protect consumers than the FCC’s previous net neutrality rules, which were designed to protect the commercial interests of edge providers.

To be clear, I remain unconvinced that intervention is necessary. But that is the virtue of the common law approach. If anticompetitive behavior occurs, the FCC would have the ability to take action. If not, the market would have the freedom to experiment with new business models and service arrangements. In comparison, a  per se rule “will almost always favor one group over another.”

There is another reason the Chairman should be commended for not rushing to reinstate the invalidated net neutrality rules – respect for the role of Congress. As Commissioner Pai noted in his statement on the DC Circuit’s decision striking down the rules, it was “the second time in four years” that the court had ruled that the agency exceeded its authority in attempting to regulate the Internet. In the meantime, Congress has begun a #CommActUpdate process to modernize the statute for the Internet era. In these circumstances, comity counsels that the FCC defer to Congress on Internet rules. A case-by-case approach would give the FCC flexibility to address any serious anti-competitive or consumer issues that might arise while avoiding the issuance of comprehensive rules in the face of a Congressional rewrite. That is indeed wise.

On its face, Verizon won a resounding victory in Verizon v. FCC since the controversial net neutrality regulations were vacated by all three DC Circuit judges. This marks the second time in four years the FCC had its net neutrality enforcement struck down.

Look at published reactions, though, and you’ll see that both sides feel they suffered a damaging loss in yesterday’s decision.

Prominent net neutrality advocates say “the court loss was even more emphatic and disastrous than anyone expected” and a “FEMA-level fail.”

Conversely, critics of net neutrality say that it was a “big win for FCC” and that “the court has given the FCC near limitless power to regulate not just broadband, but the Internet itself.”

Most analysis of the case will point out that it’s a mixed bag for both sides. What is clear is that the net neutrality movement suffered an almost complete loss in the short term. The FCC’s regulations from the Open Internet Order preventing ISPs from “unreasonable discrimination” and “blocking” of Internet traffic were struck down. The court said those prohibitions are equivalent to common carrier obligations. Since ISPs are not common carriers–per previous FCC rulings–most of the Open Internet Order was vacated.

The long term is more uncertain and net neutrality critics have ample reason to be concerned. The court yesterday said the FCC has broad authority to regulate ISPs’ treatment of traffic under Section 706 of the 1996 Telecommunications Act. This somewhat unanticipated conclusion–given its breadth–leaves the FCC with several options if it wants to enact net neutrality or “net neutrality-lite” regulations.

Putting aside the possibility that the FCC or Verizon will appeal the decision, these are the developments to watch:

1. Title II reclassification.

The FCC could always reclassify ISPs as common carriers and subject them to common carrier obligations. I think this is unlikely for several reasons.

First, reclassification would absolutely poison relationships with Congressional Republicans, some important Democrats, and the broadband industry. This is a large reason why then-FCC Chairman Genachowski did not seriously pursue reclassification in 2010. If anything, the political climate is worse for reclassification. Republicans and ISPs simply oppose reclassification more than Democrats and advocates support it.

Second, the content companies–like Google, Hulu, and Netflix–who would ostensibly benefit from net neutrality seem to have cooled to the idea. Part of content companies’ waning interest in net neutrality, I suspect, is exhaustion. This fight has gone on for a decade with little to show for it. They may also realize that ISPs are not likely to engage in truly abusive behaviors. Broadband speeds and capacity have advanced substantially in a decade and concerns about being squeezed out have lessened. There are also powerful norms that ISPs are not likely to violate. Consumers don’t like unseemly behavior by ISPs–like throttling a competing VoIP or video provider. If only because of the PR risk, ISPs have significant incentives to maintain the level of service they have historically provided.

Third, reclassification is a time-consuming and legally fraught process. Even the most principled net neutrality proponents don’t want ISPs subjected to every applicable Title II obligation. But “forbearance” of Title II regulations means several regulatory proceedings, each one potentially subject to litigation.

Finally, Chairman Tom Wheeler, fortunately, does not appear to be an ideologue willing to spend most of his tenure as chairman re-fighting this bitter fight. His comments last month were telling:

I think we’re also going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that . . . my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve.

This statement struck dread in the hearts of many net neutrality proponents. I’ve always believed he was talking about specialized services when he made this statement since pay-for-priority deals were essentially banned by the Open Internet Order. Regardless, his apparent comfort with changing pricing dynamics in two-sided markets indicates he is not a net neutrality partisan. I suspect Chairman Wheeler wants to go down as the chairman who guided America to a mobile future. His priorities seem to be in getting spectrum auctions right, not in rehashing old battles.

2. Pay-for-priority deals.

The legal uncertainties need to be settled before ISPs begin looking at prioritization deals, but they’ll probably pursue some. For example, gaming services might want to pay ISPs to make sure gamers receive low latency connections and large enterprise customers might want prioritized traffic for services like virtual desktops for, say, on-the-road employees. No one knows how common these deals will be. In any case, these deals will probably be closely monitored by the FCC for perceived abuses of market power, as explained next.

3. Increased FCC scrutiny using Section 706.

Substantial and costly scrutiny of ISPs’ traffic management from the FCC is the long-term fear. It now appears that the FCC has many tools to regulate how ISPs treat traffic under Section 706. I call this net neutrality-lite but 706 authority has the potential to be a more powerful weapon than the Open Internet Order. Not only can the FCC use 706 to regulate ISPs through adjudications, the mere threat of using 706 against ISPs may induce compliance. If there is a bright side to the court’s recognition of the FCC’s 706 authority, it’s that it makes Title II reclassification of ISPs less likely.

Verizon v. FCC was mostly a win for those of us who viewed the Open Internet Order as a regulatory overreach. Risks remain since net neutrality as a policy goal will not die, but reclassification is a long shot, fortunately. Policy watchers will be analyzing Wheeler’s actions, in particular, to see whether the FCC pursues its Section 706 authority to regulate ISPs. Hopefully the court’s decision is accepted as final and marks the end of the most heated battles over net neutrality. The FCC could then turn its attention to important issues like spectrum auctions, the IP transition, and the rapidly changing television market.

“Net neutrality is a dead man walking,” Marvin Ammori stated in Wired last week, citing the probable demise of the FCC’s Open Internet rules in court. I’d agree for a different reason. Net neutrality has been dead ever since the FCC released its net neutrality order in December 2010. (This is not to say the damaging rules should be upheld by the DC Circuit. For many reasons, the Order should be struck down.) I agree with Ammori because we already have the Internet “fast lane” many net neutrality proponents wanted to prevent. Since that goal is precluded, all the rules do is hang Damocles’ Sword over ISPs regarding traffic management.

The 2010 rules managed to make both sides unhappy. The ISPs face severe penalties if three FCC commissioners believe ISP network management practices “unreasonably discriminate” against certain traffic. Public interest groups, on the other hand, were dissatisfied because they wanted ISPs reclassified as common carriers to prevent deep-pocketed content creators from allying with ISPs to create an Internet “fast lane” for some companies, relegating most other websites to the so-called “winding dirt road” of the public Internet.

Proponents emphasize different goals of net neutrality (to the point–many argue–it’s hard to discern what the term means). But if preventing the creation of a fast lane is the main goal of net neutrality, it’s dead already. Consider two popularly-cited net neutrality “violations” that do not violate the Open Internet Order: Netflix’ Open Connect program and Comcast not counting its Xfinity video-on-demand (VOD) service against customers’ data limits

Both cases involve the creation of a fast lane for certain content and activists rail against them. Both cases also involve network practices expressly exempted from net neutrality regulations. The FCC exempted these sorts of services because they are important, benefit the public, and should be encouraged. With Open Connect, Netflix scatters its many servers across the country closer to households, which allows its content to stream at a higher quality than most other video sites. Comcast gives its Xfinity VOD fast-lane treatment as well, which is completely legal since VOD from a cable company is a “specialized service” exempt from the rules.

“Specialized service” needs some explanation since it’s a novel concept from the FCC order. The net neutrality rules distinguish between “broadband Internet access service” (BIAS)–to which the regulations apply–and specialized (or managed) services–to which they don’t apply. The exemption of specialized services opens up a dangerous loophole in the view of proponents.

BIAS is what most consider “the Internet.” It’s the everyday websites we access on our computers and smartphones. What are specialized services? In the sleepy month of August the FCC’s Open Internet Advisory Committee released its report on what criteria specialized service needs to meet to be exempt from net neutrality scrutiny (these are influential and advisory, but not binding):

1. The service doesn’t reach large parts of the Internet, and
2. The service is an “application level” service.

The Advisory Committee also thought that “capacity isolation” is a good indicator that a service should be exempt. With capacity isolation, the ISP has one broadband connection going to the home but is separating the service’s data stream from the conventional Internet stream consumers use to visit Facebook, YouTube, and the like. This is how Comcast’s streaming of Xfinity to Xboxes is exempt–it is a proprietary network going into the home. As long as carriers don’t divert BIAS capacity for the application, the FCC will likely turn a blind eye.

What are some examples? Specialized service is marked by higher-quality streams that typically don’t suffer from jitter and latency. If you have “digital voice” from Comcast, for example, you are receiving a specialized service–proprietary VoIP. Specialized service can also include data streams like VOD, e-reader downloads, heart monitor data, and gaming services. The FCC exempted these because some are important enough that they shouldn’t compete with BIAS Internet. It would be obviously damaging to have digital phone service or health monitors getting disrupted because others are checking up on their fantasy football team. The FCC also wanted to spur investment in specialized services and video companies like Netflix are considering pairing up with ISPs to deliver a better experience to customers.

That is to say, the net neutrality effort has failed even worse than most realize. The FCC essentially prohibited innovative business models in BIAS, freezing that service into common-carrier-like status. Further, we have an Internet fast lane (which I consider a significant public benefit, though net neutrality proponents often do not). As business models evolve and the costs of server networks fall, our two-tier system will become more apparent.