A FIGHT FOR NET NEUTRALITY OR AGENCY RELEVANCE?

Posted By; Rylan Steward

480px-Network_neutrality_poster_symbolDictionary.com defines net neutrality as, “the principle that Internet service providers should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or websites.” This is essentially the idea that broadband providers should not be able to block a user from accessing certain sites or content or “throttle” the speeds at which that content is delivered. The Federal Communications Commission (FCC) has long battled to gain control over the broadband market by re-classifying broadband providers as public utilities.

After the reclassification of broadband providers as a utility, so called open internet advocates claimed the action as a victory. However, I believe that government regulation and classification as a utility does the opposite of provide an open internet. Conversely, this classification of broadband providers will likely stifle the unprecedented growth and technological advancements the internet has been able to achieve thus far. This article delves into the inner workings of the broadband market and how the principles of net neutrality are better served without the interference of the FCC.

Despite recent attention, the debate surrounding reclassification and policies surrounding broadband regulation spans more than a decade. Before the reclassification of broadband providers in 2015, the FCC had attempted, on multiple occasions, to impose net neutrality rules on providers.

In a 2010 case, Comcast Corporation v. FCC, a United States Court of Appeals unanimously held that the FCC lacked authority to enforce the rules against Comcast for interfering with peer-to-peer network applications. In reaction, the FCC approved new rules which it formalized with an FCC order with the FCC Open Internet Order of December 2010. However, the FCC struck out again when Verizon filed an appeal and the same United States Court of Appeals the ruled in Comcast, ruled in favor of Verizon and vacated portions of the new FCC Order.

In light of failures to impose net neutrality laws on broadband providers, the FCC sought to classify broadband providers as a Title II telecommunications service under the Communications Act of 1934 and thus subject to common carriers regulations. This would essentially hold broadband providers to many of the same requirements as the old telephone network. The reclassification of Broadband providers to Common Carriers would not itself impose the net neutrality rules but would instead give the FCC the necessary legal framework and authority to impose the regulations and sanctions on broadband providers who failed to comply with the rules.

In early 2015, the FCC finally reclassified broadband providers as public utilities and thus placed providers under the control of the FCC with the 2015 Open Internet Order. The reclassification of Broadband providers as Common Carriers did not itself impose the net neutrality rules on providers but rather gave the FCC the necessary legal framework and authority to impose the regulations and sanctions on broadband providers where the FCC had lacked the ability to do so before.

This action was widely celebrated by open internet advocates. The net neutrality rules put in place intended to ban broadband providers from blocking or slowing down any websites or apps. The rules further prohibited broadband providers from creating “fast lanes” for certain websites or apps to have priority over others. Let’s take a look at a couple of examples of the conduct the net neutrality rules are aimed at prohibiting.

Example 1: The rules would not allow Cox Communications to block Netflix from reaching users who rely on Cox for internet service. The fear is that Cox Communications would block Netflix and other streaming services because they compete with Cox’s traditional cable television services.

Example 2: The rules would also not allow Cox Communications to demand that Netflix pay a fee in order to receive priority or give Netflix content a “fast lane” on the network. Such an arrangement giving Netflix priority over content delivered by another company, Hulu for example, would serve to make Netflix more attractive to users in that area.

THE REPEAL

The open internet advocates’ celebration was short lived, as President Trump’s FCC overturned the reclassification of broadband providers less than two years after its enactment. The reversal of the 2015 FCC reclassification of broadband providers immediately erupted into a massive panic among open internet and consumer rights advocates. Many of these advocates scorned the reversal, with some even asserting that it would lead to the end of the internet as we know it.

THE END OF THE INTERNET AS WE KNOW IT

So is the reversal of the 2015 FCC reclassification of broadband providers really the end of the internet as we know it? Is it possible that we will no longer receive the content we want, when want it? The answer is no. This is due to a number of factors found in powerful market influences and in existing antitrust laws.

First, it is important to keep in mind that the FCC reclassification and enforcement of the net neutrality rules came into effect in 2015. So from the beginning of the commercialization of the internet until that point, the FCC was not enforcing the net neutrality rules. Despite the lack of FCC influence, the internet and internet start-ups have flourished. We have seen major advancements stemming from a high level of competition in this market. During the time before the rules were in effect, market disruptors such as Google and Netflix were able to take a massive share of market control from major broadband companies like AT&T and Cox Communications. Google has been able to take over the search engine market and is even advancing as an internet provider with products like Google Fiber. Netflix has uprooted the traditional cable television services (widely operated by broadband providers) and shifted users to a streaming platform.

Let’s look back at Example 1 that we previously explored and go back in time to when Netflix had recently entered the market and is beginning to take market share from Cox Communications in the television entertainment market. Users are now canceling their pricey cable packages for monthly Netflix subscriptions. Since this is before the 2015 reclassification, the FCC does not have the ability to enforce net neutrality rules. Why did Cox decide not to block Netflix content from reaching users that rely on Cox for their internet access? There are two reasons Cox did not take this action. The first is strictly based on a free market approach. If users demand access to Netflix, and Cox blocks the service, users will quickly abandon Cox in favor of another provider. Of course, this reasoning does not apply to consumers who only have one choice of an internet service provider. This is where reason two comes into play.

The second reason a company such as Cox Communications didn’t block Netflix is that even without the net neutrality rules, the action would still be illegal. In this example, where Cox is the only provider in a given area, a monopoly is clearly established. By using its local monopoly of the internet market to exact an anticompetitive outcome in the television entertainment market (by blocking Netflix) Cox would be engaging in monopoly leveraging, and would therefore be in violation of Section 2 of the Sherman Act. Applying this law, the Federal Trade Commission (FTC) would have the power to stop and punish Cox for this action without relying on the FCC net neutrality rules.

Admittedly, there are other scenarios such as a provider offering a “fast lane” (example 2, above) or an internet provider blocking certain content for political purposes that might not be in violation of other laws absent the FCC reclassification of the internet. However, these issues could be solved by congress enacting federal laws that prohibit these actions. The answer is not to give the FCC power over the internet.

WHAT’S SO BAD ABOUT THE FCC?

If these laws and market forces already exist then what is the problem with having the FCC enforce the net neutrality rules? Here, the problem lies not within the enforcement of net neutrality rules but rather in the reclassification of the internet as a utility. It is true that the internet is an extremely important part of business and our everyday lives, however just because something is important does not mean it should be regulated as a utility. Utilities are restricted by government entities in how much they can charge for a service and part of that analysis is stipulating what a utility can and cannot invest in. As part of regulatory price setting, utilities are given a fixed rate of return to investors.

The internet has thrived due in-part to research and development into technologies that may never become viable products. However, the mass amounts of investment in innovation are why the internet is the resource that it is today. Subjecting these companies to strict regulation would only inhibit the growth of the internet and stifle what technologies we can create as a society. The high regulation can often also act as a barrier to entry into a market. The demand to comply with certain regulations is often costly, and with only a fixed rate of return for investors few will be willing to invest their money in emerging technology companies.

It is important to note, that under the 2015 FCC reclassification, its regulatory requirements for broadband providers were much less than those required from traditional phone companies. This is what the FCC considered “light touch regulation”. The issue here is that with the reclassification, even though not currently required, the FCC could decide to impose stricter regulations now that it has granted itself authority over broadband providers.

CONCLUSION

The internet has been able to thrive and grow because of hands off policies. The fear of giant corporations being able to take control of the internet and restrict what we have access to absent the FCC net neutrality rules is largely unfounded. Existing laws and free market conditions already control the behaviors the rules wish to prohibit. Where the free market and existing laws fail to provide adequate protections, it should fall on congress to create the laws necessary to keep the internet open without imposing further regulation on internet providers. The actions the FCC took to reclassify broadband providers had more to do with an agency power struggle between the FCC and the FTC for who will regulate the internet then it was to keep the internet open and neutral.

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