BEREC’s guidelines on zero rating are another “economics-free zone”, populism is the guiding principle

The former chief FCC economist Tim Brennan upon leaving the agency called the 2015 Open Internet Order an “economics-free zone.” The comment was picked up the the Wall Street Journal. Brennan said he made the remark in jest  but has since taken great pains to clarify that the order was instead “wrong, unsupported, and irrelevant.” But he maintains that as chief economist, neither he nor the other bureau economists participated in the rulemaking process.

Another chief FCC economist Gerald Faulhaber has published a detailed paper on the curious absence of economics at the FCC and concludes that “populism has become the guiding principle” for rulemaking.  Brennan, Faulhaber and co-author Hal Singer explained their views at a recent event.

When Chairman Wheeler announced the vote on the FCC Open Internet rules, the key reason he supplied was the weighing in by “4 million Americans  But a fact check reveals that not only were at least a quarter of the responses against Internet regulation, but hundreds of thousands of responses came from non-Americans outside of the US, in addition to a significant part of the comments being unintelligible and unrelated to the proceeding.  Analysis also revealed that a large part of the comments came during spikes, following a late night comedy rant and the highly coordinated Internet Slowdown Day.  A Berkman Center analysis describes the highly organized and networked activists and media which prevailed to make hard net neutrality rules.

A similar trend for populism is afoot in the European Union among telecom regulators. The Body of European Regulators for Electronic Communications (BEREC) boasts on its website that it received almost half a million responses to its consultation on guidelines for net neutrality. While the authenticity of the purported numbers is suspect, it’s an interesting point that that regulators now brandish numbers as a form of plebiscite to add credibility to their rulemaking. Perhaps they do not believe in their own expertise to justify their rulemaking–or it could be that the evidence does not support the type of rulemaking they want to make. But that a regulator would grandstand on public comment as justification for its rules impugns the very notion of an expert, independent regulator.

A review of BEREC’s proposed guidelines suggests that European telecom regulators want to exit the rigorous, evidence-based world of economics and enter the world of human rights adjudication, an area to which they are not necessarily chartered or qualified to enforce. It is true that the new EU net neutrality law calls upon both human rights and communications law in presenting regulation for an open internet access, but it never mentions the terms net neutrality, zero rating, or specialised services. In fact proposed amendments about these items were unanimously rejected by the Parliament. Curiously  these terms now comprise the bulk of the 43 pages of BEREC’s proposed guidelines.

In any event, zero rating is an economics-free zone in the guidelines with a set of criteria to evaluate offers in the marketplace.  BEREC does not describe zero rating as an anti-competitive practice (because it patently is not), instead BEREC justifies its proposed guidelines under the rubric of “not limiting the exercise of end-user rights.” Indeed one of its criteria for judgement of is whether a zero rating is allowed is to its impact to “freedom of expression and media pluralism.”

If experience is any guide, BEREC will likely get itself into trouble should it adopt such guidelines.  After 18 months of deliberation, the Slovenian court ruled against the telecom regulator Akos on four lawsuits which charged that its decisions on zero rating were arbitrary and capricious. The Court declared that the Slovenian net neutrality law cannot be understood a per se prohibition on zero rating. The court also noted that the regulator ignored the economic analysis of the national competition authority. I have followed this case closely and describe it here and here. Telecom regulators, if they are smart will stick to their knitting in economics and not freelance into new territory.