Why Presidential support of Title II may delay net neutrality rulemaking

What is Title II and why is it an issue?

Title II refers to a section of America’s Communications Act from 1934, the set of laws that govern America’s communications networks and the Federal Communications Commission (FCC). President Obama expressed support to classify broadband service under Title II or common carrier legislation established to manage the monopoly telephone network. Provisions include rate regulation, universal service fees, state utility commission oversight, duplicative reporting, and even paid prioritization, which is anathema to many Open Internet supporters. Title II could apply not just to broadband service, but to all aspects of the Internet value chain. For example, Google’s advertising rates could theoretically be regulated.

To date broadband has been classified under Title I, or information services, where they have had little to no regulation. This reflects a regulatory consensus that the important innovation of the Internet should be allowed to grow and develop without bureaucratic oversight.

If supporters of net neutrality are against paid prioritization, why would they support a policy that allows it?

Title II represents the strongest authority that the FCC has to manage broadband service, and its imposition is way to socialize infrastructure and networks, an ideological goal of many consumer groups that believe that broadband is too important to be left to the market.

Supporters of Title II classification suggest that the FCC can “forbear” or refrain from implementing the parts of Title they don’t like (paid prioritization) while keeping the parts that they do (common carriage).

Is Title II the only way to ensure net neutrality?

The concept of net neutrality has morphed from a consumer centric notion of Internet freedom into complex corporate regulation. The original Four Freedoms proposed by the FCC in 2005 consisted of protections on a user’s freedom to access the Internet content, application and services of one’s choice with the device of one’s choice with meaningful transparency about the broadband service provision. New rules proposed in 2010 about traffic management (transparency, no blocking, no unreasonable discrimination) were ultimately struck down because the courts said the FCC used the wrong authority. However the courts clarified that the FCC if it used the right legal approach could issue rules.

The FCC has a choice of whether to take an evidence-based approach and manage the issue when harm arises (under Section 706 of the 1996 Telecommunications Act) or to subject the Internet to a sweeping set of provisions from the outset (Title II).

What is the implication of the President’s announcement in support of Title II?

The President’s proposal has legal, political, and symbolic implications. It expands the definition of net neutrality to internet transit and interconnection, and it incorporates wireless networks into the regime. This is a departure from the 2010 rules that focused on last mile broadband connections and recognized that wireless networks were still evolving and therefore should be free from oversight.

The mid-term election roundly favored Republicans and was also a proxy of voters’ dissatisfaction with the President. Net neutrality was not even an issue in the last round. Obama could have ensured his Open Internet legacy with a middle of the road approach by returning to the 2010 rules, which a number of ISPs already agreed to uphold. It would have also been an opportunity for bi-partisan bridge building in the last two years of his Presidency.

Instead the President chose to be extreme. His support for Title II could be interpreted as lame duck, last-ditch attempt for severe rulemaking, which will likely be for naught, but it signals solidarity with extreme constituents to whom the President made a campaign promise in 2008. These constituents such as Free Press and Public Knowledge have advocated for extreme policies for many years, and the process for them is a long-term endeavor.

President Obama has been criticized on various fronts of Internet policy, including revelations of NSA surveillance and relinquishing American leadership of ICANN. That the announcement appeared while the President was in China is unfortunate and inauspicious.

The Chinese Internet is everything that Americans should not want of the Internet: state ownership of the enterprises that comprises the Internet, its infrastructure, content, and connectivity; top-down regulation of every aspect of the internet experience; and government collusion with industry to create internet companies. Should the US take the route of reclassifying broadband under Title II as Obama suggests, it would bring the the US dangerously closer to the Chinese model where the internet is “government allowed”.

Title II is not only bad news for the US, but for the rest of world. Indeed foreign authoritarian governments have been looking for justification to monitor networks and users under the guise of net neutrality and the “Open Internet”. Obama’s announcement could not be a better present to the leaders of China, Iran, and Russia.

What was the FCC’s response to the President?

While it is possible, if not probable, that the FCC and the White House have coordinated their efforts (indeed the President appoints the five commissioners to the FCC subject to Senate approval), the notion of telecom regulation is that it should be independent. If there is the appearance that the FCC takes orders from the President, then the credibility of the agency is undermined.

FCC Chairman Tom Wheeler issued a statement in which he thanked the President for the input and said that it would be added to the FCC record. This is a diplomatic way for the Chairman to proceed in rulemaking in an independent fashion. Ultimately the FCC needs to make a decision based upon the evidence and validity for such rules, regardless of political or public opinion.

The Chairman indicated that FCC considered hybrid proposals incorporating both Section 706 and Title II, but that they pose serious legal questions. As such, the FCC may solicit further comment and delay its rulemaking into 2015.

What happens if the FCC reclassified broadband as a Title II service?

Imposition of Title II on broadband will have a hard time surviving judicial review, as the FCC, expressly deciding not to regulate broadband as a utility for the last two decades, would be making an about face. Moreover, reclassification is guaranteed to bring litigation. Instead of net neutrality rulemaking delivered in 2014, it could play out for another decade.

Shouldn’t the Internet be regulated like a utility?

While some people claim that strict rules need to be placed on ISPs to prevent bad behavior, there is little to no evidence of abuse. The FCC has but two violations of net neutrality on record (of literally quadrillions of Internet experiences), and both instances were adjudicated without net neutrality rules in place. Both US and EU authorities have failed to find abuse either in Internet content or transit markets. Moreover there is no academic or intellectual consensus that there is market failure in which net neutrality rules would remedy. The top 10 academic articles on the topic conflict on whether the rules harm or enhance consumer welfare. Even the leading article by Economides and Tåg claims that the policy would create ambiguous results.

Net neutrality rules have always been about theoretical, not actual, harms. While there may be ideological dispositions about whether rules need to be ex ante or ex post, the FCC has no empirical evidence of the costs and benefits of any of its approaches. It proffers the “virtuous circle of innovation” as justification, but this notion is not proven nor theorized in the academic literature. It may be the case that this force is at work in the Internet, but there are many other theories that could be driving internet innovation, such as creative destruction, complementary assets, disruptive innovation, diffusion of innovation (Rogers), two-sided markets, among others.

Classification of broadband under Title II would likely reverse one of great legacies of the Democrats, the permission-less innovation policy implemented by the Clinton Administration. The Internet that was open and free from bureaucratic meddling allowed America’s digital society to flourish and to foster the country’s global leadership in the broadband-enabled ecosystem.

For all those who think that Title II 1930s era monopoly rules are the way to manage the Internet, many more Americans do not favor government control.  A number of have observed that Congress needs to make the final decision on net neutrality. That outcome is increasingly likely.