Since Donald Trump’s election, the rhetoric surrounding net neutrality’s imminent demise has been frenzied. Every move by newly appointed Federal Communications Commission (FCC) chair Ajit Pai generates a chorus of consumer advocates bemoaning the death of neutrality and the “end of the internet as we know it.” Businesses and consumers are being warned that Republican lawmakers are united in their determination to not just modify the FCC’s 2015 Open Internet Order, but to “kill,” “destroy,” “dismantle,” or “abolish,” the open internet, as soon as possible.
In the interest of exploring these issues, I’ve compiled some of the most important questions about net neutrality and the 2015 order, which grounded the rules in 1930s-era public utility law. To be clear, I agree with Netflix CEO Reed Hastings, who recently acknowledged that net neutrality principles have been and will continue to be strictly enforced not by regulation but by powerful market forces. My view is pretty simple: Most efforts to regulate the internet make things worse in the long term—or, in this case, much sooner. Here, the effort to transform Internet Service Providers (ISPs) into utilities is a cure far worse than the problem.
The key players
First, there’s the FCC, which along with other, sometimes rival agencies including the Federal Trade Commission (FTC), represents the main U.S. regulatory bodies for internet usage. There’s the president, who appoints the members of the Commissions, and Congress, which is solely responsible for delegating legislative authority to them.
Then there are the businesses in the internet ecosystem, often unhelpfully divided into “edge providers,” such as Google, Facebook, and Netflix, and “infrastructure” providers, including engineering groups, ISPs, and companies that support the backbone of the internet. (Increasingly, the distinction is meaningless.) And, as with other issues, there are D.C.-based advocacy groups, regularly quoted in the press, many of which have with strong pro- or anti-regulatory biases.
The 2015 Open Internet Order
This is an FCC rule, advocated for by President Obama, that based new net neutrality rules on old public utility laws originally written to regulate the former Bell telephone monopoly. The 2015 order mostly addressed a radical policy shift from competing private networks to public utility treatment for broadband, or “reclassification,” with authority to enforce net neutrality being a mere side effect.
The order passed, in early 2015, by a party-line vote of 3-2. (Pai was one of the commissioners who voted against it.) At the time, advocates hailed reclassification as a necessary foundation for net neutrality. But reclassification, separate from the net neutrality rules themselves, was less popular with broadband providers, which, along with leading internet engineering groups and companies like Google and Netflix, were concerned that the FCC would use the broad public utility powers it granted itself to regulate the internet well beyond enforcing net neutrality.
Is it necessary?
If the FCC or Congress revises or even reverses the public utility order, isn’t that the end of net neutrality? No. The Open Internet principles (as the FCC has always referred to net neutrality) long predate the 2015 Order. When a court found in 2010 that the FCC lacked authority to enforce them, the agency formalized them as rules. The same court rejected that effort in 2014, however, concluding that the agency had failed to identify a source of legal authority from Congress, precipitating the 2015 Order.
Thus, for most of the history of the commercial internet, there have never been formal net neutrality rules. Still, during a decade of largely inside-the-Beltway squabbling, the FCC has only once identified a violation of the principles that might have been barred by any version of its rules.
That may be in large part because, even without the FCC, the kinds of behavior net neutrality prohibits are either counter-productive for broadband providers to engage in or are already illegal under anti-competition laws actively enforced by the Federal Trade Commission.
FCC versus FTC: the power struggle
If the FTC was already the internet’s “cop on the beat,” why does the FCC also need to regulate? In part, the net neutrality fight has always been an inter-agency power struggle, with the FTC and the FCC each determined to establish new relevance in the emerging internet ecosystem. One (perhaps) unintended consequence, however, of the reclassification of broadband as a public utility is that the FCC explicitly cut off the jurisdiction of the FTC, which can’t oversee utilities. Reversing reclassification but preserving the net neutrality rules—an action now being considered at the FCC and in Congress—restores oversight to both agencies.
But the internet is a “vital service,” isn’t it? Why shouldn’t it be a utility? Without doubt, our broadband infrastructure has become critical to business and consumers alike as a leading source of economic growth and productivity. But the legal designation of a “public utility” is more than just an acknowledgment of that importance. For over a century, economists have long cautioned that treating infrastructure as a quasi-public monopoly should only be considered a last resort to overcome severe market failings.
That’s because utility treatment comes at a high cost. A monopoly or municipal utility, by definition, doesn’t compete with anyone, eliminating incentives for investment, innovation, customer service, and maintenance. The sad state of most U.S. power, water, and mass transit systems painfully illustrates that point.
By comparison, private investors have spent nearly $1.5 trillion on competing wired and mobile broadband networks over the last 20 years, and are poised to accelerate their efforts if the utility classification is undone. Though consumers in rural and mountainous regions may not yet have the fastest speeds, and contrary to what utility advocates claim, U.S. broadband deployment and pricing is the envy of much of the rest of the world.
If the public utility order is reversed, how is net neutrality preserved?
There are several options. The FCC could, for example, revise the 2015 order along the lines of a 2014 court ruling that even former FCC Chairman Tom Wheeler initially referred to as his “roadmap”—although that would only defer the possibility of reclassification until the next administration. Inconsistency would depress business investment, which nobody wants.
The better solution would be to make the net neutrality rules a matter of federal law. And that is exactly what House and Senate Republicans proposed in late 2014. The chairmen of the congressional commerce committees, with FCC oversight, jointly introduced a bill that codified much stronger net neutrality rules even than those the FCC approved in its 2010 effort. The Republican bill, for example, would have preemptively banned ISPs from blocking websites, slowing traffic, or offering prioritization for content as a paid service (so-called “fast lanes”).
That bill also made clear that Congress never intended the FCC to have the discretion to transform broadband into a public utility at will, and in doing so subject it to rate regulation and other micromanagement. But since Democrats expected to win the White House in the 2016 election, they showed no interest in the bill, confident that an FCC chaired by someone Hillary Clinton picked would support the 2015 Order. Even since Trump’s election, Republicans have made clear that a potential bi-partisan compromise on this matter is still on the table.
Broadband ISPs will never go along
They will. ISPs are as unhappy about the endless uncertainty around net neutrality as anyone, and support a permanent legislative solution. While some providers have objected to the particular wording of some of the rules in the past, they don’t object to net neutrality. Indeed, they practiced it during nearly two decades when the FCC had no rules requiring them to do so.
Verizon was actually the only broadband provider to challenge the 2010 version of the rules, and then only on very technical legal grounds. In ongoing litigation over the 2015 Public Utility Order, other ISPs have challenged the substance and process of reclassification, but, again, not the rules themselves.
Verizon, whose business model has changed substantially since 2010, now supports aspects of the 2015 Order with which even some of the advocacy groups took issue. And both Comcast and AT&T remain subject to slightly different versions of the rules regardless of what happens to the 2015 Order, having committed to them as conditions for recent mergers.
Didn’t Trump promise to end net neutrality?
Not exactly. Some people are seizing on a single tweet from 2014, before Trump was even a candidate, in which he referred to net neutrality as President Obama’s “top down power grab.” That comment (his only one I’m aware of on the subject) came the day after a White House demand that led to the 2015 reclassification—the actual source of Trump’s objection. Since then, he has said nothing.
At best, Trump’s position on (and interest in) net neutrality is unclear. And having now appointed Pai as the new Chairman of the FCC, Trump has little direct influence over the Commission which, by law, operates as an independent expert agency. Pai, who has been involved with the FCC most of his professional life, is already working to improve the agency’s transparency and predictability.
But Chairman Pai is a net neutrality “foe,” isn’t he? Pai objected strongly to reclassification of the internet as utility, but he has always been a supporter of net neutrality principles. Before and since becoming Chairman, Pai has repeatedly pledged to protect the core ideas behind net neutrality, including, as he describes them, “The freedom to access lawful content, the freedom to use applications, the freedom to attach personal devices to the network, and the freedom to obtain service plan information.”
A frequently misquoted 2016 promise by Pai to take a “weed whacker” to outdated FCC regulations had nothing to do with net neutrality and, indeed, echoed multiple executive orders issued by Presidents Obama and Clinton requiring agency heads to retire obsolete federal rules that remain on the books.
Pai did vote against the 2015 Order, but his dissent was almost entirely devoted to the legal and economic risks of public utility reclassification, as well as the irregular process by which the agency substituted the White House plan for Wheeler’s original “roadmap.”
Don’t Google, Netflix and other start-ups depend on net neutrality?
Advocates for expanded public utility regulation of broadband providers are busy conjuring worst-case scenarios for any change to the 2015 Order. They insist, for example, that ISPs will immediately begin charging content providers such as Google and Netflix special fees to deliver information to their subscribers, and otherwise destroy the equal playing field by which internet services can be accessed by consumers.
These predictions intentionally ignore technical, business, and legal realities, however, that make such fees unlikely, if not impossible. For one thing, in the last two decades, during which no net neutrality rules were in place, ISPs have never found a business case for squeezing the Open Internet. In part, that’s the result of intense competitive pressure among mobile providers and increasingly between mobile and wired ISPs. In broadband, it’s the content providers who have leverage over the ISPs and not the other way around, as Netflix recently acknowledged in brushing aside concern about any “weakening” of net neutrality rules.
This might be why neither Google nor Netflix thought the public utility reclassification was a good idea. Former Google CEO Eric Schmidt argued against it at the time, saying he was worried that reclassification meant “starting to regulate an awful lot of things on the Internet,” a concern shared by the Internet Society and other non-partisan engineering groups. Netflix, recognizing that public utility regulations for broadband could someday extend to their own non-neutral conduct, reconsidered its own advocacy after the 2015 Order was passed.
A frequently misunderstood point is that Netflix’s intervention late in the fight over the 2015 Order was not about avoiding future fees for last-mile delivery of its content. The company instead asked the FCC to mandate free interconnection for its wholesale traffic partners and its own content delivery networks embedded throughout ISP facilities—something the company confusingly called “strong” net neutrality.
Despite claims that Netflix traffic was being “throttled” by ISPs, slowdowns in Netflix traffic in 2014 (which gained extra attention following comedian John Oliver’s famous rant about the issue) turned out to be the fault of one of Netflix’s own transit providers. The transit provider was over capacity and had reduced service at peak times to wholesale customers, like Netflix, without telling anyone. Netflix actually pays below market rates for interconnection —costs so small they don’t even show up in financial statements.
The FCC declined to extend “neutrality” to the core of the network in its 2015 Order, and Netflix quickly lost interest in the debate.
Should business leaders intervene to preserve net neutrality?
The kind of full-scale resistance that utility advocates are now calling for in a renewed net neutrality battle would be deeply misguided and counter-productive, especially if directed at the FCC and Chairman Pai. As noted, the agency bases its regulatory decisions on actual economic and technical analysis and not advocacy, no matter how spirited. Admittedly that hasn’t always been the case, particularly in the last several years, but Pai has committed to restoring the commission’s own neutrality.
What business leaders inside and outside the internet ecosystem can and should do, however, is to encourage Congress to act once and for all, protecting the open internet while preserving an investment environment essential for continued broadband expansion and improvement. It’s hard to imagine anyone disagreeing with that objective, or with a lasting solution to a problem that has plagued regulators and industry alike for too long.
Congress and the FCC are already working to determine the most effective steps both to undo the public utility reclassification and put the net neutrality principles on solid legal ground once and for all. Watch for FCC action and revised legislation that would do just that sometime in the next few months.
Author Larry Downes is co-author of Big Bang Disruption: Strategy in the Age of Devastating Innovation. Previous books include Unleashing the Killer App and The Laws of Disruption. He is project director at the Georgetown Center for Business and Public Policy.
