An open Internet: how new regulations hurt both sides of the
Source: Christopher S. Yoo
The U.S. was one of the few countries not to reflexively regulate the Internet like the nation’s monopolistic telephone system, but the FCC’s new proposals would break with this tradition.
Later this month, the Federal Communications Commission (FCC) is expected to vote on new open Internet rules, bringing the decade-long debate over network neutrality and the future of the Internet to a key turning point. Although the FCC’s proposal is intended to protect content providers, such as Netflix NFLX 0.89% , against potential anticompetitive actions of Internet Service Providers, such as Comcast, a closer look reveals that it creates risks for both sides.
One of the most distinctive aspects about U.S. Internet policy is the decision not to impose old regulatory burdens on this new technology. The U.S. was one of the few countries not to reflexively regulate the Internet like the nation’s century-old telephone system, which essentially operated like a monopoly. The result was to facilitate a vibrant new industry offering a torrent of new applications and services on advanced networks that are the envy of the rest of the world.Furthermore, among all U.S. companies, network providers have led the way in creating jobs and investing in America’s future. In fact, two leading Internet service providers, AT&T T -0.48% and Verizon VZ -0.47% , outpaced all other U.S. nonfinancial companies in capital spending over the past several years, and a third network provider, Comcast CMCSA -0.78% , placed seventh, according to a 2014 report by the Progressive Policy Institute. Together, the broadband industry has created more than 860,000 jobs. For comparison, European broadband providers, who are subject to telephone-style regulation, have invested less than half as much per household as their American counterparts. Statistical analysis finds a significant correlation between these low investment levels and regulation.
The FCC’s proposals would break with this tradition; it would reclassify consumer broadband Internet as a utility, banning Internet Service Providers from charging content providers for better service. The risks for network providers are apparent. The effect of telephone-style regulation would be to limit the packages that networks can offer and threaten providers that deviate from the status quo with possible fines. For example, it would endanger popular new plans such as T-Mobile’s Music Freedom, which allows customers to stream music without counting that traffic against their data caps. The imposition of such intrusive government oversight would mark a return to command-and-control style regulation that has long been discredited and would impede the spirit of flexibility and innovation that has characterized the Internet since its inception. It would also potentially open the door to another layer of regulation by the states.
Although the FCC has promised to “forbear” from enforcing certain aspects of telephone-style regulation on the Internet, the agency has yet to develop a coherent framework to guide the exercise of this authority. Moreover, any such forbearance would be a product of bureaucratic largesse and would be subject to reversal at any time. The uncertainty created by such an environment would threaten to dampen incentives to innovate and invest.
What is less widely recognized is the risks that such regulations would pose for providers of content and applications, the supposed beneficiaries of open Internet rules. For example, the privacy restrictions that apply to telephone networks (which were developed for a different context and are widely regarded as outdated) may undermine the business models on which many Internet applications are based. In addition, although the FCC does not plan to tax broadband access at this time, it reserves the right to do so in the future. As customers continue to abandon the fixed-line telephone service that currently supports the universal service fund, the pressure to do so will likely become irresistible.
Furthermore, while previous rules only restricted how traffic was handled within a network, the new rules would extend regulation to equalize how traffic is handled between networks. This would impose unprecedented bureaucratic oversight on the more than 45,000 networks comprising the Internet, which currently interconnect through bilateral commercial agreements. Parties who think they could get a better deal through regulation than through bargaining will be tempted to hold out. Moreover, network providers may hesitate to extend better terms out of fear that those terms will become a benchmark that will limit all future negotiations.
Finally, supporters of the current proposal must face the danger that the prohibitions on discrimination that they so desire may be rolled back in the future. The last two attempts to enforce network neutrality were overturned by the courts for exceeding the authority that Congress had granted the FCC. The current rules bear considerable risk of suffering the same fate. In addition, a future FCC under a different Administration could simply reverse the rules, and the U.S. Supreme Court has already ruled that no legal barriers would prevent them from doing so. Thus, even those who favor the FCC’s proposed rules must acknowledge the risk that the current efforts may prove to be ephemeral.
The rules would be made permanent and all uncertainty about regulatory authority would be eliminated if Congress were to enact compromise legislation establishing network neutrality rules. Several such bills have already been submitted, and the sponsors of those proposals have indicated their willingness to negotiate. For opponents of network neutrality, legislation would eliminate the overhanging threat of the hydraulic expansion of regulation sometime in the future. For supporters, enactment of such a law would ensure the rules could not be reversed by judicial challenge or a subsequent FCC.
The best outcome would thus be for every part of the Internet industry to work together to find common ground. The leaders of both political parties have the chance to act like statesmen and take steps to ensure that the vibrant atmosphere that has promoted innovation and investment so effectively can continue to thrive. We can only hope that they seize the opportunity.
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