Results-Driven Federalism Part 2

            Consider the following assertion:

            “Our Constitution establishes a system of dual sovereignty between the States and the federal government, such that sovereignty rests concurrently with both the federal government and the States. Specifically, the Tenth Amendment reserves all powers not specifically delegated to the federal government by the Constitution to the States or to the people.  Thus, States are not creations of the central government. They are separate sovereigns. This distribution of sovereignty, otherwise known as federalism, is the defining feature of the relationship between the federal and state governments.

            In taking this step [preempting states from limiting the geographical reach of municipal broadband networks] the FCC usurps fundamental aspects of state sovereignty. And it disrupts the balance of power between the federal government and state governments that lies at the core of our constitutional system of government.”

            Now, compare it with the following:

“The broader problem is that California’s micromanagement poses a risk to the rest of the country.  After all, broadband is an interstate service; Internet traffic doesn’t recognize state lines.  It follows that only the federal government can set regulatory policy in this area.  For if individual states like California regulate the Internet, this will directly impact citizens in other states.

            Among other reasons, this is why efforts like California’s are illegal.” 

            Would you be surprised if I reported that the same person wrote both declarations?  Any dismay at the apparent inconsistency if I reported that the author is FCC Chairman Ajit Pai?  Compare file:///C:/Users/rmf5/Downloads/FCC-15-25A5.pdf with https://www.fcc.gov/document/chairman-pai-remarks-maine-policy-heritage-center.

            Chairman Pai is a quite knowledgeable and talented guy.  However, I believe his partisanship creates inconsistency on a fundamental principal—what he terms  “Constitutional Law 101.”

            Chairman Pai railed against the Democratic majority at the FCC which sought to preempt state governments from imposing geographical restrictions on municipal government broadband networks.  For this matter, the Chairman invoked federalism as sacrosanct: states are sovereign entities free to determine whether and how subordinate governmental units can pursue broadband service initiatives. 

            Chairman Pai had supporting case precedent including a Supreme Court case validating the right of states to prohibit any municipal telecommunications service.  See Nixon v. Missouri Mun. League, 541 U.S. 125 (2004).  The Sixth Circuit Court of Appeals validated his legal interpretation ruling that the Telecommunications Act of 1996 did not explicitly authorize the FCC to elevate the goal of ubiquitous and affordable broadband over state sovereignty, even the sovereign election to foreclose municipal efforts to rollout broadband where commercial ventures had refused to serve. See Tennessee v. FCC, 832 F.3d 597 (6^th Cir. 2016)available at: http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0189p-06.pdf.

            With all this support for state’s rights, how does Chairman Pai reverse course and invoke much maligned federal preemption to thwart states like California from enacting network neutrality laws? 

            Results-driven rationales now support the view that anything and everything about broadband is interstate in nature, and fair game for FCC preemption, except of course legislated service limitations.  I cannot square this view with what Chairman Pai has previously stated. 

            California enacts a law, which I consider quite flawed, but clearly representative of a sovereign state keen on imposing consumer safeguards for the origination and termination of Internet traffic within the state.  Internet Service Providers may import content from other states, but the delivery medium surely lies within a single state.

            Note that in the case of California network neutrality legislation, a sovereign state has opted to impose safeguards that the FCC considers unnecessary and potentially harmful.  Can the FCC preempt states on grounds that they cannot lawfully act when the Commission determines that regulatory oversight is not needed?

            How did humility and respect for states’ rights evaporate?

The Misguided Wisdom in Substituting the Generalist FTC for Sector-Specific FCC Expertise

            A number of important, fundamental questions about the scope and nature of government oversight lie within the broad and breathless debate over network neutrality.  Does the public benefit from government oversight by an agency with particular expertise in the industries overseen, or can a generalist agency do a better job?  A related question asks whether ex ante regulations, which anticipate problems, can better serve the public than ex ante remedies occurring after investigation.

            I firmly believe in the essentialness of sector specific expertise, but see ex ante network neutrality regulations as possibly constraining customized services that meet specific subscriber requirements.  For example, I believe the FCC would have the necessary expertise to differentiate between an ISP tactic that hurts consumers and competition and one that does not, e.g., many types of zero rating.

            To the best of my knowledge, no critic of the FCC—even ones keen on shutting it down—have gone on record stating that a generalist agency can and should assume responsibility for spectrum management.  Shifting that essential task to the Commerce Department, for example, probably would heighten the bias favoring retained government “ownership” of choice spectrum with less likelihood for consideration whether government agencies can do more with less.

            The Office of Chairman Pai has endorsed the generalist FTC in lieu of FCC investigation and sanctioning of anticompetitive, or consumer harming practices:

MYTH:  The Federal Trade Commission is not well equipped and has far fewer powers to protect consumers from misconduct by Internet service providers.

• FACT:  The Federal Trade Commission has broad authority to police unfair, deceptive, and anticompetitive practices online and has brought over 500 enforcement actions to protect consumers online, including actions against Internet service providers and some of the biggest companies in the online ecosystem.  And unlike the FCC, the Federal Trade Commission can order consumer redress (such as refunds) for violations of federal law.

See: https://www.fcc.gov/document/myth-vs-fact-chairman-pais-restoring-internet-freedom-order.

            If I read this correctly, Chairman Pai would pass off an important safeguarding function to a “sister agency” with no concern about impact on budget, staff numbers and jurisdictional wingspan.  Such magnanimity from someone whose position typically requires vigilance against reduction in function, relevance and budget.

            Perhaps Chairman Pai honestly believes the FTC has a better handle on the situation.  Alternatively, he does not think this, but considers it politically wise to abdicate responsibility so the problem will go away.

            The problem will not go away, but the cop on the beat will lack sector-specific expertise.  A particularly glaring deficiency will lie in content carriage issues at the lower layers of the stack of Internet Service Provider functions.  The FTC has greater experience with obvious snookery by content con artists.  Now it will reinvent the wheel on the many ways an ISP might use its platform intermediary function  and content/app carriage activity in anticompetitive and other harmful ways. 

            One last point: Chairman Pai appears to imply that the FTC can generate remedies to harmful behavior with financial and other sanctions that the FCC cannot.  The FCC surely can fine ventures under its jurisdiction.  Perhaps the Chairman has rushed to the conclusion that a reclassification of ISPs as information service providers removes any opportunity to sanction and penalize ISPs making the FTC the government agency of first, last and only resort.

            How humble.