The Title II Reclassification Distraction

            By now even most of my undergraduate students at Penn State have heard about the FCC’s likely reclassification of broadband access from information service to telecommunications service. So much attention has focused on the reclassification and so little on the real problem: stimulating investment, market entry and facilities-based competition in broadband service.

            Show me a robustly competitive broadband marketplace and I will show you an ecosystem that has no network neutrality problem. 

            Regulating broadband access as common carriage offers no panacea.  Even with light handed regulation, the potential exists for extraordinary waste and distraction in litigation and a “regulatory practice” over what an Internet Service Provider can and cannot do.  I am concerned that the FCC and stakeholders will devote far too much time battling over minor points with little concern for the big picture.

            While I am not keen on Title II regulation, I have every confidence that ISPs can survive the burden and sustain capital investment levels.  The problem in Title II regulation lies in how it can distract the FCC from its core mission.  Bear in mind that wireless carriers have managed to thrive despite having the common carrier classification.  So even “public utility” Title II regulated markets can generate ample profits without apparent investment “disincentivization” resulting from government oversight.  Wireless competition forces carriers to enhance the value proposition.  No carrier would dare degrade its service and invite subscriber churn.

            Thankfully the FCC and Justice Department did not buy the bogus claim of sponsored researchers, AT&T and T-Mobile that reducing the number of facilities-based competitors would serve the national interest.  Once deprived of a big buyout payday, T-Mobile has innovated and sharpened its pricing pencil.  The other carriers have had to follow T-Mobile’s lead on pricing, roaming, bring your own device and the ability to rollover data capacity.

            A competitive wireless marketplace provides clear evidence that Title II can provide possibly unnecessary safeguards without imposing costly burdens.  The risk in Title II broadband regulation lies in its distraction coupled with less than optimal competition.

Pick Your Poison: FCC Chairman Genachowski’s New Network Neutrality Strategy

FCC chairman Julius Genachowski appears set to abandon a strategy applying selective portions of Title II regulatory safeguards in lieu of general Title I ancillary jurisdiction. Either strategy appears likely to fail upon review by a court or Congress.

           

What makes this matter so difficult is that while an appellate court might try to consider the issue narrowly in terms of whether sufficient statutory authority exists, broader business and political factors matter as well.  Recall that the FCC was able to justify substantial deregulation of DSL, replacing Title II with Title I oversight, based on changed circumstances, largely concerns about "regulatory parity" with largely unregulated cable modem service.  In this politicized and super-charged environment, coupled with the Comcast court decision, the FCC cannot readily reassert Title II based on changed circumstances supporting light-handed government oversight and the public interest, e.g., evidence that Internet access has become an essential public need coupled with proof of discriminatory conduct.
       

There is much speculation that Chairman Genachowski has abandoned his Third Way link to streamlined Title II authority, replacing it with Title I ancillary jurisdiction based on language contained in Sec. 706 of the Telecommunications Act of 1996.  This section requires the FCC and states to encourage ubiquitous access to "advanced telecommunications capability."  The Commission probably will face judicial skepticism whether and how Sec. 706 confers statutory authority to encourage Internet access through selective regulation.
       

I can appreciate that Chairman Genachowski would want to apply a streamlined version of Title II.  It provides the direct statutory authority a reviewing court requires and before changed circumstances provided the basis for its abandonment, Title II required nondiscrimination, transparency and the other Internet Freedoms.  But the political impracticality of re-regulation and the Supreme Court's Brand X affirming the FCC's functional abandonment of Title II, by classifying cable modem Internet access as an information service, makes reliance on Title II a sure loser on appeal.
       

Chairman Genachowski appears to have acknowledged this, but returning to Title I ancillary jurisdiction.  There is case precedent for judicial deference to the FCC's expertise to fashion public interest serving remedies under Title I, e.g., the Commission imposition of cable television regulations in advance of having received explicit statutory authority.  But as emphasized by the D.C. Circuit in the Comcast case, the link to some sort of statutory authority must exist.  The D.C. Circuit likely will remain quite skeptical about an FCC claim of ancillary jurisdiction, simply because Title I confers some general oversight duty over "wire and radio" communications, or the advanced telecommunications capability promotion elements of Section 706.
       

From my vantage point, it looks like the Commission loses either way, should some aggrieved party appeal.  Since Congress has a near zero likelihood of passing explicit statutory authority, the status quo remains.  This means that companies, such as Comcast, which can't help but push the envelope, will exploit the absence of rules to its financial advantage.  The demand for video carriage surcharge from Level 3, provides an example how an ISP can raise the cost of doing business of a rival.  Expect Comcast and others to raise the cost of doing business for both content delivery networks, which generate traffic for Comcast to deliver, as well as content producers, like Netflix, that compete with Comcast's video products.