Network Neutrality: Cause and Effect

Perhaps you might join me in wondering how sponsored researchers managed to convince FCC Chairman Pai and others that network neutrality regulation singularly caused a near immediate drop in infrastructure investment by U.S. carriers.  How do you isolate the variable of “regulation” from, for example, the investment cycle in migrating from 4G to next generation 5G wireless plan.

Set out below, are two FCC charts that track capex incurred by the major U.S. wireless carriers from 2010 to 2019:

            S

 

Source: https://www.fcc.gov/20th-mobile-wireless-competition-report-quick-facts

Source: https://docs.fcc.gov/public/attachments/FCC-20-188A1.pdf

 From 2010 to 2019, the FCC toggled between imposing network neutrality requirements and eliminating them. For purposes of our direct comparison of a regulatory or deregulatory action and subsequent impact on investment, keep these years in mind:

 2010, the FCC approved the first FCC Open Internet Order creating network neutrality rules and regulations; 2014, the D.C. Circuit partially reverses the FCC on grounds that some of the network neutrality requirements imposed common carrier duties on private, non-common carriers; 2015, the FCC respond to the appellate court reversal with the 2015 Open Internet Order reclassifying broadband Internet as Title II regulated common carrier telecommunications service; 2016, the D.C. Circuit defers to the FCC and largely upholds the Commission; 2017-2018, the Ajit Pai led FCC signals its priority in reversing the 2015 Open Internet Order and does so in 2018 with the Restoring Internet Freedom Order.

Does wireless carrier investment correlate up or down with the changing regulatory regime? It sure does not look like it to me.  Even stakeholders, when communicating with buy side Wall Street analysts, emphasize competitive necessity and the business cycle for next generation network investment. 

Regulation does not matter significantly, until it becomes the sole predictor of investment in a different forum.          

 

Radical, Judicial Activism in a Kavanaugh Dissent

            Starting today, Supreme Court Justice nominee Brett Kavanaugh will start a carefully orchestrated charm offensive highlighting his judicial temperament, respect for the rule of law and humility.  You won’t see that posture in at least one of his prior opinions.

            Take a look at Judge Kavanaugh’s dissent to the decision of the D.C. Circuit Court of Appeals not to hold an en banc re-hearing of the court’s affirmance of the FCC’s network neutrality rules:  https://www.cadc.uscourts.gov/internet/opinions.nsf/06F8BFD079A89E13852581130053C3F8/$file/15-1063-1673357.pdf.

            In his dissent, Judge Kavanaugh elevates Internet Service Providers’(ISPs’) First Amendment rights to neutralize any attempt by the FCC to regulate their economic behavior.  His opinion weaponizes the First Amendment as an unimpeachable right to be free of any government law or regulation that even indirectly affects what they transmit.

            So much for respect for settled law.  Ample case precedent supports the longstanding view that the First Amendment does not insulate ventures, such as common carriers and even hotel operators, from laws and regulations that impose non-discrimination requirements.  Judge Kavanaugh conveniently ignores the fact that ISPs primarily switch, route and deliver content created by other ventures.  No First Amendment right attaches to this conduit function which closely parallels cable television companies’ compulsory carriage of broadcast television signals.

            Moreover, ventures do not even have to be classified and regulated as common carriers to trigger nondiscrimination requirements.  Judge Kavanaugh remarkably fails to see that the Supreme Court’s the cable television must carry cases (FCC v. Midwest Video Corp., 440 U.S. 689 (1979); Turner Broadcasting v. FCC, 512 U.S. 622 (1994) and 520 U.S. 180 (1997)) impose non-discrimination and compulsory carriage on companies that might elsewhere have some First Amendment rights, e.g., how to package and tier content.

            Judge Kavenaugh ignores the open access rights of television broadcasters to cable television subscribers to support his view that the FCC cannot impose any similar duty of access on ISPs.  That’s a radical notion the majority summarily dismissed in both the main opinion and the en banc hearing denial:

            Because “the accessed speech is not edited or controlled by the broadband provider but is directed by the end user . . . the Commission concluded that broadband providers act as “mere conduits for the messages of others, not as agents exercising editorial discretion subject to First Amendment protections. . . . Petitioners provide us with no reason to question those findings.

            Because the rules impose on broadband providers the kind of nondiscrimination and equal access obligations that courts have never considered to raise a First Amendment concern . . . they are permissible.

[U.S. Telecom Ass’n v. FCC at 111; https://www.cadc.uscourts.gov/internet/opinions.nsf/3F95E49183E6F8AF85257FD200505A3A/$file/15-1063-1619173.pdf]

           

A Deep Dive into the FCC’s Circulated Restoring Internet Freedom Document

             Press accounts and the FCC’s own summary, provide a general sense of how the Commission rationalizes its abandonment of network neutrality.  See https://www.fcc.gov/restoring-internet-freedom.  However, a deeper dive can provide further insights and perhaps identify areas of vulnerability in terms of judicial review and future conflict.

Set out below, I offer such an analysis.

Thinly Disguised Disgust Coupled with Supreme Confidence

            On balance, I am surprised at the lack of humility and decency in such an important document.  As perhaps never before, the Pai-led FCC makes it clear that it must correct grievous shortcomings in the legal interpretation, evidence interpretation, economic philosophy and overall perspective of the Wheeler-led, but Obama-controlled Commission and its Open Internet Order. 

            The new Commission comes ever so close to asserting that its predecessor distorted the truth.  The document states that the prior Commission engaged in “results-driven” decision making (¶50) and “manipulated” service definitions to “engineer[] a conclusion” (¶70).  That comes across as disingenuous in light of the paucity of unimpeachable empirical evidence in the Pai document and the heavy reliance on cherry picked conjectures of preferred commenters who repurpose sponsored research.

            Despite a commitment to empirical data collection, fair-minded cost/benefit analysis and transparency, the nearly 200 page document comes up remarkably short on facts and stands at parity with the Democrats on result-driven decision making.

Doubling Down the Telecommunications/Information Service Dichotomy

            The Restoring Internet Freedom document relies heavily on the questionable conclusion that the FCC can and should create mutually exclusive regulatory classifications, despite technological and marketplace convergence.  Throughout the document, the FCC relies on a number of dichotomies whose air tightness supports divergent regulatory treatment, despite the reality that the telecommunications and Internet ecosystems do not support such neatness.

            The document supports extension of a view that the FCC must separate its treatment of telecommunications and telecommunications services, on one hand, and information services, on the other hand.  The Commission expressed such a need in 1998 in response to a Senate query (the Stephens Report) and implemented this air tight strategy in the Computer Inquiries.

            While such a dichotomy might work in a world where dial up common carriers provided a stand-alone link to information services, conduit and content now converge.  For example, smartphones offer voice telephone service, regulated as common carrier, Commercial Mobile Radio Service.  These carriers also offer data services, including access to the Internet cloud.  Consumers expect to have access to both types of services regardless of their different regulatory classifications.  A Republican majority FCC agreed when it mandated data roaming, at a time when such a service qualified for light-handed, information service oversight.

            Put another way, on functional equivalency grounds, consumers understand voice as different from data only insofar as how much the carrier charges, not how the carrier provides either service.  Similarly, consumers don’t quibble about whether a mobile broadband service is public or private, interconnected or not and whether the Public Switched Telephone Network and telephone numbers are used.

Misreading the Venerable Justice Scalia

            To legitimize its reclassification of broadband Internet access as an information service and wireless broadband as private, not commercial carriage, the FCC now must return to the rationale that bit and packet transmission cannot be distinguished and carved out from the information service it carries.  The Commission blithely ignores that Justice Scalia, dissenting in the Brand X case, rejected the view that the telecommunications element could not be carved out and recognized for what it is: publicly available conduit functionality.

            Justice Scalia recognized that deference to the FCC on its interpretation of conduit and content severability would promote deregulation in one instance, but could just as easily be used again by the FCC—having a different political party majority—to justify more government oversight:

Finally, I must note that, notwithstanding the Commission’s self-congratulatory paean to its deregulatory largesse . . . what the Commission hath given, the Commission may well take away—unless it doesn’t. This is a wonderful illustration of how an experienced agency can (with some assistance from credulous courts) turn statutory constraints into bureaucratic discretions {to regulate or deregulate based on the agency’s legal interpretation and politics]. . . . Such Möbius-strip reasoning mocks the principle that the statute constrains the agency in any meaningful way.

Self-Inflicted Wounds on the VoIP Regulatory Question

            Without a doubt, Chairman Pai must be basking in the limelight and congratulating himself for delivering an unimpeachable document that will survive judicial review.   Perhaps, but I would like to raise the VoIP question.

            Until now, the FCC has managed to avoid classifying VoIP so that it can mandate universal service contributions from VoIP services that access the PSTN.  The reemphasis on mutual exclusivity between basic telephony and enhanced, information services may force the Commission’s hand.  How can the FCC emphasize access to the PSTN, use of telephone numbers, the degree of accessibility by the public and the nature of interconnection to justify the unregulation of wireless broadband even as these factors pretty much line up in favor of treating VoIP as the functional equivalent of common carrier, regulated voice telephony?

 Employment, Innovation and Investment

            The document reiterates how network neutrality and the Title II classification decimated the telecommunications ecosystem with all sorts of disincentives.  However, the Commission never proves causality, nor does it have evidence that it, or the sponsored research it chose to embrace, can prove causality: that network neutrality and/or common carrier status constituted the direct cause for any and all reduction in employment, innovation and investment.

            Ironically, while the document obsessively invokes the gospel of disincentives, later the Commission emphasizes that ongoing investment in plant constitutes one of the major reasons the broadband marketplace is robustly competitive. 

            Compare these two conclusions:

The Commission has long recognized that regulatory burdens and uncertainty, such as those inherent in Title II, can deter investment by regulated entities . . .. The balance of the evidence in the record suggests that Title II classification has reduced ISP investment in the network as well as hampered innovation because of regulatory uncertainty. ¶88

With the advent of 5G technologies promising sharply increased mobile speeds in the near future, the pressure mobile exerts in the broadband market place is likely to grow even more significant.¶130

            Let me get this straight.  Without identifying evidence of causality and generating or identifying anything close to peer review worthy data, the FCC concludes that the Obama era Network Neutrality regime singularly caused a woeful decline in broadband plant.  Yet at the very same time, during the Obama-managed FCC, carriers like AT&T and Verizon expedited 5G plant investment, unimpeachable proof of how competitive the broadband marketplace has become, particularly in light of the functional equivalency of wired and wireless networks.

            Can the FCC have it both ways, or might a reviewing court question the science, economics and lawfulness of the FCC’s rationales for reclassification?  That’s the Trillion Dollar question.