November 19, 2009 2:08 PM

The FCC's "Net Neutrality" NPRM--Rhetoric Realized, Resisting Rationale

As I mentioned in my last post--my "relapse" post--I have never been comfortable with the term/concept/policy of "net neutrality", and here's why:  as a term, a concept, or proposed policy, it had no definition.  There was nothing to discuss, because if you asked 10 people what it meant, you might get 10 different answers; "net neutrality" was a religion without a dogma.  This is no longer the case.  On October 22nd, the FCC defined "Net Neutrality" and it truly is neither "fish nor fowl" in that the Commission's proposed rules, and their explanation for them, create a sui generis regulatory framework.  Given a tangible form, Net Neutrality can now be discussed on its own merits as a public policy, rather than fought over on religious terms.  Because this subject has been defined, and articulated as a proposed set of rules, let's first consider this definition: what is "Net Neutrality?" 

The Net Neutrality NPRM is complex, partly because the Commission misapprehends what it is regulating, how it works, and how the proposed rules will achieve the purported outcome.  So it is not possible to cover the NPRM in just one or two posts.  Instead, we'll look at Net Neutrality, as proposed, over a series of posts, starting with the definition.  In the next few posts we'll look at some of the unintended, paradoxical results that would obtain if the proposed rules, produced by the incomplete understanding of how the Internet works, as explained in the NPRM, were adopted.  Then, we'll consider whether the proposed rules are written in a manner that makes them likely to be enforced by the Commission in a timely manner. Finally, we'll look at whether there might be some other, more reasonable rules to ensure that the Internet remains accessible to all users on fair terms, which is supposedly the goal of the "Net Neutrality" advocates. 

Indeed, the Commission states its own characterization of the proposed rules as purportedly consistent with prior policies, "government action, where needed, should support a "predictable, minimalist, consistent and simple legal environment" for online activity.  Nothing we have done over the past several years or that we propose today alters that commitment."  NPRM, at para. 47.  There is no reason to doubt the Commission's sincerity, or good intentions.  However, in order to believe that the proposed rules are necessary, one has to believe that the Internet, which can act as an economic, social, and political "equalizer", cannot perform this role unless the Internet, itself, becomes subject to some "equalization."  Yet, this notion itself is a paradox; if the virtue of the Internet is its dynamic, evolving nature, then rules that cement the status quo, are only good for the largest firms that benefit from the status quo.  Thus, the Commission's perception of the Internet--and the need for the "cure" of the proposed rules, even the very term "Net Neutrality"--should invite some healthy skepticism. 

The first thing that stands out is that this NPRM does not propose rules that would reinstate some form of "common carrier" regulation on some portion of broadband Internet access.  In fact, the Commission supports the decision of previous Commissions to treat high speed Internet access as one integrated service.  So, while the NPRM does not seek a return to "Title II" or "common carrier" regulation--which requires service providers to offer services to the public on terms that are just, reasonable, and not unreasonably discriminatory--the NPRM curiously seeks to impose stricter burdens on access providers [than are imposed by Congress under Title II of the Communications Act ("the Act"].  The Commission seems to believe that the broad, plenary grant of regulatory authority over communications by wire or radio that Congress grants in Title I of the Act supersedes the more specific, limited authority that Congress grants the Commission in the subsequent sections of the Act.   A regulatory framework built on this premise is almost certainly illegal, and it is definitely irrational to believe that such rules would end up having any practical relevance.
It doesn't really make a lot of sense for the FCC to impose heavier regulatory burdens under Title I than under Title II for one major reason: under all of the Commissions previous policies--none of which are up for reconsideration in this NPRM--the broadband Internet access provider gets to pick whether it offers this service as two services (a Title II-regulated "transmission service" and a Title I-regulated "information service"), or as one integrated service (broadband Internet access service).  Given that the provider can always choose a "reasonable" standard of review, it makes little sense for the Commission to restrict the flexibility that service providers have under Title II.  Second, a creature of Congress cannot give itself more power to regulate commerce than that granted it by Congress.  The proposed rules prescribe conduct in a more rigid, less flexible, manner than Congress has empowered the Commission to impose on regulated entities.

To better understand the Commission's vision of Net Neutrality, it is helpful to understand what it is not.   The NPRM is ostensibly designed to transform the 2005 Broadband Policy Statement into rules (with a couple of additions).  However, the NPRM applies these policy principles--which are consumer-centric--in an asymmetric manner.  Thus, while the original Policy Statement applied to "providers of telecommunications for Internet access or Internet protocol-enabled (IP-enabled) services" Policy Statement, para 4, the NPRM only applies to providers of telecommunications for broadband Internet access and not to providers of telecommunications for IP-enabled services.  Thus, the NPRM and proposed rules are not intended to be applied in a neutral manner to all Internet service providers using telecommunications as an input.  Therefore, some similarly-situated firms receive a relative advantage.

Another important distinction between the NPRM and proposed rules is that, unlike the Policy Statement which was clearly designed to ensure that the benefits of the Internet and broadband flowed to "individual Americans", see para 1, the NPRM and proposed rules apply to providers of high-speed Internet access services, notwithstanding the identity or nature of the customer.  The Policy Statement made sense, because "broadband"--no matter how defined--was a term invented to apply to high speed transmission to residential consumers.  Large customers (business, government, and wholesale) have always had access to high capacity services.  These users' "rights" were guaranteed by tariff or by contract.  When the Commission, in the NPRM and proposed rules, decided that it should impose burdens [with some limited exceptions] on providers of Internet access, the Commission also proposed the creation of business-to-business obligations on firms that are, or should be, competing with each other for the benefit of the public. 

The net effect of these two important distinctions between the Net Neutrality NPRM and proposed rules, if adopted, would be to subjugate one group of firms to the role of regulated input suppliers to a favored group of firms using telecommunications to provide IP-enabled services.  Instead of ensuring fairness on the Internet, the obligations the Commission proposes to create would have the effect of limiting competition available to consumers of certain services currently dominated by non-Internet access providers (i.e., content delivery networks, see NPRM, paras 103-106).   

So, while at its best the "Net Neutrality" alliteration seems innocuous--maybe even appealing--at its worst, the term suggests the ossification of what was, heretofore, dynamic.  After all, does anyone use the term "neutrality" in advertising?  Indeed, the very idea of product "neutrality" seems antithetical to competition--which hinges on price or service differentiation.  Not surprisingly, these rules prohibit service differentiation by broadband ISPs--regardless of consumer demand.  Business obligations, and business rights, are created by the proposed rules. Consumers are left to seek remedy under consumer protection statutes--if they even apply.  It is not hard to imagine a consumer harmed by a core application, in which the discrimination is embedded, notwithstanding the fact that all application packets are delivered "neutrally" by all broadband Internet access providers.  Given this possibility, and the fourth policy principle--that consumers should have the benefit of competition--how can the FCC justify rules that foreclose broadband Internet access providers from competing to offer consumers even more choice?

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