In the Wake of Verizon v. FCC: How the FCC Can Achieve Net Neutrality and Save the Internet

The FCC should do the right thing and fix its old mistake that led to the present situation.

[Blogmeister’s Note: This is an op-ed piece, emphasis on the “op”, or “opinion”, element. It reflects Mitchell’s personal assessment of net neutrality following the D.C. Circuit’s recent decision. The views expressed are the author’s; they do not represent the editorial views of CommLawBlog or Fletcher Heald & Hildreth. They do not necessarily represent the views of any of our clients, and they certainly differ from those of some of Mitchell’s colleagues. We welcome debate here, so readers who disagree with Mitchell’s take on the situation are encouraged to post comments to it.]

We all know the U.S. Court of Appeals for the D.C. Circuit has struck down the FCC’s key effort to craft “net neutrality” rules. See the court’s opinion here, and Paul Feldman’s explanatory piece here.

The invalidated rules would have required fixed broadband Internet service providers (ISPs) to treat content providers even-handedly. A cable TV company, in its role as Internet provider, could not intentionally slow Netflix while putting through its own video downloads at full speed. Nor could an ISP accept fees from a retail site in exchange for favoring that company’s traffic over that of rival retail sites.

Now, after the court’s action, such discriminatory activities are probably legal. 

Many conservatives, along with the FCC’s two Republican commissioners, are delighted. Many believe Internet companies should be subject to regulation only by the free market and not by the FCC.

But the free market requires a market. There is not much of one for ISP service.

Most consumers have little choice among broadband providers. Most neighborhoods have at most two options: telephone (or FIOS) and cable. The complications of switching from one to the other are huge and often prohibitive. Mobile 4G service is a poor substitute, due to data caps. Fixed wireless ISP service is limited mostly to rural areas. Satellite service is slow and expensive. Costs of entry for would-be new providers are high; no new competition is coming any time soon.

The service in many places is not even very good. The free market has given Americans some of the slowest and most expensive broadband anywhere in the developed world. The lack of alternatives keeps customers locked in. If an ISP throttles back a customer’s preferred content, there is not much the customer can do.

It is not just the customer who suffers. If Facebook and Amazon pay the ISPs large amounts of cash for priority access, then the next Facebook and the next Amazon start off at a huge disadvantage. The Internet remade society by giving anyone with a good idea an equal chance to reach the rest of us. The court decision now invites large, established companies to use their cash to shoulder aside new competition by muscling their way to a permanent position at the front of the line – and, of course, to pass on the extra costs to their captive customers.

The FCC sees the problem, but it has limited options. It can accept the court decision. It can appeal the decision, but without much chance of success; the court did a good job of buttressing its positions. It can try another set of net neutrality rules, but has no obvious path that avoids similar court challenges.

Or the FCC can do the right thing and fix its old mistake that led to the present situation.

To see how that works, we need a bit of history. Get comfortable.

Since the 1970s – long before the Internet – the FCC has distinguished between the transport of content and the provision of content. Today we call these functions “telecommunications service” and “information service,” respectively. For 30 years, the FCC regulated data transport as a common carrier service, in the same category as traditional voice telephone. Yet it completely forbore from regulating information service: hands off the content itself. The early Internet arose and thrived under these principles.

Importantly to the present discussion, the FCC’s Computer III regime, starting in the late 1980s, required large phone companies that provided dial-up ISP service – all of them did – to lease capacity on their lines and equipment to competing ISPs. The result: thousands of ISPs, large and small, working hard to please their customers and attract other ISPs’ customers. A dissatisfied user could switch ISPs in minutes, with just a phone call. In those days, an ISP that threatened to impair content would not stay in business for long.

Then broadband arrived, and with it, the FCC’s big mistake. A 2002 order declared all components of cable broadband Internet service – transport as well as content provision – to be an information service, and thus free from regulation. That meant a cable company ISP did not have to accommodate other ISPs on its wires. Having gone that far, the FCC had little choice but to level the playing field by extending the same treatment to the telephone company ISPs. That is why, if you have broadband Internet service, your ISP is probably Comcast or Verizon, or their equivalents in your area. That is why, if you are unhappy with the service, you don’t have a lot of other ISP options.

The FCC made these rulings at the request of the cable and telephone companies. If we have to share our broadband facilities, the companies said, we won’t have the incentive to build them, so the nation will have to go without broadband. Some other countries see Internet access as a vital public resource, like highways and airports, and fund it accordingly. But not the United States. The FCC took the cable and telephone companies at their word, and gave them what amounts to an unregulated duopoly. Now the court has said the companies can exploit their privileged position.

The fix is simple, in principle, although hard to pull off. Long-time readers – both of you – may have seen this proposal before. Now the court decision has made it urgent.

First – this is the hard part – the FCC has to reverse the 2002 and 2005 decisions. It must declare that broadband data transport (but not content) is once again a common carrier service. This is “reclassification,” in Washington-speak. The broadband ISPs would object, to put it mildly. Those in Congress who favor a free market in principle, even where there is none in practice, would likewise object. So, probably, would the two Republican commissioners. If it can take the political heat, though, the FCC is legally free to change its mind. It can especially do so here, where broadband transport arguably falls into the definition of a common carrier telecommunications service. True, the Supreme Court upheld the FCC decision that made cable transport an information service. But it really just upheld the FCC’s discretion to make the call, so a contrary decision would likely receive the same green light.

But wait: how would regulating transport address the problem of net neutrality, which relates solely to content?

The FCC would exercise its newly reclaimed right to regulate broadband data transport in only one narrow respect: it would impose Computer III type rules as to broadband. Comcast, Verizon et al. would have to lease capacity on their wires to competing ISPs. They could charge lease rates that fairly reflect the costs of building out and maintaining the facilities, plus a reasonable profit. But they would no longer be the sole ISPs in the neighborhoods they serve.

Then, suddenly, there really would be a functioning market for ISP service. A customer who did not like having particular content impaired – or could not get through on the phone, or had any other complaint about the service – could easily switch to a different ISP, without having to change the physical connection to his home. The facilities-based providers, like Comcast and Verizon, would be steered by competition, rather than regulation. Those that did not offer unimpaired access to content would lose business to other ISPs.

The result would be real net neutrality, without any rules to require it.

As a side benefit, consumers could sign up with specialized ISPs that provide only family-friendly content, or offer support for older people, or shut off at 11 p.m. on school nights – pretty much anything having enough demand. Yet all decisions on content would ultimately rest with the customer, not with one or two ISPs.

Will the FCC actually do this? Probably not. Reclassification is such a political third rail that successive FCC chairmen have assured Congress it is off the table. But the court has now closed off every other realistic route toward net neutrality. The FCC can either straighten up and take on a hostile Congress, or it can stand back and watch the Internet devolve into the profit-making tool of a few powerful companies. This blogger just doesn’t see a third alternative.

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Comments (4) Read through and enter the discussion with the form at the end
Louis J Cutrona Jr - January 17, 2014 6:02 PM

I agree with Mitchell Lazarus's analysis and conclusions. So, the task at hand is to put pressure on the FCC and Congress to Do The Right Thing and impose Computer III type rules as to broadband.

CurtisNeeley - January 18, 2014 8:57 AM

The internet has always been a common carrier. Regulate internet like the wire communications these are.

Curtis J Neeley Jr - January 18, 2014 9:26 AM

WoW!

It is radical for a pot to call the kettle black!

I have done this since 2009 and been ignored by US Courts and US media but this cost GOOG hundreds of thousands. I am just a "regular" person.

Emphasis of the opinion part was smart but this post shows amazing integrity that I have found ABC, CBS, PBS, FOX, CNN, and the United Methodists of North America did not match when contacted. Neither did the AFA, PTC, or any newspaper.

WoW. I finally give up and another picks up?

NEVER ever refer to a District Court judge's ruling as an indication of senility like I did. Justice has no chance now for me!

rshockey101 - January 20, 2014 4:24 PM

I would have to disagree. The third alternative is to do nothing and that is the probably outcome. The decision simply returned us to the status quo ante pre the Order and IMHO we were not in a bad place there. As Silberman's sort of maybe dissent pointed out the actual evidence of harm is very slim. Reclassification is the nuclear weapon of telecom. "Speak softly and threaten Mutual Assured Destruction" may be the best option. Plus technically NN was utterly unenforceable. If you think about this carefully the FCC actually won.

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