The Internet’s stunning growth, from its beginnings through maturity in 2005, relied on common carrier rules.
(Blogmeister’s note: Even more than usual, this post reflects the views of its author and not necessarily those of Fletcher, Heald & Hildreth, its other lawyers, or its clients.)
The FCC’s latest effort at net neutrality rules is a year old. Those rules, now under court review, reclassified broadband Internet delivery as a Title II (common carrier) service. FCC Commissioner Ajit Pai, a member of the Republican minority, filed a vigorous 67-page dissent to that decision. He recently marked its anniversary with a speech that said, in part:
The Clinton Administration and a Republican Congress consciously decided to take a hands-off approach to the Internet—to preserve the “vibrant and competitive free market … unfettered by Federal or State regulation.” And until 2015, every FCC Chairman, Republican and Democrat, let the Internet grow free from utility-style regulation. The result was an American digital economy that was the envy of the world.
(emphasis added; ellipsis in original)
Commissioner Pai here echoes the view of many critics who tell us the Internet evolved into the great vehicle it is today with no regulation.
That is just wrong.
In fact, the FCC regulated the early Internet as a utility in ways that unquestionably fostered its freedom, growth, and diversity—the very qualities that Commissioner Pai and others now say are threatened by much less regulation.
Get comfortable. This won’t take long.
In the 1980s, with today’s Internet still a few years off, people used their phone lines for access to early online services like CompuServe and The Source and to thousands of online bulletin boards. Ten years earlier, the FCC had put restrictions on how the larger phone companies could offer content services. It feared the phone companies would provide these services through their own lines, using the same computers that routed calls, and thus easily undersell competitors who had to both buy their own computers and pay for lines from the phone company. The result would be a phone company monopoly in the emerging industry of digital content, which the FCC thought should remain competitive.
A 1986 rule change called Computer III let the phone companies into the content business, but (this is key) required the larger companies to give content competitors essentially the same access to their networks and facilities that the phone companies themselves had. This kept everybody on an equal footing. A phone company could compete with CompuServe, for example, but had to let CompuServe (and everyone else) into its network and onto its lines. That let a customer dial up CompuServe’s content (or anyone else’s) as easily as the phone company’s. In the language of the net neutrality debate, a phone company was barred from favoring its own offerings over those of a competitor.
While the content of data being transported on phone lines remained wholly unregulated as a result of Computer III, the transport of those data was in fact regulated from the mid-1970s – long before the Internet – until 2005.
Computer III relied on the FCC’s Title II powers, Title II being the part of the Communications Act that authorizes the FCC to regulate telephone service as common carriage: to make sure it is available to everyone, free of unreasonable discrimination and at reasonable rates. Another name for this regime is “utility” regulation.
The non-nerd portion of the public found out about the Internet in the early 1990s, triggering a spectacular growth spurt, from a few million early adopters to almost half the planet in a generation. Most of the U.S. growth occurred during the dial-up days, when everyone accessed the Internet over phone lines subject to Computer III. The phone companies all had their own Internet service provider (ISP) offerings. Competing ISPs also used the phone companies’ lines and facilities. By the late 1990s there were thousands of them, including mom-and-pop outfits that helped users with specialized needs: doctors’ offices, real estate agents, law firms, various crafts and trades, religious families (blocking sex and violence), and older people, for whom ISP staff would come out to your house, configure your computer for the service, and teach you how to use it.
Competition was intense. A customer dissatisfied with his ISP could make a phone call and be online with a new one five minutes later. There was no talk of net neutrality. If a customer wanted content that his ISP did not offer or made hard to reach, the customer changed ISPs. Except for some serving specialized subscriber groups, all ISPs gave their customers the ability to access any content available anywhere on the Internet. This was presumably the “vibrant and competitive free market” of the Clinton-era Internet to which Commissioner Pai alludes – but contrary to his description, it was not only subject to considerable Federal regulation, but may have been the happy result of that regulation.
Then came broadband, which began reaching significant numbers of U.S. homes in the early 2000s. There were (and still are) two main kinds of providers: cable TV companies using facilities upgraded for two-way communications, and phone companies using lines upgraded to a technology called DSL, for Digital Subscriber Line. One phone company also offers FIOS, a fiber-based broadband service, but only in limited areas.
Except for speed, transporting Internet data over cable is indistinguishable from doing it over dial-up phone lines. But there was a big difference in regulation. Traditional cable TV, the kind that brings us reruns of The Brady Bunch, has never been treated as common carriage, while all telephone service has always been common carriage. The FCC could reasonably have decided to regulate the transport side of cable Internet service as common carriage, subject to Computer III, just like the equivalent service over phone lines. Instead, though, in 2002 it broke from precedent with a ruling that the broadband transport and content components together constitute a single service, and declared that service to be unregulated. The Supreme Court found the decision to be within the FCC’s discretion. “That’s not fair!” cried the phone companies providing DSL, who had to compete with other ISPs using the phone companies’ lines. In 2005, the FCC agreed: it removed Title II regulation, including Computer III, from broadband Internet services over phone lines.
November 16, 2005, the day that deregulation of DSL took effect, was the first day in its history that the Internet was free of regulation.
The result? Those thousands of competing ISPs disappeared. Although satellite and fixed-wireless ISPs serve niche markets, the vast majority of U.S. consumers have either one or two broadband Internet options: the local cable company and the local phone company. Wireless 4G services might have offered additional options, except for carrier-imposed data caps: a typical 4G data plan allows for, at most, one high-definition movie per month, which is far too little capacity for most households.
With the deregulation of broadband, we had an Internet arguably unfettered by Federal regulation. And what of the resulting market? It consisted of one or two remaining broadband providers, hardly the “vibrant and competitive free market” touted by the Commissioner. As a practical matter there is no functioning market and no real competition. U.S. broadband speeds are fourteenth in the world, behind countries like Belgium and Romania. U.S. prices are much higher than in many other countries, some of which subsidize broadband as we do highways and airports, and for the same reason: broadband furthers economic activity that benefits the country as a whole.
Nor did the FCC’s supposed commitment to let the Internet grow free of regulation last until 2015, as Commission Pai suggests. To the contrary, it barely made it for three years. By 2008 the FCC was seeking to regulate Comcast’s Internet service through the enforcement process; in 2010, it adopted more sweeping Internet regulations. In so doing the FCC was trying to ensure that at least the content side of Internet service remains competitive, with net neutrality rules that prohibit the cable and phone company ISPs from favoring some content providers over others. The courts twice struck down these attempts, most recently on the ground that the FCC’s rules relied on the same Title II authority that the FCC had declined to apply to broadband.
So, a year ago, the FCC reversed course and applied Title II to broadband Internet delivery. But it did not regulate rates, or order the provision of service to remote areas, or do most of the other things that Title II regulation allows. It did not even re-impose Computer III. It merely applied that faint shadow of Title II needed to support its net neutrality rules.
Many critics have attacked that move as regulating, for the first time, what had been a free and open Internet. This is nonsense. We once had a free and open Internet – free and open to all content – thanks to Computer III regulation. Now we have an Internet that can be accessed only through a small number of companies, which vigorously resist efforts to ensure that they transmit content impartially.
Of course the ISPs are free to oppose net neutrality rules, and their advocates are free to support them. But they are not free to misrepresent a key historical fact: that the Internet once owed its stunning growth and success to prudent, far-sighted regulation.