Net Neutrality, the NOI, and Unbundling

So. The FCC has now initiated a “Notice of Inquiry” proceeding on net neutrality. When Jim Quello, the venerable former FCC Chairman and longest-serving FCC commissioner, reluctantly voted to have the FCC start inquiring into some matter or another he thought better left outside of the agency’s purview, I recall he was fond of saying, “Well, it‘s only an NOI.”

I understand that, on the one hand, the issuance of an information-gathering NOI rather than a Notice of Proposed Rulemaking is a step less likely to lead to regulation of broadband Internet providers—at least as soon as issuance of an NPRM might. And gathering information, of course, is generally not a bad thing. But on the other hand…as a long-time observer of the FCC, I know the other hand…NOIs sometimes have a way of leading to NPRMs much in the way that the adoption of non-binding net neutrality principles led to binding merger conditions. Certainly, if the political composition of the Commission changes after the next election giving the agency a more pro-regulatory philosophical and policy perspective in line with that of Commissioners Copps and Adelstein, the NOI may prove, as a procedural matter, to have put the Commission further along on the road to Internet regulation than the agency otherwise might have been.

But back to the first hand…I understand that Democratic Commissioners Copps and Adelstein would have preferred to issue an NPRM right now for the very reason that, in fact, an NPRM would put the Commission further along on the road to Internet regulation. So, in that sense, I can understand, and appreciate, what FCC Chairman Martin and his Republican colleagues have done. “It’s only an NOI” and it’s difficult to criticize on-the-record information-gathering. (To demonstrate the technological dynamism and fast-changing competitive environment of the broadband Internet marketplace, someone just needs to submit the last year’s worth of the business pages of the Wall Street Journal, New York Times, and Washington Post, or any one of them, for the NOI record. Case for new Internet regulation closed!)

I deliberately highlighted above the significance of the philosophical and policy perspective of Commissioner Copps to make a point. I don’t for one moment question his good faith or good intentions. But, at this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, he has much more faith in the government’s ability (in this instance his ability) to manage the communications and information marketplace to achieve what he conceives to be in “public interest” than I think is justified.

In his NOI statement, Copps says: “[W]e still haven’t addressed important questions about such things as privacy, disabilities access and the future of the Internet.” It’s one thing for the FCC to use whatever authority it has been granted to address somewhat discrete issues such as privacy or disabilities access. But it worries me a lot when, at this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, FCC commissioners have in mind that they can devise a grand regulatory strategy to manage “the future of the Internet.” I prefer to trust the Internet’s future to the free marketplace.

And that brings me to another statement by Copps in his NOI concurrence: “[A]s the Commission already has recognized in a host of areas—such as Carterfone’s discussion of the PSTN, our 2005 Policy Statement’s discussion of the Internet, and our rules on cable set-top boxes—consumers generally benefit when they can select from among a range of network attachments, including devices not chosen for them by their service providers.” This really gets to the heart of the philosophical divide that permeates much of communications policymaking today: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, whether regulators or the marketplace should determine whether communications and information services and equipment must be offered on an “unbundled” basis. And it matters little whether the providers are labeled, in twentieth century fashion, “telephone”, “cable”, “satellite”, or “wireless” operators.

The forced imposition of unbundling mandates remains the central issue in communications policy today. Commissioner Copps rightly recognizes there is a common thread that runs through the issues of net neutrality, cable set-top box unbundling, a la carte programming mandates, multicast must carry mandates, wireless service and equipment unbundling, and so on. Sure, there are variations in the characteristics of each market segment that appropriately should be considered by policymakers. But, increasingly, in today’s fast-changing and converging digital broadband environment, these unbundling issues are of the same piece. In each instance, the relevant question is: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, will consumers be better off if we trust the marketplace, rather than the regulators, to decide how much bundling or not will occur. In my view, absent compelling evidence of anti-competitive abuses in particular situations, the balance now tilts clearly in favor of marketplace reliance to make that determination.

So. That brings me back to the NOI. Although presumably the FCC has been ready and willing to receive “net neutrality” complaints, the NOI will provide a new forum with a new docket number for gathering information on any alleged abuses. Fine. Who knows? Maybe we will discover that a lot of people are dissatisfied with Google’s search engine practices and demand to have a strict, common carrier non-discrimination mandate put in place for dominant search engines.

At bottom, when all the data is gathered and all is said and done—Oops! In today’s fast-changing digital environment, all the data will never be gathered and all will never be said and done—there is a certain point at which it is gut check time for the FCC commissioners, and, for that matter, legislators and other policymakers too: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, is it your philosophical and policy predilection to trust regulation to determine the extent to which there will be mandatory unbundling of services and equipment, or do you trust the marketplace to respond to consumers with the various bundles (or not) they prefer?

Commissioner Copps is right in seeing forced unbundling as today’s central communications policy issue. And he is right in seeing the common thread that links net neutrality, set-top box unbundling mandates, and the other so-called “Carterfone” issues. I just think his pro-regulatory philosophical and policy predilections lead him to the wrong outcomes.
It should not be too much to hope that at least Chairman Martin and his Republican colleagues, as proclaimed adherents to free market principles, also will understand there is a common philosophical thread running through all the issues in which unbundling mandates are sought, lately under the newly-unfurled Carterfone banner. While the 1968 Carterfone decision justifiably has a place of honor among the monopolistic narrowband age’s most significant decisions, invoking Carterfone as a talisman in the cause of mandatory unbundling in today’s vastly different, competitive broadband world is wrong. It will only tarnish Carterfone’s good name.