Wednesday, February 10, 2010

Save The Internet From Title II Regressives

Amidst continuing doubts about whether the Federal Communications Commission's Title I ancillary jurisdiction gives it power to impose net neutrality regulation of broadband access services, in recent FCC proceedings Public Knowledge, the Consumer Federation of America and others have urged the Commission to move broadband "information services" from Title I classification to Title II. But such calls for net neutrality or other common carrier regulation of broadband services through Title II lack any grounding in existing, cognizable marketplace harm or failure. And imposing monopoly-style regulation on broadband fails to take seriously both the existing state of competition and the potential for new competition offered by wireless broadband in the dynamic modern communications services market.

In his keynote address at the Free State Foundation's Winter Conference, Commissioner Robert McDowell listed a series of serious questions raised by recent calls for the Federal Communications Commission to remove high-speed broadband "information services" from Title I jurisdiction and instead subject broadband to Title II common carrier regulation. A reclassification to Title II would subject broadband to a blizzard of new regulation.

As Commissioner McDowell reminded the audience, "common carriage regulation's original purpose was to regulate the rates, terms and conditions of the coal-fired railroads of the 1880s," and was later appropriated to regulate "monopoly, analog, circuit-switched voice service of the 1930s." Traditional Title II treatment includes: rates, terms and condition regulation, tariffs, dominant vs. non-dominant carrier classification determinations for added regulatory burdens, agency Section 256 oversight of interoperability and interconnection between telecommunications carriers and other providers of telecommunications services, as well as various recordkeeping, reporting, and accounting obligations. (The Commissioner's address was also highlighted in a recent FSF blog post: "FCC Commissioner Robert McDowell: 'First Do No Harm'").

A letter to the FCC by MetroPCS sums up the stakes in subjecting broadband to common carrier regulation. It reiterates the regulatory reverse-course constituted by calls to put broadband services under Title II. Previous orders by the FCC have classified both DSL wireline broadband and wireless broadband as "information services" receiving largely unregulated treatment Title I, not common carrier obligations under Title II. Both of those orders followed the FCC's clarification that cable modem services are "information services," since cable services have never been subject to Title II regulation. Importantly, the U.S. Supreme Court upheld the FCC's cable modem order in NCTA v. Brand X (2005).

Metro PCS's letter then gets to the heart of what pro-regulatory forces are most ardently after —network neutrality regulation— and how Title II reclassification constitutes their presumptuous way to get there:

The proposed reclassification – which undoubtedly is proposed in order to enable the Commission to impose net neutrality regulations on providers of broadband Internet services following warning signs that the Commission may not have ancillary authority to do so under Title I – puts the cart before the horse. The clear impetus for the push to reclassify is solely to implement net neutrality requirements, not because common carrier regulation is otherwise necessary or appropriate. This “ends justifies the means” approach is inappropriate and does not serve the public interest. The Commission should not be working backward from a desire to impose net neutrality regulations. Rather, it should examine the marketplace as it currently exists, and determine from concrete evidence whether the market has changed in such a way that common carrier regulation is appropriate.

Other serious problems with net neutrality regulation and common carrier treatment of broadband services aside, actual evidence of a change in marketplace conditions should be proffered before any regulatory reclassification should ever take place. As the MetroPCS letter goes on to say, with a quote Commissioner McDowell from his keynote at the FSF Winter Conference: "[T]he Commission should not break from its repeated declarations that broadband Internet services should not be considered common carrier services without 'a reasonable and detailed justification for the change based on record evidence.'" But as the letter goes on to assert: "There is no record evidence to demonstrate that reclassification is justified to ensure competition in broadband Internet services or in order to sustain net neutrality regulations, particularly without a demonstrated need for such regulations."

FSF's comments to the FCC in the Preserving the Open Internet proceeding in January made this same point about the utter lack of evidence in the record for any broadband marketplace failure justifying net neutrality regulation. The FCC's Notice of Proposed Rulemaking in the proceeding only musters two isolated instances of real or alleged "discriminatory" treatment of data traffic by ISPs: the Madison River Communications VoIP-blockage incident that resulted in a 2005 consent decree, and the Comcast/BitTorrent P2P "throttling" incident that was resolved between the parties prior to the FCC's controversial July 2008 order. Both incidents were resolved without the need for new regulation. And as FSF's comments maintained, those two instances provide no basis for aggressive new net neutrality regulation of broadband Internet providers—whether through Title I or through Title II.

Of course, any such analysis of the existing broadband marketplace should take into account both actual competition and potential competition. The importance of potential competition in dynamic markets has been emphasized in a number of FSF scholarly writings, including FSF Academic Advisory Board scholars Dennis L. Weisman and Glen O. Robinson's essay "Lessons for Modern Regulators from Hippocrates, Schumpeter and Kahn" in New Directions in Communications Policy. As FSF Perspectives pieces by Prof. Weisman ("On Market Power and the Power of Markets: A Schumpeterian View of Dynamic Industries") and FSF President Randolph May ("Assessing the FCC's Competition-Assessing Competence") have both pointed out, the FCC has not consistently considered potential competition in regulatory decision-making.

However, the U.S. Court of Appeals for the District of Columbia's decision from last summer in Verizon v. FCC reiterated the importance of the FCC assessing potential competition in the regulatory forbearance context. Just at the FCC should consider potential competition in the dynamic broadband market when deciding whether or not to continue old legacy regulation, all the more should the FCC consider potential competition in the market before it ever imposes onerous new regulation.

The U.S. Department of Justice's ex parte filing to the FCC in the National Broadband Plan proceeding makes substantially the same point about the need to take seriously the dynamic marketplace and not limiting competitive analysis to a static snapshot:

In any industry subject to significant technological change, it is important that the evaluation of competition be forward-looking rather than based on static definitions of products and services. Insight can best be gained by looking to product life cycles, the replacement of older technologies by newer ones, and the barriers facing suppliers that offer those newer technologies. In the case of broadband services, it is clear that the market is shifting generally in the direction of faster speeds and additional mobility.

One need not make too much of DOJ's filing. But it does offer a few positive takeaways. In addition to correctly pointing out how competition in dynamic markets requires a forward-looking perspective, the filing is devoid of any evidence of broadband marketplace failure or market power on the part of ISPs. The DOJ filing also acknowledges wireless as an important potential source of new broadband competition.

Given the lack of existing harms or broadband marketplace failure, as well as the potential for new and increasing competition offered by wireless, the FCC should continue to adhere to the non-regulatory policy approach under Title I that has allowed the broadband Internet to grow. The Commission should opt for the forward-looking approach to market competition and reject the backward-looking call for monopoly-style regulation.