Monday, June 14, 2010

Broadband Internet Regulatory Authority: Some Suggested Legislative Language

At a meeting this Thursday, the FCC is expected to vote to solicit comment on Chairman Genachowski's proposal to reclassify broadband Internet service providers as telecommunications carriers. This reclassification will subject the IPSs to the Communications Act's Title II common carrier provisions. The proposal also envisions the Commission simultaneously forbearing from applying some of the Communications Act's Title II provisions, but not the key rate regulation and non-discrimination provisions. These rate regulation and non-discrimination provisions are at the core of traditional common carrier regulation as such regulation was applied throughout the twentieth century to Ma Bell and other monopolistic providers of ordinary telephone services.

A majority of the House of Representatives, including 73 Democrats, have objected to Chairman Genachowski's plan to classify broadband Internet service providers as common carriers. These Democrats stated that: "The uncertainty this proposal creates will jeopardize jobs and deter needed investment for years to come. The significant regulatory impact of reclassifying broadband service is not something that should be taken lightly and should not be done without additional direction from Congress. We urge you not to move forward with a proposal that undermines critically important investment in broadband and the jobs that come with it." Rep. John Dingell, the immediate past chairman of the House Commerce Committee, wrote a separate letter to the same effect, urging the FCC "to seek the authority it needs by asking the Congress to enact a statute that delegates it."

As reflected in the letters referred to above, and there are others as well from Republicans, there is a growing consensus that Chairman Genachowski's reclassification proposal is unwise and ill-conceived on both policy and legal grounds. I understand the D.C. Circuit's April 6th decision in Comcast Corporation v. FCC has called into question the agency's exercise of so-called "ancillary" jurisdiction over broadband ISPs. In my view, given the increasing competitiveness of the broadband Internet marketplace and the lack of any proven market failure or any existing pattern of consumer abuses, there is no pressing need for the FCC to possess express jurisdiction over Internet providers for purposes of imposing net neutrality regulation. This is especially so in light of the recent development concerning the establishment of the Broadband Internet Technical Advisory Group made up of a diverse group of companies, including Google, "to develop a consensus on broadband network management practices or other related technical issues that can affect users' Internet experience, including the impact to and from applications, content and devices that utilize the Internet." This new body – and other existing ones like it – holds significant promise for facilitating self-regulatory mechanisms that, through the employment of technical and other specialized expertise, are equipped to protect consumers while avoiding the pitfalls and costs of inflexible, static anticipatory regulatory regimes.

Nevertheless, I appreciate that others may believe it is important that the FCC possess authority over broadband ISPs. And, as a majority of House members recognize, it is certainly preferable for Congress to enact legislation granting such express authority than having the FCC proceed to adopt a reclassification proposal so fraught with problems. There is no profit for the agency itself, or for consumers, in having the FCC adopt a course that, on its face, appears so jerry-rigged -- all in the cause of avoiding the import of a court decision holding the agency lacks jurisdiction to impose net neutrality mandates.

With that in mind, it is useful to consider what such legislation should look like. Since the Comcast decision, I have advocated that such legislation should be narrowly-circumscribed. A prerequisite to the Commission's exercise of regulatory authority over broadband Internet providers should be that the provider possess market power and abuse it in a way that causes consumer harm. And I have long advocated a regime under which the Commission's exercise of authority over Internet providers would be on a post hoc adjudicatory basis upon a complaint filed. This approach would require the agency to employ economic analysis that focuses on the particular market in which an abuse is alleged to have occurred. Under this regime, the Commission's rulemaking authority would be limited, but not eliminated.

There are obviously different ways such legislation might be drafted consistent with achieving a narrowly-circumscribed legislative fix. And, in any event, the specific legislative language depends upon technical matters such as where in the Communications Act amendments are inserted, whether new definitions of terms are needed, and so forth. That said, below are provisions that embody the targeted, market-oriented legislative approach that I submit would be in order and might win widespread congressional acceptance. The provisions grant the Commission the authority to protect consumers, while, at the same time, circumscribing such authority in a way that prevents the agency from overreaching and stifling investment and innovation in the dynamic environment that characterizes the Internet.

I welcome feedback on these draft provisions, or on others that might accomplish the desired objective.

Section 1. Complaints Against Broadband Internet Service Providers

Except as expressly provided in this section and Section 2, the Commission shall have no authority to impose sanctions on or otherwise regulate, either through the adjudication of complaints or resolution of complaints by other means, or through the adoption of rules, broadband Internet service providers.

(a) The Commission shall have the authority, upon a complaint filed and after an on-the-record adjudication, to prohibit broadband Internet service providers from engaging in acts or practices that are determined to constitute an abuse of substantial, non-transitory market power and which cause harm to consumers.

(b) The Commission shall have the authority, upon complaint filed and after an on-the-record adjudication, to require interconnection between and among Internet service providers if the Commission determines that failure to order such interconnection poses a substantial, non-transitory risk to consumer welfare by materially impeding the interconnection of public communications facilities and services in circumstances in which marketplace competition is not sufficient adequately to protect consumer welfare, provided that in making any such determination the Commission must consider whether requiring interconnection will affect adversely investment in facilities and innovation in services.

(c) Before filing a complaint with the Commission under this subsection (a) or (b) of this section, a subscriber to an offering of an Internet service provider or an Internet service provider requesting interconnection must first engage in an informal dispute resolution process that has been recognized by the Commission as a forum for attempting to resolve such disputes in a fair and expeditious manner.

Section 2. Rules Governing Acts or Practices of Internet Service Providers

(a) The Commission shall have no authority under this section to prescribe rules that declare unlawful an act or practice on the grounds that such act or practice is harmful to consumers unless the Commission determines, based on a showing of clear and convincing evidence presented in a rulemaking proceeding in which the public is afforded notice and an opportunity to comment, that marketplace competition is not sufficient adequately to protect consumer welfare and that such act or practice causes or is likely to cause injury to consumers and is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.

(b): Any rule promulgated under this section shall terminate automatically by operation of law five years from the date it becomes effective unless the Commission, in a proceeding in which the public is afforded notice and an opportunity to comment, makes an affirmative determination, based on a showing of clear and convincing evidence presented in such proceeding, that the rule continues to be necessary because marketplace competition is not sufficient adequately to protect consumers from substantial injury which is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.

Note: As many know, while at the Progress and Freedom Foundation, I led a project in 2005, in which a large number of prominent scholars collaborated, to draft a model Digital Age Communications Act (DACA). That project's objective was to draft a comprehensive rewrite of the Communications Act to bring it up to date. There is still much to commend the DACA approach, and I would welcome the adoption of legislation embodying such a radical overhaul of the act. But my sense is that, for now, in order to prevent harmful regulation in the near-term of the type being pursued by the current FCC majority, a narrower, targeted approach such as that suggested above has a much better chance of passage. This does not mean that the Communications Act does not need a comprehensive overhaul along the lines suggested by DACA. It just may mean that the time is not yet ripe for such an overhaul that likely would require a very time-consuming legislative process. So, in the meantime, I have drawn on some of the work we did on DACA here, while deviating in some material respects. I commend to you the DACA materials on the PFF website, including S. 2113, the "Digital Age Communications Act of 2005", which was introduced by Senator Jim DeMint, and which embodied the work of the DACA project.