Tuesday, June 01, 2010

Notes on the Right Way

Yesterday's program, "After Comcast: What's Next for Next Neutrality?", jointly sponsored by the Free State Foundation and the Information Technology & Innovation Foundation, was, in my view, a very educational discussion concerning where we are now and where we should go next after the Comcast v. FCC decision. There was a general consensus that FCC Chairman Julius Genachowski's "Third Way" proposal is problematic as a way forward for both policy and legal reasons. There were, of course, differences of emphasis among the panelists. But there was fairly widespread agreement that the Commission ought to rely much more heavily than it presently is disposed to do on self-regulatory mechanisms as a means of addressing concerns sounding in "net neutrality," and that if the agency believes additional regulatory authority is necessary it should work with Congress to achieve enactment of such legislation.

The video will be available on ITIF's and FSF's website shortly, so you can see for yourself. And a transcript will follow after that.

What follows in the numbered paragraphs immediately below is simply a cutting and pasting of the notes I prepared for myself as a guide for my opening brief remarks. The notes were written as just such a guide, so they are, by design, somewhat sketchy and unpolished. But my actual remarks stuck pretty closely to this script, and the notes reflect aspects of my current thinking relevant to Chairman Genachowski's Third Way proposal and to my preferred course of congressional action. I offer them here in their raw form to continue to provoke discussion and, perhaps, the development of a further consensus that the Third Way proposal, as formulated by Chairman Genachowski, is the wrong way. But there is a Right Way.

1. After watching the FCC for over 30 thirty years, I've seen some pretty strange things. But as time goes by, this case of the Third Way, nee the Open Internet, nee Net Neutrality, nee Open Access, gets "curiouser" and "curiouser." It makes me want to put a big sign on the wall as you get off the elevator on the 8th floor of the Portals that reads: "When you're in a hole, the first thing to do is to stop digging!"

2. Here are just some of the more fundamentally problematic aspects of Chairman Genachowski's Third Way proposal. And I have to say, with respect, that in articulating the Third Way proposal, I do think the Chairman has abused, somewhat, the ordinary usage of the English language.

3. Foremost, perhaps, the Chairman describes his approach as embodying a bipartisan consensus for what he calls "a restrained approach" or "light touch approach" to broadband regulation. It is true, in my view, that there is considerably more of a consensus for light-handed regulation than heavy-handed regulation. But it is wrong to characterize his approach as restrained or light-handed. If nothing else, the insistence on adopting a broad new nondiscrimination mandate would convert the existing regime into one that cannot fairly be characterized as light touch regulation. Enforcement of a nondiscrimination mandate has always been at the heart of common carrier regulation, and in the past it has never been thought characteristic of light-handed regulation. Indeed, it is pursuant to the proposed nondiscrimination rule that the agency would prohibit ISPs from charging content providers differential fees for prioritization or favored access.

4. As he has done for some time now, the Chairman suggests his proposal would not regulate "the Internet." It is wrong, as a matter of statutory interpretation, precedent, common sense, and the ordinary usage of the English language, to suggest that Internet service providers are not part of the Internet. They are, so the Chairman's proposal would regulate the Internet.

5. The Chairman says he wants to resolve the "current uncertainty" – and Commissioner Copps says this all the time as well – as if whatever current uncertainty that exists is not, to a large extent, the result of the very proposal the Chairman initiated, soon after taking office, to adopt a new net neutrality regime. Commissioner Copps freely acknowledges he has been trying to reverse the agency's information services classification determination since Day One, that is, since 2002. How has this relentless campaign to overturn a Commission precedent that was affirmed on a 6-3 vote by the Supreme Court at the FCC's urging contributed to regulatory certainty?

6. At the heart of the Chairman's proposal is the requirement that the transmission component of Internet service be unbundled and regulated as common carriage, but that the remainder of what comprises the totality of Internet service, such as applications or content, not be regulated. The Commission says it is not requiring "unbundling" – but what is separation of the transmission component from everything else if not unbundling. And unbundling often leads to rate regulation. FCC General Counsel Austin Schlick in his statement says: "There is no reason to anticipate" the Commission would regulate Internet rates. This non-Sherman-like statement sounds somewhat like the remark of a politician to the effect: "I have no present intention to run for XYZ office." We know what often follows.

7. It is striking there is no reference to any market failure or any linking of the need for net neutrality regulation to the status of marketplace competition in either the Chairman's or the General Counsel's statements. The assumption is that "we just need to do it," whatever the costs may be in terms of legal jeopardy, jeopardy to broadband investment or to the overall economy -- or jeopardy to the ordinary usage of the English language.

8. If there is a determination there needs to be some authority for FCC oversight of broadband Internet service providers, Congress should adopt a new narrowly-circumscribed legislative framework.

9. The core of a new legislative framework should be a provision granting the FCC authority, upon a complaint filed and after an on-the-record adjudication, to act to prohibit broadband Internet Service Providers from engaging in practices determined to constitute an abuse of substantial, non-transitory market power and that cause demonstrable harm to consumers. Such a circumscribed market-oriented rule would provide the FCC with a principled basis for adjudicating fact-based complaints alleging that ISPs are acting anti-competitively and, at the same time, causing consumer harm. Using antitrust-like jurisprudence that incorporates rigorous economic analysis, the Commission would focus, post hoc, on specific allegations of consumer harm in the context of a particular marketplace situation.