Monday, December 20, 2010

Internet Regulation - "When Hell Freezes Over"

The FCC is poised to take a significant step tomorrow to regulate Internet providers. When it does, its action will say a lot about what's wrong with an agency that was created in 1934 to regulate telephone and telegraph monopolies.

I always held out hope that, "until hell freezes over," the FCC really wouldn't take this unnecessary step to regulate the Internet. I guess the fact that the temperature here in Washington has not been much above freezing for about two weeks now is not a good sign.

The nub of the problem with the FCC's action can be neatly summed up this way: The Commission is acting on dubious legal authority, in the face of widespread, bipartisan opposition, to adopt a new Internet regulatory regime to "fix" a problem that doesn't exist. There you have it.

Indeed, at least up to now, the FCC itself hasn't argued that there is any market failure or consumer harm resulting from the absence of net neutrality mandates. Rather, it has, from the beginning, casts its regulatory initiative as an effort to "preserve" and "maintain" the openness that exists on the Internet.

In my view, the most harmful aspect of the new rules is likely to be the prohibition on "unreasonable discrimination." This is the same prohibition at the core of the Title II common carrier provisions in the Communications Act of 1934 directed to regulating telephone and telegraph monopolies. Remember Western Union and the "Bell System"?

The harmfulness of the anti-discrimination provision may be mitigated to the extent it is qualified and somehow limited in the Commission's order, say, by the agency explicitly affirming that paid prioritization is not generally to be considered unreasonably discriminatory. This should be done.

By the same token, the new rules will be more or less harmful to the extent that they make clear that the anti-discrimination and other neutrality mandates do not apply to wireless Internet providers.

And the most significant way in which the likely harm resulting from the FCC's order could be mitigated would be if the Commission's rules are written to require a showing of market power by the Internet provider and consumer harm resulting from the provider's practices as prerequisites to any finding of discrimination. In other words, absent a showing of market power and consumer harm, the actions of Internet providers would be deemed presumptively reasonable. In this way, the Commission would at least, in some fashion, acknowledge that it appreciates the difference between the competitive, dynamic marketplace that exists in today's digital environment and the monopolistic marketplace that prevailed at the time the '34 Act was adopted.

In a macro sense, the Commission's action tomorrow – if the agency does go through with it – will simply confirm its central failing as we now move into the second decade of the twenty-first century. It is this: Rather than devoting its resources to reducing or eliminating analog-age legacy regulations, or reforming analog-age regimes such as universal service, or command-and-control spectrum management policies, or delay-prone, unseemly "regulation-by-condition" merger review policies , the Commission's mindset is still grounded in extending regulation into new areas where there is no market failure.

I don't want to give up hope or my willingness to be surprised. But, frankly, it is unlikely the Commission's prevailing mindset will change meaningfully and materially until Congress adopts a new regulatory framework for communications along the lines of the Senator DeMint's Freedom for Consumer Choice Act, introduced this session, which is based on the Digital Age Communications Act he presciently introduced in 2005.