Wednesday, June 04, 2014

The FCC's Net Neutrality Proposal: The Wrong Approach for Regulatory Presumptions

Despite judicial rebuffs of the Federal Communications Commission’s two previous efforts to impose net neutrality mandates on Internet service providers – requirements that, in effect, and in one way or another, would convert the Internet providers into some form of government-regulated public utility like your electric company – the agency is at it once again.
There are many things wrong with the FCC’s latest net neutrality proposal from a policy and legal perspective, and I’m sure that I, along with other Free State Foundation scholars, will be addressing some of them in the weeks and months ahead. But here I want to focus attention on just one troubling aspect of the Commission’s May 15 rulemaking notice – a matter that, in my view, is quite fundamental and which is indicative of a mode of thinking that affects (if not infects) not only the net neutrality proposal but the agency’s general approach to regulation. 
I have in mind what the Commission says regarding the use of presumptions in its decision-making process. In paragraph 127, the Commission states that it seeks comment “on the use of rebuttable presumptions as a tool to focus attention on the likely impacts of particular [ISP] practices.” In and of itself, this is a perfectly valid line of inquiry. Indeed, for several years I have been urging the agency – and Congress as well, when it revises the Communications Act in either a comprehensive or more limited fashion – to employ evidentiary presumptions in connection with competition analyses. 
But the Commission majority indicates that it is thinking about presumptions in the wrong way – exactly backwards, that is. In paragraph 128, for example, in discussing how it should consider certain competitive impacts, the Commission asks whether it should “adopt a rebuttable presumption that broadband provider conduct that forecloses rivals (of the provider or its affiliates) from competing in the marketplace is commercially unreasonable?” 
The Commission is posing the question in a way that presumes an answer that almost certainly will restrict broadband Internet providers’ business practices. 
In light of the conceded technological dynamism and multiplatform competition that exists in the broadband marketplace, the proper approach for the Commission would be to presume that, absent clear and convincing evidence of market failure and consumer harm, the broadband providers’ practices, including practices relating to the prioritization of services, are commercially reasonable. In other words, the rebuttable presumption – which is really an evidentiary presumption – should run in favor of not imposing new regulations on Internet providers.
In April 2011, I proposed something along these lines in my piece, “A Modest Proposal for FCC Regulatory Reform.” There I suggested that Congress revise the Communications Act’s Section 10 forbearance and Section 11 periodic review provisions to incorporate a rebuttable presumption to the effect that, absent clear and convincing evidence to the contrary, the FCC must deem the consumer protection and public interest criteria for granting regulatory relief satisfied. In my July 2013 testimony before the House Commerce Committee at the Subcommittee on Communications and Technology’s hearing on “Improving FCC Process,” I urged that, absent clear and convincing evidence that regulation is needed, the Communications Act be amended to incorporate a rebuttable presumption requiring the FCC to grant regulatory relief. I am pleased that Rep. Bob Latta, the Vice Chairman of the Communications Subcommittee, has introduced a bill, H.R. 2649, to establish just such a deregulatory rebuttable presumption consistent with my proposal.

And last November, once again before the House Subcommittee on Communications and Technology, I urged in my testimony that, in the new digital environment in which consumers generally have choices among alternative providers, “the FCC's future regulatory activity should be tied closely to findings of demonstrable market failure and actual consumer harm.” I testified that the FCC should be required, much more than it is today, “to engage in rigorous economic analysis that focuses on whether there is a demonstrated market failure causing actual consumer harm.”

Now, back to the Commission’s proposed new net neutrality regulations. Not only is there not any showing of a present market failure in the broadband marketplace, but in paragraph 49 the Commission largely dismisses any need to perform a meaningful market power analysis. It says that its “open Internet concerns” are not limited to markets in which broadband providers may have market power.

Assuming for present purposes that the majority decision in the D.C. Circuit’s Verizon v. FCC case remains the controlling precedent, it may be that the FCC, subject to compliance with various other legal constraints, has the authority to readopt some form of net neutrality regulations in the absence of a showing that Internet providers possess market power. But this is in no way means that it is a sound approach for the agency to follow. Indeed, it would be unwise for the Commission to embark on implementing a new regulatory regime for the Internet while disclaiming the need, first, to find a market failure.

I will admit that the Telecommunications Act of 1996 may not directly require the FCC to adopt the presumptively deregulatory approach that I advocate. That is why I have urged that the Communications Act be revised in a way that explicitly employs rebuttable presumptions to prevent the FCC from imposing regulation in the absence of convincing evidence of market failure and consumer harm. But while the 1996 Act may not explicitly require the Commission to employ deregulatory presumptions, Congress did state at the beginning of the key conference report that the legislation was intended to create a “pro-competitive, deregulatory national policy framework.”

And of central relevance here, Congress also stated in the 1996 Act that it is the policy of the United States “to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulations.”

I have said many times in the past few months that the wisest course at this time would be for the FCC to refrain from readopting net neutrality regulations, while giving Congress a chance to work its will. But assuming the FCC does move forward, it should not be so presumptuous as to presume the need for regulation of Internet providers’ practices. This is the wrong way to employ rebuttable presumptions.

The proper approach, given what Congress said when it adopted the Telecom Act of 1996, and given the current dynamism and competitiveness in the broadband Internet marketplace, is to presume, absent clear and convincing evidence of a market failure and consumer harm, that regulation is not needed.

This would be the right way for the Commission to use rebuttable presumptions.