PRESS RELEASE: The FCC's Democrat Majority Converts Internet Providers Into Public Utilities

Regarding today's action by the FCC classifying Internet providers as public utilities, the following statement may be attributed to Free State Foundation President Randolph May and Director of Policy Studies Seth Cooper:

The FCC's vote to convert broadband Internet providers into regulated public utilities is likely the most momentous power grab by the administrative state thus far in the 21st century. Without any evidence of present consumer or competitive harm, the FCC's Democrat majority has asserted far-reaching government control over Internet providers and the Internet's physical infrastructure. Rarely, if ever, has an administrative agency attempted to seize so much power based on so little evidence. The FCC's action is based only on empty claims of speculative harms. The result almost certainly will be a chilling of investment and innovation.

Unlike most claims for the imposition of public utility regulation, the FCC in this case does not even try to justify its action based on the claims of Internet provider market power. Indeed, it couldn't if it tried, because the high-speed broadband market has become effectively competitive, with cable, fiber, fixed wireless, mobile, and satellite platforms providing consumers with choices. And the record is unequivocal that broadband providers do not block or throttle their subscribers' free speech or access to content of their choice. 

 

The Commission's novel late-blooming invocation national security and public safety as a justification for asserting government control over Internet providers is disingenuous. The order fails to identify any specific security or safety harms or adopt any new targeted security or safety rules to address them.

 

Finally, and importantly, the FCC's action almost certainly is unlawful and will fail under the Supreme Court’s Major Questions Doctrine. Congress never clearly authorized such a politically and economically significant assertion of government control over the Internet.

FSF Scholars Warn Against the Title II Threat to Innovative 5G Network Slicing

On April 2, the Free State Foundation released a Perspectives from FSF Scholars by President Randolph May and Senior Fellow Andrew Long titled "The 'Network Slicing' Debate Exposes How Title II Will Kill Innovation." Their Perspectives paper provides a helpful descriptive overview of 5G mobile network slicing and how it can provide optimal service for different use cases, including broadband Internet access services, telemedicine, Internet-of-Things, and more. But as FSF President May and Mr. Long explain, the Commission's proposal to reclassify broadband Internet access services as a Title II "telecommunications service” under the Communications Act threatens to impede these breakthrough uses of next-generation broadband networks. Their paper concludes: "To encourage continued investment and innovation, the Commission should shelve its entire proposal to impose a public utility straitjacket on Internet providers and let technological advancements and marketplace competition do the job of enhancing consumer welfare."

FSF President May and Mr. Long's Perspectives paper is worthwhile reading on network slicing and the harm to innovation posed by Title II regulation. Also, an April 5 FedSoc Blog post by former NTIA Administrator John Kneuer, titled "Network Slicing and Net Neutrality" elaborates on these same matters and cites favorably to that paper. 

PRESS RELEASE: FCC Proposing to Reimpose Net Neutrality Regulations Is Foolhardy

Free State Foundation Randolph May issued the following statement regarding FCC Chairwoman Rosenworcel's proposal to reimpose net neutrality regulations: 

It is foolhardy for the FCC to embark on yet another attempt to impose public utility-like regulations on Internet service providers. As a matter of policy, it's wrong to go down this road again when there's no evidence of a problem justifying new burdensome regulations. And as a matter of law, it's a big blunder because it's very likely the Supreme Court will determine that any FCC action reimposing net neutrality regulations is a "major question" and Congress has not clearly authorized the agency to exercise the power it claims. It would make a lot more sense, and benefit consumers, if the Commission would just devote its resources to important matters within its authority, such as ensuring that the multi-billions of dollars in subsidies it's responsible for disbursing are used effectively and efficiently, without fraud or abuse, to promote broadband deployment and adoption?

 

And don't believe for an FCC minute that the Chairwoman Rosenworcel and her Democrat majority colleagues intend to foreclose rate regulation of ISPs' offerings. These actions may not be called "rate regulation" but rather prohibitions on usage-based pricing or free data applications, or some such. The effect will be rate regulation.

Major Questions Doctrine Is a Major Obstacle to Net Neutrality Regulation

On September 20, attorneys Donald B. Verrilli, Jr. and Ian Heath Gershengorn published a white paper titled "Title II 'Net Neutrality' Broadband Rules Would Breach Major Questions Doctrine." The co-authors served respectively as former Solicitor General and Acting Solicitor General in the Obama Administration. The paper's co-authors are right in identifying the ascendant major questions doctrine as a major legal impediment to any future attempt by the FCC to re-impose Title II public utility-like regulations on broadband Internet access services. According to Messrs. Verrilli and Gershengorn:

The Supreme Court will surely consider the question whether to classify broadband as a Title II telecommunications service subject to common carrier regulation to be a “major question”—that is, one involving a matter of major economic and political significance… The statutory text on which the Commission proposes to hang its hat lacks the clear statement of authority that the Supreme Court demands. Nothing in Title II of the Communications Act itself or in any other statute gives the Commission the clear and unambiguous authority to classify broadband as a Title II telecommunications service subject to common carrier regulation, and the Commission cannot reasonably conclude otherwise. 

The paper's co-authors trace the Supreme Court's recent major questions decisions – including the June 2023 decision in Biden v. Nebraska and helpfully lays out the factors that the court uses to assess whether Congress provides "clear congressional authorization for agency action" on a matter of major economic and political significance. They provide straightforward analysis of relevant provisions in the Communications Act of 1934 as well as the Telecommunications Act of 1996, concluding that clear congressional authorization is lacking for prospective Title II regulation of broadband by the FCC. Additionally, the co-authors explain why the Supreme Court's 2005 decision in NCTA v. Brand X Services – which upheld the FCC's decision to classify broadband Internet services as a Title I "information service" and not as a Title II "telecommunications service" does not justify Title II reclassification but forecloses it. 

 

According to the paper's co-authors, with Title II amounting to a legal dead end for net neutrality regulation, other avenues should be preferred: 

Congress should enact legislation to resolve this issue once and for all. Absent that, the Commission could use its finite resources to pursue more legally defensible policy initiatives, such as adopting light-touch net neutrality rules under Section 706 of the Telecommunications Act, thereby avoiding Title II reclassification that would be inevitably doomed under the major questions doctrine.

The legal reasoning of Messrs. Verrilli and Gershengorn is persuasive that the FCC lacks statutory authority to impose Title II regulation on broadband Internet access services. And their paper is worthwhile reading. Both Congress and the FCC ought to carefully consider the points made in their paper. 

 

Aside from serious legal roadblocks to imposing Title II public utility-like regulation on broadband Internet services Free State Foundation President addressed policy reasons why such regulation would be a serious mistake in his Perspectives from FSF Scholars – originally published on September 21 as an op-ed in the Washington Examiner – "Reimposing Burdensome Net Neutrality Mandates Will Harm Consumers." And for additional legal background, see FSF President May's July 2022 Perspectives from FSF Scholars, "A Major Ruling on Major Questions."

FCC's Defining Case for Repealing Internet Regulations Upheld in Court

In my December 2017 Perspectives from FSF Scholars paper "The FCC's Defining Case for Repealing Internet Regulations," I explained that the legal fate of the Restoring Internet Freedom Order (RIFO) would come down to definition of terms in the Communications Act. Indeed, the D.C. Circuit's decision in Mozilla v. FCC upheld the RIFO based on the agency's interpretation of the relevant statutory terms. 

My paper explained that the draft RIFO presented a convincing explanation for why broadband Internet access service meets the definition of an "information service" under Title I. Further, my paper explained that the RIFO's reclassification decision was supported by agency precedent and the U.S. Supreme Court's decision in NCTA v. Brand X Services (2005). Also, my paper stated that "if an appellate court applies the deferential Chevron standard of review for agency interpretations of federal statutes, the Restoring Internet Freedom Order’s legal validity should be a foregone conclusion." In fact, Brand X and "Chevron deference" weighed heavily in the D.C. Circuit's decision in Mozilla v. FCC.

Notably, the D.C. Circuit did not uphold the RIFO's express preemption provision. For incisive commentary on that aspect of the decision, see the October 4 Perspectives paper by Professor Daniel Lyons, a Member of the Free State Foundation's Board of Academic Advisers. For a same-day reaction to the decision in Mozilla v. FCC, see Free State Foundation President Randolph May's October 1 Media Advisory.

"The Next Google"

In advance of the filing of reply comments in the FCC’s Restoring Internet Freedom proceeding (a.k.a. the “net neutrality proceeding”), I’ve been thinking about the “next Google.”

You know the one to which I’m referring. I’ve been in countless debates regarding net neutrality regulation over the past decade when a Google representative – arguing in favor of stringent net neutrality regulation – has said: “We’re not concerned about Google because we’re big enough to protect ourself. We’re concerned about the next Google.”

Other pro-net neutrality advocates, mimicking Google, often invoke the “next Google” as justification for their pro-regulatory position. For example, in a blog published on April 29, 2014, then-FCC Chairman Tom Wheeler said he would impose Title II public utility regulation to protect the “next Google.”

Even President Obama adopted the meme in August 2014, declaring: “[T]he position of my administration, as well as a lot of the companies here, is that you don’t want to start getting a differentiation in how accessible the Internet is to different users. You want to leave it open so the next Google and the next Facebook can succeed.”

Worrying about the next Google or the next Facebook got me thinking about an article published in the Wall Street Journal on August 9, 2017, titled, “The New Copycats: How Facebook Squashes Competition from Startups.” Read it yourself if you want a real basis for worrying about the “next Google” or “next Facebook.”

Here are just a couple of excerpts:

“Silicon Valley is dominated by a few titans, a development that’s fundamentally altering the nature of America’s startup culture. While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths.”

“The deep pockets of giants such as Facebook, Alphabet Inc.’s’ Google, Apple Inc. and Amazon make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France.”

The article details the strategies and tactics employed by Facebook, Google, and the other Silicon Valley behemoths (to stick with the WSJ’s terminology) to either squash any emerging rivals, or to buy them out. Hence, if you are truly concerned about the “next Google” or the “next Facebook,” what you should worry about – much more than net neutrality – is how Google and Facebook use their undisputed market dominance, along with their “squash or acquire” tactics, to block emerging competitive threats from gaining a real foothold.

Scott Cleland, who closely tracks the financial results and market activities of the Silicon Valley titans, reported in a recent blog that public data show that Google, Amazon, and Facebook have acquired approximately 350 potential competitors to “ensure no innovative ‘garage startup’ has a plausible competitive opportunity to seriously threaten the Internet cartel’s dominance.” And he concluded:

The most recent data from second quarter 2017 earnings show that Google and Facebook have a digital advertising cartel that commands 96% of all digital advertising growth. The analysis shows that it isn’t broadband providers that content providers must fear will engage in anti-competitive or discriminatory behavior, it is the Google-Facebook ad cartel.”

Not surprisingly, there are increasing calls for antitrust or other government authorities to investigate and sanction – or even regulate as public utilities – Google and Facebook, and perhaps other Internet behemoths (to stick with the WSJ’s terminology.) I’m not advocating such action here. In my view, in a dynamic market environment such as that presented by the present Internet ecosystem, caution is warranted before either antitrust or regulatory remedies are imposed. The costs to innovation and investment to “de-FANG-ing” the Internet giants may well outweigh the benefits.

What I am actually advocating is this: The next time you hear the “next Google” invoked as a justification for imposing stringent, inflexible net neutrality regulation (whether by “Title II” or any other name), please take such ritual incantation with a big grain of salt.

Here is what I think that Google, Facebook, Amazon, and the other Silicon Valley giants really may be worried about. That absent rigid net neutrality anti-discrimination mandates, emerging competitors might have an opportunity to strike deals with Internet service providers that give them the opportunity to differentiate themselves with innovative market offerings that appeal to new consumer demands. Or that absent an absolute ban on paid prioritization, new entrants might have an opportunity to strike deals with Internet service providers that allow them more readily to offer innovative new applications. An absolute ban on paid prioritization may prohibit start-ups from giving assurances regarding the speed and reliability of proposed offerings that are necessary to attract investors and consumers.

If you really believe that Google is worried about the “next Google” not emerging, I’ve got a bridge I’d like to sell you at a bargain price. Don’t get me wrong: I’m not saying that Google should be worried about protecting the next Google – only that it’s fanciful to think that it is. When Google claims to be, that’s reason enough to question the validity of whatever proposition it’s peddling.

One final thought: Google – back when it truly was the “next Google” – emerged and grew to achieve market dominance at a time when no heavy-handed net neutrality regulations, much less Title II public utility regulations, were in place governing Internet service providers’ practices.

Verizon Gives Consumers More Options for Unlimited Data

Earlier this week, Verizon unveiled three new options for unlimited data plans: Go Unlimited, Beyond Unlimited, and Business Unlimited. Go Unlimited starts at $75 per month and video is “DVD-quality” – standard-definition on phones (480p) and high-definition (HD) on tablets (720p). Beyond Unlimited starts at $85 per month and supports HD for phones and tablets (720p for phones and 1080p for tablets). Go Unlimited and Beyond Unlimited both provide monthly discounts for each additional line, but the Business Unlimited plan gives customers flat monthly rates. Verizon is also introducing an unlimited option for customers on prepaid plans. (See the chart below.)

Some people are criticizing Verizon for limiting the video quality in some of the new plans, but Verizon is upfront and transparent about the details of each offering. In response to pro-regulatory advocates who state that Verizon’s new plans violate net neutrality principles, Free State Foundation President Randolph May stated:

"Whether the new plans violate 'net neutrality' depends of course on who defines how strictly and in what context the plans are offered. Aside from definitional constructs, I'd say that this type of differentiation is good for consumers, considered overall, and what is expected in a competitive marketplace. This is also a good example of why the FTC should handle these issues that really relate to how plans are marketed to consumers."

Many pro-regulatory advocates also have criticized mobile providers for offering free data services instead of offering unlimited data plans. But as I stated in a February 2017 blog, it was not until FCC Chairman Ajit Pai ended the investigation of free data services and established an environment of permissionless innovation that mobile providers were willing to offer unlimited data plans. Of course, with permissionless innovation in a dynamically competitive marketplace, Verizon has tripled its consumer-friendly options for unlimited data plans.

In general, more options for unlimited data plans, as well as free data services, give consumers the freedom to choose the option which best fits their preferences and cost allocations. This type of marketplace freedom spurs consumer demand for online content and encourages additional innovation and investment in broadband networks.

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