These comments are filed in response to the Commission's Notice proposing new rules to regulate the practices of broadband Internet service providers (ISPs). The stated goal of the proceeding is to "find the best approach to protecting and promoting Internet openness." At the outset, it must be emphasized that the "best approach" is not a heavy-handed regulatory approach. All things considered, the best approach almost certainly is a free market-oriented approach.
As the Commission acknowledges in its Notice, under the current regulatory regime, which for most of the past dozen years has not imposed legally enforceable rules on broadband providers, the Internet has grown into "the preeminent 21st century engine for innovation and the economic and social benefits that follow." Today, there is no evidence of marketplace failure or demonstrable consumer harm in the Internet ecosystem, including the Internet service provider market segment. Instead, there is competition among Internet service providers employing various technological platforms. And investment in network facilities is strong, and innovative business models are thriving. If new net neutrality mandates are adopted, there is a substantial risk that this new regulatory action will disrupt, or at least inhibit, the innovation and investment that has characterized the Internet ecosystem for the past decade or so. This, in turn, and most significantly, will harm consumer welfare.
Aside from the risks to consumer welfare associated with ill-considered Internet regulatory policies, the proposals in the Notice are plagued by legal risks associated with deficiencies in the claimed authority on which the rules would be based. The Commission has already suffered two judicial losses in attempting to regulate Internet services. In those cases, the D.C. Circuit confirmed that the Commission exceeded its statutory authority by attempting to dictate the practices of broadband Internet service providers. Especially with respect to the Commission's alternative proposal to classify ISPs as common carriers under Title II of the Communications Act, it is unlikely, despite some claims to the contrary, that the Commission could effectuate such an about-face switcheroo without substantial risk of suffering yet another court defeat.
Putting aside the substantial litigation risks - and the resulting lengthy uncertainty that will accompany any actual litigation - as a matter of policy the Commission should not adopt any new regulations. But assuming for the sake of argument that a Commission majority ultimately determines that it is going to adopt some form of new rules, the worst approach the Commission could take would be to classify broadband providers as common carriers under Title II. Title II, taken almost verbatim in essential respects from the Interstate Commerce Act of 1887, is designed to regulate service providers operating in a monopolistic marketplace environment. This was true with respect to the railroads regulated at the time of the passage of the Interstate Commerce Act, and it is true with regard to the telephone companies regulated when the Communications Act in 1934 was passed. At its core, Title II is intended to allow the Commission, rather than the service provider, to determine the rates, terms, and conditions of service. Title II regulation may have been appropriate at a time when Ma Bell possessed monopolistic power but this regulatory paradigm is particularly ill-suited to almost all of today's dynamic, competitive communications marketplace.
Only 5% of U.S. households in 2012 relied solely on Plain Old Telephone Service ("POTS") for their voice service, while 38% of households even then were wireless only. And the number of consumer abandoning their landline phones continues to increase. As Anna Maria Kovacs stated in a recent study, "there are things regulators do well, but innovation is not one of them." This is the reason why lightly regulated wireless and broadband services are thriving, while POTS service, still subject to public utility-like regulation, is declining rapidly.
To put it simply, Title II regulation, which is essentially public utility regulation like that applied to the electric company and the railroads before even they were deregulated, would put Internet providers in an overly rigid regulatory straight-jacket. When Commission Chairman Bill Kennard, a Democrat appointed by President Clinton, was beseeched to apply net neutrality-like "open access" regulations to cable operators, he rightly responded: "I don't want to dump the whole morass of Title II regulation on the cable pipe."
At the Free State Foundation's seminar on June 25, 2014, Senator John Thune put the argument against Title II regulation very well when he declared:
Another reason I oppose Title II reclassification is because regulating an industry as if it were a public utility monopoly is the surest way to guarantee the industry will become a monopoly. As I discussed earlier, the evidence in the marketplace makes it clear that our broadband market is dynamic and competitive-not at all like the early days of Ma Bell that Title II was intended for. Public utility regulation traditionally is intended to do two things -- protect the public from the harms of a monopoly, while simultaneously protecting that monopoly. Since the broadband market is demonstrably not a monopoly, regulating it as a public utility would only make the industry less competitive and less innovative. Or, in other words, make it more like a monopoly.
Again, it is our view that not only should the Commission not classify ISPs as common carriers under Title II but that, absent convincing evidence of present market failure and consumer harm, there is no need for the Commission to adopt any new net neutrality mandates at this time. But if a majority of the Commission decides otherwise, it should do no more than adopt the "commercially reasonable" standard approach as proposed in the Notice. If the Commission adopts this approach not to interfere with ISP practices that are "commercially reasonable," it must implement the standard in a way that, in reality, steers well clear of converting the ISPs into common carriers.
The D.C. Circuit's Cellco Partnership v. FCC (2012) decision upholding the Data Roaming Order (2011) provides a guidepost in this regard.The key, not only to passing legal muster but, as importantly, to constituting sensible policy, is that the multi-factored commercial reasonableness standard must be implemented by the Commission in a sufficiently flexible way to allow ISPs to engage in individualized negotiations that are responsive to the differentiated demands of their customers in an evolving marketplace environment.
Moreover, in light of the technological dynamism and competitiveness of the marketplace, the Commission should adopt a presumption of commercial reasonableness running in favor of ISP practices. A complainant should bear the burden of rebutting the presumption by clear and convincing evidence. Adopting of such a rebuttable presumption is necessary to prevent regulatory overreach in today's competitive environment.
In sum, absent convincing evidence market failure, the wisest course for the Commission is to defer to Congress to establish broadband policy. But if a Commission majority moves forward at all, as Senator Thune emphasized at the Free State Foundation's June 25 seminar, "policymakers must be careful to preserve the light-touch regime, first implemented by the Clinton Administration, that has been so successful in making us the digital envy of the world."
