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The FCC's 'open internet rules' make the internet less open

Federal Communication Commission Chairman Ajit Pai
Getty Images
Federal Communication Commission Chairman Ajit Pai

As usual, John Oliver is not helping.

Earlier this month, the HBO funnyman revived his crusade for "net neutrality," taking a segment of his show to scold and mock newly appointed Federal Communications Commission chairman Ajit Pai, who is aiming to roll back regulations on Internet Service Providers (ISPs) established by the Obama administration. "Every internet group needs to come together like you successfully did three years ago," declared Oliver. "We need all of you."

Three years ago is when Oliver made his first push for "net neutrality" rules, backing a call from President Obama to impose on ISPs the "strongest possible regulation" to prevent monopolistic behavior. Since Columbia Law School professor Tim Wu coined the term "net neutrality" in 2003 to describe the principle that ISPs should not be allowed to discriminate among Internet traffic — i.e., that Comcast, Verizon, and other companies that provide Internet access to consumers should not be allowed to, say, prevent users from watching YouTube while letting Netflix play, or cause CNN's website to load slower than Politico's — activists have maintained that the Internet faces a dire threat to the principles of openness and transparency that have long governed its use. They are desperate to, in their words, "save the Internet."

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In 2014, after the D.C. Circuit Court reined in a second attempt by the FCC to regulate broadband beyond its legal ambit, Oliver and thousands upon thousands of activists pressured then-chairman Tom Wheeler to reject a compromise plan and do what he had previously deemed unacceptable: buck longstanding precedent and reclassify broadband as a "telecommunications service," bringing it under the purview of Title II of the 1934 Communications Act. In the spring of 2015, that is what he did, ramming the scheme through on a party-line vote, and making ISPs subject to a statute written to defang the Bell System telephone company.

Net neutrality was always a solution looking for a problem. When, in 2010, the FCC announced its first extensive regulations on ISPs (what would become the core of the 2015 rules), it could cite just four examples of anticompetitive behavior, all relatively minor. In 2005, for example, a North Carolina telephone company blocked the Internet phone service Vonage. In 2007, Comcast slowed down ("throttled") the operations of file-sharing service BitTorrent.

"It's Economics 101 that this type of onerous regulation will affect long-term capital investment."

To prevent this kind of anticompetitive activity, the FCC instituted its own anticompetitive regulatory scheme, the so-called Open Internet rules. Under Title II, the FCC can regulate the rates that ISPs charge, using its supervisory mandate to dismiss as "unreasonable" or "unjust" any business models of which it disapproves; it can partially regulate the capital investment of existing companies, and regulate which companies (if any) can enter the ISP market; and it can impose taxes on Internet use, such as those long imposed on telephone service (the "Universal Service Fee"). What's more, the nebulous "Internet Conduct" standard that the FCC applies as its metric for assessing abuse is subject to amendment at any time, for any reason; there is no certainty that today's decisions will also be tomorrow's.

As it is, telecommunications companies are generally subject to higher state and municipal taxes than other businesses, meaning that more capital will be diverted into government coffers, and smaller ISPs, already straining under the new regulatory burden, will have even more trouble getting off the ground. The result is likely to entrench already-existing players, making ISP markets less competitive. That will disproportionately harm rural and low-income Americans, often underserved by major industry players not willing to invest the time or resources to expand into less-profitable areas.

It's Economics 101 that this type of onerous regulation will affect long-term capital investment, and while there is significant debate about the precise impact the rules have had so far, USTelecom — whose numbers former chairman Wheeler regularly cited as authoritative — reports that broadband capital expenditures among the dozen largest ISPs fell 5.6 percent from 2014 to 2016.

None of this was necessary. There was very little evidence that ISPs were engaging in the sorts of malpractice that net neutrality was designed to prevent — and even if they had been, it would not have followed that reclassification was the proper remedy. In fact, a more honest appraisal of the sequence of events is that the Obama administration and left-wing activists succeeded in pressuring the FCC into a maximal power-grab that is likely to do much more damage to Internet freedom than Comcast was doing. Why is the FCC's monopoly not as concerning as that of any given ISP?

The regulatory hustle that the Obama-era FCC worked was based on a myth: namely, that the Internet circa 2015 was in imminent danger, or "broken," and needed to be "saved." That was, and is, nonsense. Insofar as regulation may be required to sustain the Internet's longtime dynamism, a much simpler alternative is available.

First, oversight of anticompetitive activity among ISPs should be transferred to the Federal Trade Commission. The FTC's express purpose is to monitor and intervene to stop anticompetitive business practices and fraud, and it has a credible track record on both counts. Allowing the FTC to intervene on a case-by-case basis would be a much less disruptive remedy than the FCC's sweeping rule change, especially given that there have been very few documented instances of such anticompetitive behavior up to now. The FCC is simply not well-equipped to conduct this type of oversight, and the legal machinations that it has had to perform to give itself the authority to do so suggests that it was never intended to have that kind of latitude.

"Municipal governments should look for ways to encourage, rather than discourage, broadband investment."

However, the FCC can play an important part in encouraging competition among ISPs by working with Congress and other federal agencies to free up wireless broadband spectrum for commercial use. With more and more Americans consuming large quantities of data via cell phone and tablet, the available quantity of spectrum has diminished, driving up prices and retarding investment. But the federal government, which allocates spectrum, has been slow to release more for commercial use, despite the obvious need. Incentivizing federal agencies to relinquish spectrum for commercial use should be a congressional priority. House members Brett Guthrie (R., Ky.) and Doris Matsui (D., Calif.) recently reintroduced the Federal Spectrum Incentive Act, which would allow federal agencies to auction off spectrum holdings to private companies.

Finally, municipal governments should look for ways to encourage, rather than discourage, broadband investment. Local governments and their public utilities are notorious for charging broadband companies exorbitant prices for access to publicly owned "rights of way," without which they cannot erect the infrastructure necessary for Internet service. These municipal monopolies are among the chief reasons that many places have little or no competition among ISPs. But it doesn't have to be this way. Kansas City, Austin, and Provo all hammered out favorable agreements with Google Fiber, the Internet giant's ultra-high-speed broadband project, and several other cities have followed suit. Kansas City officials partially credit the arrangement for the city's ascendancy as a tech hub. Meanwhile, other ISPs have increased their offerings to compete: Verizon and AT&T both recently announced plans to offer higher-speed Internet hookups for customers in select areas.

Last week, the FCC voted (2–1, along party lines) to begin a review of the 2015 regulations, launching the process by which the current rules could be overturned. Predictions of apocalypse have ensued: Democratic senator Brian Schatz of Hawaii accused Republicans of trying to "end the Internet." In reality, it is more nearly the opposite. The "Open Internet" regulations promulgated in 2015 threaten to turn the Internet into one more fiefdom of the federal government, and thereby to strangle the impulse toward innovation and improvement. A smarter regulatory framework would make the government a partner to a dynamic, competitive Internet, not an enemy.

Commentary by Ian Tuttle, a fellow at National Review. Follow him on Twitter at @iptuttle.

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