Dr. Prieger on FCC's Restoring Internet Freedom Draft Order
Reactions to the FCC's Restoring Internet Freedom Draft Order by Members of the Free State Foundation's Board of Academic Advisors
December 4, 2017 | The Free State Foundation
by
Babette E. Boliek, Timothy J. Brennan, Michelle P. Connolly, Robert W. Crandall, Richard
A. Epstein, Justin (Gus) Hurwitz, Daniel A. Lyons, James E. Prieger, Christopher J.
Walker, and Christopher S. Yoo*
Below are brief reactions, in 400 words or less, to the FCC's draft Restoring Internet Freedom Order from the following members of the Free State Foundation's prestigious Board of Academic Advisors: Babette E. Boliek, Timothy J. Brennan, Michelle P. Connolly, Robert W. Crandall,
Richard A. Epstein, Justin (Gus) Hurwitz, Daniel A. Lyons, James E. Prieger, Christopher
J. Walker, and Christopher S. Yoo.
A PDF version of this Perspectives from FSF Scholars is here.
BABETTE E. BOLIEK
In a historical move, the new FCC Chairman, Ajit Pai, has released a draft text of
the Restoring Internet Freedom Order that will soon be voted on by the commission. The order will roll back public-utility
style regulation imposed on Internet Service Providers some two years ago. Not only
has the rate of ISP infrastructure investment decreased since passage of the 2015 Open Internet Order, that order also created at least two grave problems that will be cured by restoring
Internet regulation to the light-touch model the United States enjoyed for decades.
The first serious problem created by the 2015 Order was that it stripped the Federal
Trade Commission (FTC) of jurisdiction over ISP conduct. One need look no further
than the crucially important consideration of consumer privacy to understand how problematic
the FTC's removal from the field is. The FTC is the expert agency in privacy protection
in all areas of the economy and has had a great deal of success enforcing privacy
protections in an even-handed, consistent manner across every facet of the Internet.
Removal of the FTC's jurisdiction created a void. Worse still, the FCC tried to fill
the void it had created with an untested privacy regime that would have conflicted with existing rules, created consumer confusion, and failed
to protect the most private of consumer information.
In addition to restoring a well-seasoned privacy cop, returning the FTC to its rightful
position will also help protect consumers (and companies) against self-serving, anticompetitive
actions by any and all Internet companies. It is difficult to state the import of
FTC jurisdiction more succinctly than did FTC Acting Chairwoman Maureen Ohlhausen: "neutrality today is an expansive, amorphous concept. It is commonly used to mean protecting
consumers and Internet companies from a variety of bad actions by broadband providers.
In other words, net neutrality advocates are concerned about protecting consumers
and promoting competition. Now, if those two goals sound familiar, it might be because
Congress assigned those twin missions to the FTC."
The second serious problem created the 2015 Order was the FCC's creation of the Internet General Conduct Rule. By the FCC's own edict, the FCC can (i) articulate new, unpermitted business practices,
(ii) judge when these previously unarticulated violations of the rule have occurred
and (iii) punish violators. The FCC is lawmaker, judge, and executioner - a tri-partite
government buried deep in the bowels of the FCC.
TIMOTHY J. BRENNAN
Former FCC Chair Tom Wheeler, under whose authority the FCC issued the likely short-lived
2015 Open Internet Order (OIO), had a "mantra": "competition, competition, competition." That set net neutrality
policy on the path of being viewed as an antitrust problem. The current FCC's draft Restoring Internet Freedom Order (RIFO) shows how thin a reed that was, substantively and institutionally.
Substantively, fewer episodes than on the fingers of one hand even suggested a possibly
anticompetitive practice by a broadband provider, and even those had potential business
or operational justifications. Claims that ISPs had the incentive to deny "net neutral"
service neglected Monopoly 101: Even firms with market power lack arbitrary incentives
to cut quality, because doing so reduces the price they can charge customers, including
"captive customers," if any.
Institutionally, if "competition, competition, competition" is the concern, the obvious
response is to turn to the agencies charged with protecting competition, the Department
of Justice's Antitrust Division and the Federal Trade Commission. The draft RIFO proposes
to leave net neutrality to FTC enforcement - with the bonus that the FTC can police
ISP failure to deliver on net neutrality promises to their subscribers and, with Title
II gone, resume its role as regulator of privacy-related practices.
Some question the FTC's effectiveness because it can act only after a practice has
occurred. Nothing stops the FTC from providing guidance as to what practices are likely
to lead to enforcement actions. A couple of good precedents can do a lot as well.
Theory was also not on the side of the 2015 OIO. The "virtuous cycle," that zero price
access to content suppliers will stimulate broadband and investment, could just as
easily turn in the other direction, where charges to content providers give ISPs a
stronger incentive to attract and retain subscribers by cutting their prices. Econometricians
can address which direction is right; the important point is that the issue is empirical,
not theoretical.
Net neutrality advocacy all along has failed to distinguish possibly better arguments
from these bad ones. The previous FCC should never have gone down the 2015 OIO path.
Simply, and with modesty, it should have proposed that, because of the general importance
of the Internet as a communications medium, it would codify established industry practices
regarding delivery of standard quality content, and leave the rest to the market -
including paid prioritization to foster innovations requiring higher quality service.
MICHELLE P. CONNOLLY
The Net Neutrality debate could serve as a case study in the blind propagation of
falsehoods and misrepresentations of a market. I have strong opinions on this issue,
but here I want to focus on some facts that have been deliberately distorted or even
falsified in current debate:
1. Comcast did not slowdown Netflix as suggested in John Oliver's funny, but inaccurate
sketch that provided the smoking gun that convinced tens of thousands to contact the
FCC in support of imposing rules that they had never heard of - nor knew they needed
- before. It was later admitted that the slowdown occurred at the level of a content
delivery network (CDN) which had slowed the transfer of Netflix content to Comcast.
2. The current FCC intends to reverse an order imposed in 2015. I do not see how anyone can argue that the Internet, content, and services on the
Internet, and freedom of speech were not flourishing before 2015.
3. "Net Neutrality" is one of the most brilliant marketing campaigns ever created.
The 2015 application of the concept of net neutrality is notneutral. It favors some Content Service Providers (CSPs), at a cost to other CSPs, to Internet
Service Providers, and to consumers who consequently face higher average costs and/or
lower average quality of service. It is not about freedom of speech. It is a regulatory
grab by the FCC to declare that an "orange" is in fact an "apple," because the Telecommunications
Act gives the FCC the authority to regulate "apples" but not "oranges." Michael Katz
correctly suggests that blocking priority lanes in the name of free speech is analogous
to saying that television stations must give advertising airtime for free so that
speech is not censored. Congestion issues are present within broadband provision.
Disallowing prioritization implies that CSPs whose service requires guaranteed delivery
speeds are effectively limited in their ability to even enter the market.
4. However one might feel about the concept of net neutrality, the Internet Conduct
Standard that was tacked onto the 2015 Order has nothing to do with net neutrality. The FCC simply gave itself carte blanche to intervene in any Internet related issue
at any time. Removing this blank check from the FCC tool chest is a service to consumers
and an industry that will no longer have the continual risk of FCC meddling in any
aspect of the Internet it is in the mood to at the time.
ROBERT W. CRANDALL
Supporters of the FCC's decision to repeal Title II ("public utility") regulation
of broadband carriers applaud the decision in large part because they believe that
such regulation suppresses capital investment. Recent studies show a substantial slowdown
in capital expenditures by broadband carriers since 2014 when the FCC began considering
some form of public-utility regulation of broadband. But why should such regulation
necessarily reduce carrier investment?
Fifty-five years ago, two economists demonstrated that public utility regulation could
actually lead to excessive investment in capital if regulators allowed regulated firms
to earn a return in excess of their cost of capital. This conclusion might have applied
to the overall regulation of AT&T until the1960s, but once competition erupted telecom
regulation became hostage to a political battle between entrants and incumbents in
the setting of individual rates, not the overall level of rates.
The first example was the FCC's response to AT&T's slashing of private-line long distance
rates in 1961 in response to competition from new carriers. For more than two decades,
the FCC repeatedly rejected AT&T's rate proposals because it could not sort out the
costs of any individual service, such as private lines. Telecom carriers have enormous
amounts of joint and fixed costs. How does one determine the share of costs of ducts,
pole lines, central-office buildings, etc., that should be allocated to just one of
scores or hundreds of services that require the use of these facilities? Any allocation
of these costs is at best arbitrary.
After AT&T was broken up, regulators all but abandoned any pretense of setting individual
rates based on carrier costs. The best example of this shift was the regulation of
rates for entrants' unbundled network access to established local carrier networks.
These rates were supposed to be set by state regulators on the basis of "forward looking"
costs, which no one could measure. Instead, these rates varied enormously across states
depending upon the relative lobbying strength of entrants and incumbent carriers and
were repeatedly lowered to attract uneconomic entry into local markets, thereby punishing
incumbents and reducing their incentive to invest.
Clearly, the major broadband carriers feared a repeat of this political exercise in
a new guise when the FCC decided to subject them to Title II regulation. Reversing
course will surely alleviate this concern and unleash carrier investment once again.
RICHARD A. EPSTEIN
FCC Chairman Ajit Pai issue a draft order, "Restoring Internet Freedom," to bring to an end the Obama era rules on net neutrality. His proposal scraps public
utility-type regulation but keeps in place antitrust and consumer protection rules.
The former step cuts back on higher compliance costs but leaves open ex post controls against both anticompetitive activities and fraud and unfair consumer practices.
The hope is to reverse the decline in broadband investment.
Much of this appears to be lost on Professor Tim Wu, who writes of the impending disaster that he is certain the removal of net neutrality regulations
will create by opening up the way to what he regards as serious anticompetitive practices.
But at no point in his short account does he address the interface between cutting
back with direct regulation and preserving antitrust remedies. Instead, he makes reference
to the occasional risk of "blocking," a more extreme practice than "throttling" and
"paid-prioritization," as if it were a large source of genuine anticompetitive abuse.
But, in fact, that issue is discussed fully in the FCC draft order, which found blocking
to be quite "rare," while still subject to the general antitrust proviso should the
facts in question justify its application.
Wu also writes as if the entire system will be regarded as a form of massive FCC overreach
in its effort "to abruptly reverse longstanding rules," without sufficient reason.
But the FCC order runs 186 pages with a set of appendices. It seems wildly impossible
that any final rule that comes out of this order could be regarded as "arbitrary and
capricious," in light of the enormous care with which it tracks down every facet of
the net neutrality debate. The real tragedy in this case was the willful decision
of the former FCC Commissioner, Tom Wheeler, who turned around prior rules on net
neutrality without any clear direction that spurred the currently observed declines
in investment. All network industries are difficult to organize and regulate. The
Wheeler rules underestimated the complexity of the broadband market that the Pai order
fully acknowledges, Professor Wu's overwrought critique notwithstanding.
JUSTIN (GUS) HURWITZ
On December 14, the FCC will vote to adopt the Restoring Internet Freedom Order. This Order will largely rescind the 2015 Open Internet Order, restoring the FCC's longstanding classification of Internet access as an information
service and revoking the 2015 Order's various cumbersome and uncertainty-inducing
rules. In their place the FCC will impose transparency obligations on ISPs that will
facilitate competition and consumer choice and enable antitrust and consumer protection
authorities other than the FCC to ensure that ISPs do not engage in consumer-harming
conduct, and do so while maintaining ISPs' ability to develop innovative new consumer-friendly
services.
This will not be the end of the net neutrality saga. It is a foregone conclusion that
proponents of net neutrality regulations will challenge the new Order in court. This
challenge will be familiar: those challenging the new Order will be making many of the same arguments made by those who challenged the
previous Order. They'll argue that the new Order is arbitrary and capricious, failing
to adequately address important factual considerations; they'll argue that the Commission's
change in policy is problematic; they'll argue that classifying Internet access as
an Information Service is not permissible under the familiar Chevron doctrine; and to make that argument they'll try to distinguish the contemporary setting
from that at issue in the Supreme Court's Brand X decision.
I am sympathetic to these arguments. They are, after all, the same arguments that
I advanced for why the courts should have overturned the Commission's 2015 Order.
In a sense, I want those challenging the new Order to succeed - that would help rein
in the too-powerful executive agencies that have taken over the administrative state.
The new Order, however, is better - factually better, legally better, and better reasoned
- than the previous one. It is sufficient on its own terms to survive judicial review
- and it is more sufficient than the previous Order to survive review on the terms
the D.C. Circuit applied to that Order. This creates a curious procedural puzzle:
the two Orders should rise or fall together. Should the D.C. Circuit Court of Appeals
strike down the new Order, it will be on terms that necessarily undermine the previous
Order. Importantly, because petitions for review of the prior Order are still pending
it may still be possible for the two Orders to be considered together.
One way or another, the Obama/Wheeler-era net neutrality rules are dead and their
resurrection is unlikely. Good riddance to bad rules.
DANIEL A. LYONS
One welcome effect of the Restoring Internet Freedom Order is its positive impact on innovation in both edge and broadband markets. Net neutrality
proponents argue that the paid prioritization ban is necessary to protect innovation
among edge providers. But even the 2015 Open Internet Order recognized that prioritization can benefit consumers. Some Internet applications
are more susceptible to congestion than others. Prioritizing congestion-sensitive
traffic can improve the user experience for consumers of those services, without detrimentally
affecting the consumers of services that are less sensitive. By permitting paid prioritization,
the Commission is allowing app developers to use the price mechanism to signal susceptibility
to congestion and the need for prioritization - thus allocating bandwidth the same
way we allocate any other scarce resource in society.
Moreover, the 2015 order sought to protect edge innovation by sacrificing innovation
in another part of the Internet ecosystem, namely broadband. By lifting common carrier
restrictions, the Commission is allowing broadband providers to test new and different
business models, which makes it easier for competitive alternatives to emerge. While
there remains the potential for anticompetitive abuse, antitrust law continues to
provide a sufficient backstop to prevent broadband providers from exploiting market
power in ways that harm consumers, while unshackling them to test new models that
could benefit consumers.
I also applaud the Commission's focus on transparency. For competition to work, consumers
must make informed choices between providers, which means understanding what each
provider offers. Through this order, the FCC can improve the quality of broadband
markets by assuring consumers get the information they need to make an informed choice
among providers.
JAMES E. PRIEGER
The draft order Restoring Internet Freedom corrects a serious omission in the current rules. The FCC's 2015 Open Internet Order betrayed a blind spot that affected many of the Commission's activities during the
previous administration: detrimental impacts of regulation on innovation and investment
by some parts of the broadband industry - ISPs, in this case - were dismissed or ignored
in favor of supposed benefits accruing to other parts of the broadband ecosystem.
I am pleased to see that the draft order contains a discussion in section III.C on
investment by all parts of the industry, including ISP and players at the edge of the network. The draft
concludes "that reclassification of broadband Internet access service from Title II
to Title I is likely to increase ISP investment and output."
It is also heartening to see the inclusion of cost-benefit analysis in the draft order's
discussion. Simply put, regulating without considering whether actual costs outweigh
actual (and purported) benefits of new rules is a highly irresponsible approach to
managing the broadband economy, regardless of whether such analysis is required by
law.
I have previously written that stricter regulation of ISPs harms investment, innovation,
and the economy, contrary to the claims of net neutrality boosters. Much evidence
suggests that strict net neutrality regulation will harm the Internet ecosystem by
hampering innovation. The draft order cites some of the research demonstrating this,
but actually is quite modest in this regard. For every study cited, the drafters could
have included at least three more. Regardless, given what economists already knew
about how regulatory burdens are associated with less innovation and investment, it
was no surprise to us that - as the draft order notes - broadband investment has fallen
in the U.S. since the Open Internet Order was adopted, during a period in which investment elsewhere in the economy was rising.
Those who foresee dire consequences for the future of the American Internet from rolling
back the 2015 Title II regulation ignore the great success and continued growth of
the Internet over the past two decades - growth that occurred (until 2015) in the
absence of net neutrality regulation. I look forward to the lighter-touch regulation
of ISPs to, as the draft order states, "advance our critical work to promote broadband
deployment in rural America and infrastructure investment throughout the nation, brighten
the future of innovation both within networks and at their edge, and move closer to
the goal of eliminating the digital divide."
CHRISTOPHER J. WALKER
Last week Chairman Ajit Pai announced his intention to roll back the FCC's 2015 Open Internet Order. I leave it to experts in the telecommunications field to debate the legal and policy
merits of the proposed order. As a scholar of administrative law, however, I applaud
Chairman Pai's decision to make public the draft text of the Restoring Internet Freedom Orderin advance of the FCC's consideration at its next public meeting.
It is of vital importance to the administrative process that federal agencies provide
advance publication of the text of proposed orders and other regulatory actions that
they will consider at an agency meeting subject to the Sunshine Act. Unfortunately,
at the FCC such transparency has been the exception, not the rule. The public generally
has not received the text of proposed orders in advance. Instead, the public has had
to divine the final text from the Commissioners' prepared speeches and their interactions
at the so-called Sunshine meeting. That is not the way to run a lawmaking system,
much less a regulatory process that already suffers from democratic deficits.
Mine is not a minority view. For instance, the Administrative Conference of the United
States has similarly criticized such lack of transparency. The Conference, on which
I serve as a public member, is a public-private partnership that commissions research
and makes recommendations to improve the federal administrative state. In 2014, the
Conference, based on an extensive study of agency practices for holding Sunshine meetings,
recommended that, "xcept for documents that may be exempt from disclosure under the Freedom of Information
Act, agencies should... post in advance all documents to be considered during the
meeting."
Chairman Pai's decision to embrace this best practice with respect to the Restoring Internet Freedom Order is a vital one. I applaud Chairman Pai's decision earlier this year to make this
practice the norm, as it increases transparency in the administrative process. In
so doing, the agency better promotes the rule of law and increases the public's confidence
in the integrity of the agency's decisionmaking process.
CHRISTOPHER S. YOO
The Federal Communications Commission is poised to adopt the proposed order on Restoring Internet Freedom. The network neutrality debate has always struck me as having a backward-looking
quality, calling for preservation of certain features that are claimed to have been
critical to the Internet's past success. As the FCC's proposed order discusses at
length, the record before the agency tells a different story. The existing rules have
deterred investment and innovation and worsened the digital divide by making service
in rural and low-income areas and service by small ISPs more costly.
But regardless of how the inevitable disputes over the past are resolved, past performance
predicts future results only if all else is equal. That is emphatically not the case
with respect to the Internet. Providers are experimenting with innovative business
practices, like T-Mobile's BingeOn, that allow consumers to stream video without having
that traffic count against their data caps. The post-smart phone emergence of mobile
as the leading platform for broadband connectivity has undercut suggestions that the
only solution is to add more capacity. New technologies are emerging, such as 5G and
the Internet of Things (IoT), as are new business practices, such as network virtualization,
which promise to bring to the infrastructure layer the sharing benefits that have
made the Internet so valuable.
These innovations require more flexible approaches that cannot be properly crafted
simply by looking at the past. From the time it first emerged, the U.S. was the only
country in the world not to fold the Internet into the antiquated regulatory regime
created to govern the old telephone network. We have enjoyed the benefits of that
decision, creating services and productivity that are the envy of the rest of the
world. The key to this success has been the flexible, light-touch regulatory regime
that has promoted innovation by making the default answer to any new practice "yes"
instead of "no." The 2015 imposition of telephone-style regulation broke from this
tradition and instead erected rigid, ex ante rules that require innovators to obtain legal opinions and seek permission before
they can act.
Returning to the light-touch policy that has served the Internet so well represents
the best way to foster innovation in a changing environment. If not, the U.S. risks
remaining stuck on the innovation-stifling path that has served other countries so
poorly.
* Babette E. Boliek is a Member of FSF's Board of Academic Advisors and an Associate Professor of Law
at Pepperdine University School of Law; Timothy J. Brennen is a Member of FSF's Board of Academic Advisors and a Professor of Public Policy
and Economics at the University of Maryland, Baltimore County and Senior Fellow, Resources
for the Future; Michelle P. Connolly is a Member of FSF's Board of Academic Advisors and Professor of the Practice within
the Economics Department at Duke University; Robert W. Crandall is a Member of FSF's Board of Academic Advisors and a Nonresident Senior Fellow at
the Technology Policy Institute; Richard A. Epstein is an FSF Distinguished Adjunct Senior Scholar, a Member of FSF's Board of Academic
Advisors and the Laurence A. Tisch Professor of Law at New York University; Justin (Gus) Hurwitz is a Member of FSF's Board of Academic Advisors and an Assistant Professor of Law,
University of Nebraska, College of Law; Daniel A. Lyons is a Member of FSF's Board of Academic Advisors and an Associate Professor of Law
at Boston College Law School; James E. Prieger is a Member of FSF's Board of Academic Advisors and a Professor of Economics and
Public Policy at the Pepperdine University School of Public Policy; Christopher J. Walker is a Member of FSF's Board of Academic Advisors and a Law Professor at The Ohio State
University Moritz College of Law; Christopher S. Yoo is a Member of FSF's Board of Academic Advisors and the John H. Chestnut Professor
of Law, Communication, and Computer & Information Science at the University of Pennsylvania
Law School.
A PDF of this Perspectives is here.
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