Net neutrality kabuki theater

Last month, in the name of protecting the “open Internet,” the Federal Communications Commission (FCC) exercised the “nuclear option” and voted to reclassify broadband Internet access as a common carrier telecommunications service under Title II of the Communications Act. While we won’t know the exact parameters of the commission’s reasoning until the order is made public, given preliminary reports about what the commission intends to do, I have no doubt that the FCC will engage in more legal gymnastics than a Cirque du Soleil show on the Vegas Strip to justify its tortured interpretation of Title II. As a result, we can look forward to years of litigation, regulatory uncertainty and potential reductions in broadband investment.

The root of the problem is that the net neutrality debate long ago moved from a substantive discussion on how best to protect an open Internet to the realm of the political — reaching all the way to the White House. Indeed, the FCC’s vote came down along strict party lines, and the Democratic commissioners even took a “victory lap” by opening the meeting by holding hands to a standing ovation. (One shudders to think what the reaction would be if Supreme Court justices held hands after a difficult 5-4 vote.)

{mosads}Having crossed the proverbial Rubicon (perhaps ages ago), it will be difficult to walk the discussion back. That does not mean that for those interested in good policy-making, we should give up on taking net neutrality seriously, however.

By way of example, one need only look at the yeoman efforts of Reps. Fred Upton (R-Mich.) and Greg Walden (R-Ore.) and Sen. John Thune (R-S.D.) to move legislation that would essentially codify the Democratic-controlled Federal Communications Commission’s 2010 open Internet rules, along with incorporating some tweaks from an earlier legislative attempt led by then-House Energy and Commerce Committee Chairman Henry Waxman (also a Democrat, from California). Not wanting to take “yes” for an answer, however, net neutrality proponents were quick to voice opposition to the bill, claiming that only a full Title II reclassification of the Internet will suffice. Indeed, the White House issued a statement that the Republicans’ bill is unnecessary because “the FCC has the authorities that it needs under Title II,” and the man in the center of the storm — FCC Chairman Tom Wheeler — even went so far as to claim that the Republican bill would harm the “vast future” of the Internet.

With all due respect, both President Obama and Wheeler need to sign up for a basic class in communications law.

Let’s start with what Title II does and does not do.

First, not only does Title II allow for paid prioritization; it essentially mandates it. As long as the rates for the particular tariff fall within a “zone of reasonableness” (i.e., they are not confiscatory on the low end or excessive on the high end), a carrier can have as many different tariffs as they want. Contrary to what the FCC may be telling Congress, as the D.C. Circuit recognized over 30 years ago, the phrase “just and reasonable” is not “a mere vessel into which meaning must be poured.”

Moreover, Title II also permits reasonable discrimination. That is, a carrier doesn’t have to offer the same tariff to all comers. Instead, all that carrier must do is offer the same service at the same price to a “similarly situated” customer. Stated another way, while a carrier must provide me with the relatively same service offering as my mother (although under the D.C. Circuit’s holding in Orloff v. FCC, even that is not necessarily true), it does not have to offer me the same service offering as it might offer a high-volume customer such as Ford Motors.

Finally, upon reclassification, edge providers become customers of broadband service providers (BSPs). This means that BSPs will have to tariff edge providers for terminating access to their customers. However, because the Communications Act prohibits a “confiscatory rate,” the FCC cannot set the rate at zero. As such, Title II requires that BSPs be allowed to charge for terminating access at a positive price (something they do not do in the unregulated world we have today). While I’m certain the FCC’s order will attempt to evade this outcome, I seriously doubt the agency can rustle up a good legal argument to avoid it. A “no blocking” rule is, by definition, price regulation of termination and if the legal challenge of the order focuses on that issue, I believe the FCC’s case is doomed.

But there is more to the story than the administration’s failure to understand “Rate-making 101.”

For example, Wheeler’s claim that the Republican approach would strip the FCC of any enforcement authority over the Internet is simply bunk: Information service providers are still subject to Title I, telephone companies are still subject to Title II, wireless companies are still subject to Title III and cable companies are still subject Title VI of the Communications Act. And on top of that (as Wheeler likes to constantly remind us), Section 706 provides yet another statutory backstop in the commission’s quiver. Moreover, the courts have made it abundantly clear that the FCC’s ancillary authority remains very much in effect and, as such, have upheld the agency’s authority to ensure that everything from universal service to consumer protection continues in an Internet protocol-based world. Wheeler appears quite willing to dupe the public in order to obtain the political holy grail of reclassification.

Another red herring is the argument that the Republican approach would institute a procedure of case-by-case adjudications rather than prophylactic rules.

You bet it does, and so what?

Given the dynamic nature of the Internet, providing the FCC — as the expert agency — with the authority to deal with individual questions on a case-by-case basis is the exact right approach we need to take. Heck, even former Democratic FCC Commissioner Michael Copps — perhaps one of the most liberal individuals ever to serve on the commission — understood the need for nuance in this complex matter all the way back in 2008.

So what’s really going on here? Nothing more than good old-fashioned political kabuki theater.

Without question, the Republicans — who heretofore had steadfastly refused to consider any net neutrality legislation — are sticking their political necks out in an attempt to stymie the FCC’s use of the Title II nuclear option at the request of the White House. The Obama administration, sensing political gold with its base, is backtracking from prior positions to a hard “no,” leaving the Republicans to twist in the wind. As Walden exasperatedly remarked the other day, there is a “complete lack of engagement by my Democratic colleagues” despite repeated efforts “to at the very least begin a dialogue on the potential for compromise.” Yet, according to Walden, “to date, our efforts have gone unanswered.”

Early in the debate, the Clinton-era FCC observed that “classifying Internet access services as telecommunications services could have significant consequences for the global development of the Internet. We recognize the unique qualities of the Internet, and do not presume that legacy regulatory frameworks are appropriately applied to it.” For this reason, we at the Phoenix Center cautioned eight years ago that “policymakers considering network neutrality proposals should engage in a cost-benefit analysis of the particular proposal before them. … Analytics, not emotion, should be the centerpiece of the network neutrality debate.”

So if the Obama administration and congressional Democrats are really concerned about maintaining a “free and open Internet,” then perhaps a little bit more bipartisanship and a little less confirmation bias is in order.

Spiwak is the president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a nonprofit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.