Academic journal article AEI Paper & Studies

How Title II Harms Consumers and Innovators

Academic journal article AEI Paper & Studies

How Title II Harms Consumers and Innovators

Article excerpt

Key Points

* The Federal Communications Commission's (FCC) 2015 Open Internet Order follows years of advocacy to implement net neutrality rules, which appears to contravene Congress' intention that the internet be free of regulation and the people's will for a free market for broadband.

* The application of the Title II regulatory framework to the internet has harmed consumers and innovators.

* While proponents claim they want competition in the broadband market, the objective of Title II is to create a system of government-owned broadband networks under FCC control and to significantly reduce, if not eliminate, private-sector provision.

A long-running tech policy debate is whether the internet should be shaped by the preferences of regulators and special interests or allowed to evolve through free-market forces driven by consumers and innovators. A seemingly innocuous concept, net neutrality is not officially defined or codified in the US, but its supporters claim that the Federal Communications Commission (FCC) needs to adopt internet regulation to support it. For example, proponents declare, "Net neutrality is the basic principle that protects our free speech on the Internet. 'Title II' of the Communications Act is what provides the legal foundation for net neutrality." (1) In fact, it is the First Amendment of the US Constitution that protects free speech, and the terms "net neutrality," "blocking," "throttling," and "prioritization" are nowhere to be found in the aforementioned Title II.

In 2015 the FCC adopted the Open Internet Order, prohibiting specific internet traffic management techniques, including blocking, throttling, and paid prioritization, and mandating a general "internet conduct" standard. (2) To promulgate the ruling, the FCC invoked Title II of the Communications Act of 1934 (subsequently updated by the 1996 Telecommunications Act), (3) which requires telecommunications providers to be treated as common carriers. To justify such regulatory expansion, the FCC pronounced that the internet is nothing more than an extension of the circuit-switched telephone network. (4)

The 2015 order marked a stunning reversal of long-standing bipartisan policy in a divisive 3-2 vote. Almost immediately, the order was challenged by nine lawsuits from small and large cable, wireless, and telecom providers, as well as from Daniel Berninger, the coinventor of Voice over Internet Protocol (VoIP), as the order effectively banned his online application of high-definition voice behind a platform.5 The DC Circuit upheld the order in court, but petitioners continue to appeal. (6) In April 2017, the new FCC Chairman Ajit Pai launched a Notice of Proposed Rulemaking to reverse the order. (7)

Such back-and-forth on classification is counterproductive and suggests that the language from the 1996 Telecommunications Act is not clear for some and that Congress should clarify whether the FCC has the authority to regulate the internet. Section 230 of the Telecommunications Act notes that it is the policy of the United States "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation." (8) Incidentally, the vast majority of countries with net neutrality rules have promulgated them through legislation because existing communications laws did not stipulate the appropriate authority within the telecom regulator, and litigation would otherwise ensue. (9)

The 2015 Open Internet rules and the imposition of Title II are problematic for several reasons, (10) but put plainly, common carrier obligations are meant for natural monopolies--markets in which only one firm provides a good or service. That is not the case for broadband in the US. It would be customary for an economic regulator such as the FCC to assess first whether there was an abuse of market power and to report on it accordingly before applying regulation symmetrically across the nation's 4,459 broadband providers, (11) but the FCC did not do this. …

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