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Here’s Where Things Stand One Year Into Net Neutrality

KEY TAKEAWAY: 

One year after the FCC tossed out a successful regulatory policy that left a light touch on the Internet, allowing it to transform how we communicate, shop, and run our businesses, let’s see what has happened and where we’re headed.

Here are 4 things we know:

  1. Investment in Internet infrastructure is basically flat.
  2. There is a paper trail of how the FCC was bulldozed to take the Title II route by the White House.
  3. Congress is working on legislation.
  4. The fate of the regulation rests with the Judicial Branch.

Flat Internet Investment

In a 2015 paper, Robert Shapiro of the Georgetown Center for Business and Public Policy and Kevin Hassett of the American Enterprise Institute predicted that heavy-handed Net Neutrality will reduce communications infrastructure investment.

That prediction seems to be panning out.

Hal Singer, a senior fellow at the Progressive Policy Institute, found that capital expenditures (capex) for the top Internet Service Providers (ISP) decreased slightly in 2015:

It’s important to put this finding in context: According to USTelecom, which uses a larger sample of ISPs, broadband capex increased by 8.7 percent in 2013 (from $69 billion to $75 billion), and by 4.0 percent in 2014 (from $75 billion to $78 billion). Those were sizable gains. (Across the twelve ISPs in my sample, the increase in capex was slightly above four percent in 2014.)

Singer looks at this data and concludes:

This is not to suggest that Title II solely caused capital accumulation to stagnate. Several factors could be at play. But when investment theory is corroborated by evidence, as it is here, it is reasonable to infer that reclassification of ISPs as Title II common carriers was not a good thing for investment.

Speaking at the Heritage Foundation, FCC Commissioner Ajit Pai said, “The Obama administration has now overseen the first-ever reduction in year-over-year investment by major ISPs that happened outside a recession, one which ‘just happens to coincide with the Title II era.’”

The White House Bullied the “Independent” FCC

In order to impose Net Neutrality, the FCC reclassified Internet providers by regulating them as common carriers and treating the Internet like a 20th Century phone network.

How the FCC went down this route is interesting. The FCC is supposed to be an independent federal agency, but a report from the Senate Homeland Security and Governmental Affairs Committee finds it caved into President Barack Obama’s wish to impose Net Neutrality.

Documents and interviews with FCC staff piece together a timeline of an agency doing an about-faceafter being pressured by the White House, The Hill reports:

Culling together emails from late 2014, the Senate committee — led by Sen. Ron Johnson (R-Wis.) — concluded that the FCC was heading in one direction to draft a hybrid plan, which would use strong authority to regulate the back end of the Internet but not for the consumer-facing side.

But after private meetings with White House staff and a public statement from the president urging strong rules under Title II, the FCC paused its work and then shifted direction. The report concluded the shift caught many career agency officials off guard and ultimately led the commission to push back a December 2014 vote it was planning.

Timeline of how the White House forced the FCC to implement Net Neutrality.. Source: Senate Homeland Security and Government Affairs Committee.

The report confirms what The Wall Street Journal reported in February 2015, that the White House “thwarted” FCC Chairman Tom Wheeler’s alternative broadband regulation plan:

In November, the White House’s top economic adviser dropped by the Federal Communications Commission with a heads-up for the agency’s chairman, Tom Wheeler. President Barack Obama was ready to unveil his vision for regulating high-speed Internet traffic.

The specifics came four days later in an announcement that blindsided officials at the FCC. Mr. Obama said the Internet should be overseen as a public utility, with the “strongest possible rules” forcing broadband providers such as AT&T Inc. and Verizon Communications Inc. to treat all Internet traffic equally.

The president’s words swept aside more than a decade of light-touch regulation of the Internet and months of work by Mr. Wheeler toward a compromise. On Wednesday, Mr. Wheeler lined up behind Mr. Obama, announcing proposed rules to ensure that the Internet “remains open, now and in the future, for all Americans,” according to an op-ed by Mr. Wheeler in Wired.

In addition, the report finds that some FCC professional career staff worried the regulatory process that resulted in Net Neutrality didn’t abide by the proper public notice-and-comment process required under the Administrative Procedures Act.

Congress Gets in on the Act

Congress, which never passed Net Neutrality legislation, isn’t sitting still.

Two piecemeal approaches working their way through the House of Representatives are one that would exempt small business ISPs from Net Neutrality transparency rules. Another, the No Rate Regulation of Broadband Internet Access Act (H.R. 2666), would prevent  the FCC from regulating the rates of ISPs.

In the Senate, Commerce Chairman John Thune (R-S.D.) plans to work on a more comprehensive billhe hopes can win bipartisan support.

Fate Lies in Federal Courts

Federal courts will have their say on Net Neutrality’s fate. An appeals court heard arguments in December 2015, and we await a decision. The U.S. Chamber submitted an amicus brief asking the court to overturn the FCC’s Net Neutrality decision. Depending on the outcome, the Supreme Court could end up hearing the case.

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