Hundreds of people have been burrowing into this week’s D.C. District Court of Appeals 2-1 decision giving the Federal Communications Commission (FCC) everything it wanted and more in its campaign for net neutrality regulation, or conversion of the Internet into a public utility with FCC as overlord.
Entropy Economics’ Bret Swanson summed it up well:
The court upheld not only the FCC’s reclassification of broadband as a Title II telecom service (a switch from its previous designation as a lightly regulated Title I information service), it also allowed the FCC’s redefinition of the Internet itself, the sweeping of mobile broadband into Title II. (Emphasis in original.)
What’s most disappointing is how threats that warned of many years ago by many were exactly what came to pass, and now FCC will be spending all its time interfering at every level – the opposite of what’s needed to ensure investment and network proliferation. That means eventual score-settling against content and app providers who cheered FCC on, as they become subject to newfangled “neutrality” mandates that tomorrow’s creative regulators will dream up. (See my piece on “FCC's Net Neutrality Order To Ensnare Content And App Providers.”)
This matter will go to a full en banc hearing and/or the U.S. Supreme Court, but even a partial relaxation of FCC’s power grab (also pressed by President Obama; see “Barack Obama as FCC Chairman”) it will remain devastating. As with financial regulation, the Internet is being teed up to become an entity that FCC controls with ease, without legislation from Congress, without writing down any formal regulations at all, and perhaps even without writing anything. You’ll just ask permission before you move. On page 106 of the FCC’s 400-page regulatory order, the agency intones.
We conclude that use of advisory opinions similar to those issued by DOJ’s Antitrust Division is in the public interest and would advance the Commission’s goal of providing legal certainty. Although the Commission historically has not used advisory opinions to promote compliance with our rules, we conclude that they have the potential to serve as useful tools to provide clarity, guidance, and predictability concerning the open Internet rules. Advisory opinions will enable companies to seek guidance on the propriety of certain open Internet practices before implementing them, enabling them to be proactive about compliance and avoid enforcement actions later. (Emphasis added.)
Back in 2010 I filed comments to the FCC as net neutrality rulings were being formulated. Swanson’s highlighting the successful predation against mobile reminded me of points I still regard as important regarding competing infrastructures, which I saw as FCC’s duty to safeguard, not torpedo. I called for Congress to “Ban the extension of neutrality mandates to wireless,” which, alas, we just got. But much more fundamental than that I saw, and still see, the role of modern “experts” (See “The Administrative State Lacks Its Own Justification: Expertise”) as removing regulatory barriers hobbling all our infrastructure industries, not just in telecom, and to envision new business models and partnerships among them, each breaching bounds and raising the country’s infrastructure assets to great new heights. Don’t policymakers spend half their time talking about infrastructure, infrastructure banks, critical infrastructure and the like? Yet regulators undermine it all. Here are a few excerpts:
Critical new developments in economics stress the private property rights foundation undergirding the creation of wealth in developing nations. What the [Notice of Proposed Rulemaking] fails to realize is that foundation’s importance for wealth creation in frontier areas—broadband infrastructure deployment and pricing—in which property rights have yet to be adequately extended. While we’re fairly competent at legitimizing property rights for “short and fat” property like a house or a car, human beings remain in the Stone Age when it comes to legitimizing proprietary approaches to “long and thin” property (or intangible property). We lack a “John Locke for the digital age,” one might say; perhaps capitalism is still too new historically for one to have emerged. Nonetheless, the proper policy is to allow both open and proprietary network approaches to flourish, not impede the latter. Liberalization and embracing proprietary regimes affords room for neutrality, properly construed; but a compulsory neutrality regime would hinder proprietary decisions over pricing and access policies and effectively “ban” new infrastructure. This collapse in leadership is worsened by the effort to extend neutrality regulation to wireless services that, compared to what is to be if regulators can only restrain themselves, barely exist….
…At least the FCC realizes that “…consumers are entitled to competition among network providers….” If only regulators had believed this a century ago when competition did exist and federal and state regulators stamped it out. Interesting in this regard is the urge to regulate and include wireless networks in proposed rules (p. 54, paragraph 154). Note that wireless entities’ incentive is to automatically allow access to content—otherwise why would anybody buy these services?
…[W]ith respect to networks, we’re at the infancy of development of property rights. It’s crucial that agencies (not just FCC) focus on tearing down the regulatory walls erected between our network industries—already more than full time job—and not build new barriers in frontier applications like wireless while they ignore the real reasons consumers lack access and choice…
… There’s little appreciation in the NPRM for the fundamental importance of proprietary control over networks to combat security threats and assure reliability. For that we need, not neutrality, but a plethora of overlapping wired and wireless communications networks and redundancy schemes and cyber-insurance projects that don’t even exist yet. Apart from the result being a better, cheaper and more robust version of the openness that today’s advocates of net neutrality seek, security would be more ingrained. …
…Indeed, if it didn’t already exist in today’s era of communications abundance and potential, we wouldn’t create the FCC to meddle in the manner tolerated today. The FCC’s willingness to erect neutrality barriers to the creation of infrastructure wealth indicates disdain for future consumer welfare online and for the very concept of liberalized communications and further separation of state from speech and communications. FCC should be first in line articulating the case for preserving and expanding the scope for competing network business models—open and proprietary. Instead, its philosophy is hostile not merely to legacy wireline, but to wireless and the yet-to-be….
In what appears to be a concession, the NPRM notes that, “We also acknowledge that broadband Internet access service providers have flexibility to develop and deploy new technologies and business models, including by offering managed or specialized services that are distinct from traditional broadband Internet access service” (p. 4, paragraph 11). But these specialized or managed services are not actually exempted, any more than are content providers who think future rulings will not apply to them. The division between the two was already somewhat arbitrary; a mere two pages later in the NPRM, the reader learns that the commission “seek[s] comment on a category of “managed” or “specialized” services, how to define such services, and what principles or rules, if any, should apply to them” (p. 6, paragraph 16).
It is important to appreciate the significance of the fact that the FCC is unwilling to even affirm that it will leave managed and specialized services alone. While for the time being these are exempt from the ruling, that is only temporary; “we are sensitive to any risk that the growth of managed or specialized services might supplant or otherwise negatively affect the open Internet” (page 53, paragraph 149). And still further, the agency asks—as if it were even conceivable in this rent-seeking environment for no one to take the bait and say “yes”—“Should any of the rules proposed here for broadband Internet access service apply to managed or specialized services?” (p. 54, paragraph 152). So there are no potential broadband offerings not vulnerable to regulation.
One hopes Congress can act to not only stop fake neutrality but to purge the FCC (See Communications without Commissions). There have been some proposed Congressional Review Act resolutions of disapproval on FCC’s enforcement of its rule that went nowhere, and some calls for scaling back the FCC. But when Republicans addressed net neutrality head-on in proposed legislation last year they bought into the FCC’s premises, including the idea that government is the source of competition and needs to ban “paid prioritization,” a grave misunderstanding of property rights and how networks need to compete and grow, especially as new applications we cannot foresee today come online.
I’m withholding optimism for the moment; I can envision that favorable decisions or retrenchments later in court may partly satisfy some service providers, but I am at the moment convinced that they will not go far enough to eliminate the core damage the philosophy of net neutrality does. And I don’t see Congress, the other backstop, as having a vocabulary sufficient to defend large-scale free enterprise and its preconditions, unfortunately, not just with respect to net neutrality.