//  11/28/17  //  In-Depth Analysis

Last Wednesday, the Federal Communications Commission released a draft order to repeal its network neutrality rules. The FCC will likely vote to approve the order on December 14, with both Democratic Commissioners—Clyburn and Rosenworcel—dissenting.

There’s a lot to be said about the substance of the order—about the coming APA challenges, about interagency relationships, and about federalism and preemption, among other major changes. There’s a lot to be said about the process, too—about the authenticity of the comments submitted to the FCC, and about some unacceptably ugly and entirely out-of-bounds reactions to Chairman Pai’s proposal.

But in this post, I’ll start with some basics. Where did the existing rules come from? What do these rules accomplish? And what effect might their repeal have?

Some Quick History

The FCC has been thinking about the problems of network neutrality since at least 1966, the early days of networked data processing services (services that both relied upon AT&T’s networked telephone lines and competed with AT&T’s own computing offerings). In its First Computer Inquiry, the FCC exempted data processing services from most regulation, but it allowed incumbent carriers (like AT&T) to offer data processing services only through separate corporate entities. The FCC imposed this “maximum separation” rule to prevent Ma Bell from favoring her own offerings through discriminatory practices.

Though the maximum separation rule eventually faded, the distinction between “basic” or “telecommunications” services on the one hand and “enhanced” or “information” services on the other proved to be the cornerstone of the FCC’s further Computer Inquiries, and was eventually codified in the 1996 Telecommunications Act.

But the FCC soon faced the puzzle of the vertically-integrated services offered by, for example, cable modem services. Cable modem services offered both information services—your “comcast.net” email address, for example—as well as a telecommunications service—a transmission link to other internet locations.

The FCC decided to treat the entire bundle as a deregulated information service. But then-Chairman Powell, in a speech and subsequent policy statement, agreed that internet service providers should not block consumers from accessing internet content, nor discriminate among internet applications, nor prevent consumers from attaching their own devices to their home network.

One of the first times the FCC attempted to enforce these principles, it entered a consent decree with a phone company that was blocking voice-over-IP devices.

The FCC faced tougher opponents in its next attempts (which spanned both the Bush and Obama Administrations)...

FCC: Comcast, you’re breaking the rules.

Comcast: You don’t have the authority to enforce the policy statement’s principles.

FCC: Yes, we do.

D.C. Circuit: You might have the authority to enforce net neutrality principles, but here, you’ve chosen the wrong legal theory.

FCC: OK. Here’s a new legal theory.

Verizon: You don’t have the authority to enforce these principles.

D.C. Circuit: This is still not a good legal theory.

FCC: OK. Here’s another new legal theory.

Industry (together): You don’t have the authority to enforce these principles.

D.C. Circuit: This one’s a winner!

Thus, finally, in 2016, the FCC had re-established the legal footing to enforce the basic principles, like the idea that network carriers should take you wherever you want to go, that had been critical to the FCC’s regulatory regime since the 1960s.

Repealing the Rules

This historical context thus highlights the magnitude of the FCC’s proposed action: To repeal, say, the rule against blocking internet content is to rollback a foundational regulation that had been a part of the ecosystem since at least 2004—if not even the 1960s.

It’s worth examining the FCC’s current net neutrality rules and considering the possible effects of repeal.

Blocking

The FCC currently prohibits internet service providers from blocking a consumer’s access to lawful content of her choosing. The proposed order would repeal the rule, finding these service providers have “strong incentives to preserve Internet openness” and that “many” such providers have “committed to refrain from blocking” lawful content.

But talk is cheap, and some talk is cheaper than others. These same providers have told the D.C. Circuit that they’d like to exercise “editorial discretion” over the content made available to their consumers. The ACLU has documented cases of this, including one example where a service provider blocked access to a union on strike against that provider, and another example where a provider blocked access to an abortion-related advocacy campaign on the grounds that it was “controversial or unsavory.”

It’s hard to switch internet providers if you discover that your current carrier is blocking you from accessing content you’d like to see. And it’s impossible for the roughly 20% of Americans who have access to only one provider offering broadband service (that meets the FCC’s “broadband” definition).

Throttling and Unreasonable Discrimination

The FCC also prohibits internet service providers from throttling (“degrading”) lawful internet traffic and from unreasonably disadvantaging such traffic.

What might this mean? Imagine that an internet service provider, like Comcast, and a content company, like Hulu, are part of the same corporate family. One might worry—as the FCC has since the 1960s—that the network carrier would favor these corporate relatives at the expense of outsiders by, say, throttling the competing traffic or by offering favorable terms to the related traffic. Indeed, the FCC found that AT&T’s practice of exempting DIRECTV-related data (DIRECTV is wholly-owned by AT&T) from consumers’ data caps harmed competition for video programming services. (Chairman Pai later repudiated the report.) There are lots of examples of service providers favoring affiliated applications. (And in Europe, which lacked net neutrality protections until recently, providers blocked voice-over-IP services, including Skype, that competed with their own telephone services.) Moreover, such network nepotism can extend beyond these content markets and into any related market where an internet service provider has some stake.

Transparency

Finally, the FCC currently requires that internet service providers disclose accurate information about their practices, performances, and commercial terms. The draft order proposes to “refine” this rule in light of the changes described above.

A Postscript on “Utility-Style Regulations”

In his statement announcing the release of the draft order repealing these net neutrality protections, Chairman Pai claims to unwind “heavy-handed, utility-style regulations” on the internet. But the irony is that the Trump Administration’s present approach bears a striking resemblance to the telecommunications regulation of old. The Justice Department’s decision to seek a structural remedy—divestiture—in its suit against AT&T’s proposed merger with Time Warner recalls the FCC’s “maximum separation” rule of the 1960s, separating media and content from distribution. I’ve consistently argued that the threats of exclusion and foreclosure to competition through vertically-integrated carriers can be real. But the answer need not be divestiture if net neutrality would do the trick.

 


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