Net Neutrality

Net Neutrality has been back in the news over the past few days.  The truth is that not much has changed since we last considered the issue in this space other than a decision from the Federal Communications Commission about whether or not broadband services should be classified as a regulated telecommunications service or a largely unregulated service may happen before year end. Over the summer, the FCC solicited comments from the public on the issue.  The deadline had to be extended because of the volume of comments coming in from all quarters. In total, the FCC received (…wait for it…) just over 4 million comments.  With a volume like this, it’s clear that lobbyists and others with vested and personal interests are working overtime trying to influence the outcome, which, in very broad strokes, pits consumer interests vs. corporate ones, with a zillion other specific issues falling into one of these two larger camps.

This past Monday, the President took a very strong position on the issue. He said, “The time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do. I believe the FCC s should reclassify consumer broadband service under Title II of the Telecommunications Act—while at the same time forbearing from rate regulation and other provisions less relevant to broadband services.”  The FCC’s chairman was quick to remind the President that the Commission works for Congress and not the White House, but the message was clearly sent and delivered. The White House has clearly come down on the side of consumers who want the Internet to remain largely neutral and not governed by market forces that would permit the largest players to control access to high volume capacity and ultimately to content.

Let me reiterate. The FCC is an independent agency, with 5 commissioners in total—2 Republicans, 2 Democrats and one chairman, who, in a Democratic administration is not surprisingly a Democrat.  What is surprising--or at least of interest--is that prior to becoming FCC Chairman, Wheeler served as a lobbyist as President of the National Cable & Telecommunications Association (NCTA) and CEO of the Cellular Telecommunications & Internet Association (CTIA), two agencies that are both clearly on the Republican side of this issue.

Title I v. Title II
Title I of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, created two separate classifications for “telecommunications services” and “information services.” These terms were coined back in the day when dinosaurs roamed the earth and when data looked like data (information services- Title I) and voice looked like voice (telecommunications services—Title II).  As technology has evolved, these classifications have become increasingly arbitrary, since in many cases, it’s virtually impossible to distinguish traditional voice from traditional data. In fact, strike the word “traditional.”  It rarely exists in the current marketplace.

Services classified under Title II are subject to “common carrier” regulation, while Title I services are not.  Common carrier regulations forbid “unreasonable discrimination” in charges for telephone and cable offerings, while services offered under Title I, although still subject to a few obligations, are regulated with a much lighter hand, thus allowing market forces to dictate offerings, terms and conditions in a more meaningful and potentially lucrative way—particularly for the largest players.
 
Earlier this week, the New York Times reported that though far from official, the FCC is currently considering a hybrid solution to the challenges of internet regulation.  The hybrid plan is based on what is a new approach—the recognition of the difference between wholesale and retail markets for internet service(s).  Under the option that has received the most unofficial support, the wholesale portion of internet service (between the ISP and the content provider) would be subject to Title II regulation that’s “utilitylike,” while the retail portion (between the ISP and consumer) would be subject to less stringent regulation.  The retail piece would be governed by Section 706 of the Telecommunications Act of 1996 which, according to the NY Times article, “gives the FCC broad powers to ensure that broadband capabilities are being deployed to all Americans ‘in a reasonable and timely fashion.’”

This two-tier regulatory framework could enable the FCC to prevent blocking of legal internet content and create and enforce rules that limit discrimination of Internet traffic while continuing to encourage creative mechanisms for the delivery of unique services.  As is to be expected, pro-corporate groups argue that any regulation discourages investment and stifles creativity, while consumer groups argue that this concept—and yes, it’s just an unofficial possibility at this point—doesn’t go far enough in protecting consumers.

Earlier this week, Eduarto Porter, author of the Economic Scene column for the New York Times made two very insightful comments.  In a piece titled Net Neutrality Debate: Internet Access and Costs are Top Issues , he said “Free to do as they pleased, the clutch of companies that control access to the Internet would have enormous power to determine what information reaches Americans online.”  Later in the same piece, he said “I once supported reclassifying broadband as a public utility under Title II of the Telecommunications Act, as the president is now proposing. The threat to free speech and innovation on the content side of the broadband economy seemed plausible enough to warrant a heavy hand.”  Much later in the piece, he continued “So far however, the most awful situations have not come to pass. While this does not ensure they never will, it suggests that restraint can be achieved through lighter means that do not put at risk other crucial objectives—like broadening access to the Internet and tackling the nation’s very real digital divide.”

It is possible that the FCC will issue its determination before year end. If not, it will come shortly thereafter.  But it’s clear that compromise is in the air—it’s likely that neither of the major combatants will be satisfied, but if middle ground can be identified and secured, addressing the issues may become less political and more practical.

One final point.  In some of the commentary that’s come out this week, it’s clear that one of the FCC’s primary goals is to ensure that whatever it decides (and, after all, it is an independent agency) will withstand the rounds of litigation that are guaranteed to follow.

Stay tuned.