Blog Post

AEIdeas

In case you have any doubts about supporting the Federal Communications Commission’s (FCC) proposal to Restore Internet Freedom that is scheduled for a vote tomorrow, here is a recap of some of the harms experienced in the past two years of the FCC’s 2015 Open Internet Order.

Loss of consumer sovereignty

Net neutrality is many things, but from a consumer’s perspective, it is a price control that forces consumers to value all data the same, whether they want to or not. Unwittingly, consumers must pay for a subscription that supports provisioning the network for offensive, violent, pirated, and otherwise objectionable content. More than 70 percent of downstream traffic on fixed networks is real-time entertainment, and the 2015 rules enshrined that the largest content providers never have to pay a penny for the cost of consumer networks. Under internet freedom, consumers should be free to pay only for that content that they want. Content providers, which have too long enjoyed an artificial subsidy, will share the responsibility of delivery cost, ideally reducing the burden on consumers.

The FCC proposes to strengthen transparency provisions so that consumers and innovators have more information about their broadband connection including network management, performance, and commercial terms. Ideally, consumers will use this information to drive greater customization of broadband in price, technology, quality, safety, and durability. Under the 2015 rules, the FCC decided what consumers should value by fiat. Notably consumer groups such as the American Consumer Institute and Consumer Action for a Strong Economy support the effort to Restore Internet Freedom so that consumers, not regulators, are in charge.

Loss of innovation

Pro-regulation advocates claim that hard FCC rules are needed to protect and promote innovation. They assert that without rules, internet service providers (ISPs) will block rivals and fledgling services. However, the FCC itself cannot document this happening; indeed the agency can only cite four potential violations over a decade. However the FCC’s rules have blocked an innovative startup technology, the HelloDigital Platform powering social media comments with high-definition voice. A case against the FCC for this foreclosure and a First Amendment claim awaits writ of certiorari at the Supreme Court.

The empirical research on net neutrality and innovation concludes that no country that has adopted hard net neutrality has seen an increase in the number of mobile apps in its economy. Notably, a letter from the Developers Alliance, a group of leading software engineers, requests a “stable environment that promotes innovation and business growth,” not a government-run broadband utility. They call on Congress to make legislation and put an end to the FCC’s “torturing of the 1934 Communications Act to force it to accommodate the Internet.”

In spite of the assertion that the 2015 rules were to “preserve the Internet as a platform of innovation,” one of the rules’ architects Gigi Sohn asserts on radio interviews that telemedicine entrepreneurs should find alternative networks for their innovation, even though the internet was designed with quality of service protocols for such applications. Indeed, it appears that the 2015 rules have driven their own self-fulfilling prophecy, as entrepreneurs have shifted innovation away from the public internet to the nonregulated blockchain.

Decline in investment

The 2015 FCC and other pro-regulatory supporters extolled the rules as good for network investment. It’s odd then that companies such as Google and Facebook don’t invest in infrastructure regulated by Title II but prefer to put their networks outside FCC purview in the stratosphere. However, the FCC has since observed that there has not been an increase in investment by “edge providers” that would somehow offset the loss of investment by ISPs.

The Restoring Internet Freedom Order provides exhaustive detail on how the 2015 rules have harmed investment. Beginning at paragraph 88 of the order, the FCC examines the effects on large ISPs, small ISPs, and edge providers. They note that investment peaked in 2014 and has declined since. They reference numerous studies of large ISPs documenting a 3–5 percent decline, including studies from USTelecom, Maria Kovacs, Hal Singer, and the Free State Foundation. The Phoenix Center suggests an even larger loss of $30–40 billion annually because of the general regulatory environment deterring investment and two-sided market development. This amount could close the gap in rural areas, and it is unfortunate that Obama FCC policies have exacerbated the digital divide.

The 2015 policy treats all of America’s 4551 ISPs as if they were monopolists. Such rules hit small ISPs hard as they face disproportionate costs relative to large providers when complying with regulation and the inevitable trade-off of whether to use funds for innovation or regulatory compliance. In fact, until Ajit Pai’s reform effort was launched, companies spent $800 million annually on FCC reporting requirements alone, not counting labor cost. The FCC reports that at least 60 ISPs are harmed by the policy, many having to delay or cancel network deployments and associated well-paying jobs. Small wireless providers are doubly harmed as they are hit by statutes designed for wireline networks. At least 19 municipal broadband providers are suffering under the rules. Twenty-two small providers with fewer 1,000 customers say that the regulation hangs over their business like a black cloud and deters their ability to raise capital. Brett Glass, CEO of the Wyoming-based Lariat, which bills itself as the world’s first wireless ISP, notes, “Our small, rural ISP will be happy when the pall of the Draconian regulations is lifted; we may at last be able to obtain bank loans and find investors once again!”

A dangerous environment

As detailed in The Wall Street Journal, a steady stream of violent threats, harassment, intimidation, and racist hate speech is directed at FCC Chair Pai, his wife, and children, as well as FCC staffers and supporters of Restoring Internet Freedom. There was even a death threat directed at Rep. John Katko (R-NY).

With hope, the FCC will restore internet freedom tomorrow, ending the harms of the FCC’s rules to consumers, innovators, and the people working to build the next generation of broadband networks.