by S. Yvette Shaw, PhD Part 1 of a two part series

Government’s view of the economy…..If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. – Ronald Reagan

The internet has now entered stage 2.

On February 26, the Federal Communications Commission (FCC) voted 3-2 along partisan lines to regulate the internet as a public utility under the same powers as telephony in the 1930s. FCC Chairman and former lobbyist for the cable industry, Tom Wheeler, commented that the internet is “too important to allow broadband providers to make the rules.” So five people, or six if you count the President’s bully pulpit, decided to enforce government control of the last bastion of true freedom.

Few can deny the social impact of the worldwide web that went mainstream during the 1990s. Its very nature as a decentralized global system of interconnected networks and lack of centralized governance has been key to its organic growth. Even political systems have not been immune to the democratization of information exchange among the most oppressive regimes as evidenced by the Arab Spring, 2011 political revolution in Egypt, and China.

WHAT does this mean?

The principle of “net neutrality” is that governments and Internet Service Providers (ISPs) must treat all data on the internet equally. Differentiation on speed, tiered pricing, or ANY variations ranging from content and data size to platform or application is prohibited.

The FCC decision also provides broad powers for the agency:

The general conduct provision allows the FCC wide authority over anything that it deems “unreasonable” based on seven standards: competition, innovation, fr ee expression , infrastructure investments, requirements specific to applications, compliance with industry standards, and transparency to the end-user.

, infrastructure investments, requirements specific to applications, compliance with industry standards, and transparency to the end-user. All interconnection agreements on traffic exchange between networks can be scrutinized to be “just and reasonable.” This includes the content providers.

Increased legal requirements (higher costs) for smaller (rural) providers to conform to a centralized code.

All consumer internet services can be regulated.

Federal, state and local taxes are now allowed (Universal Service Fee). Current estimates indicate $2B for Federal and $15B for state/local taxes to be extract ed f ro m passed to consumers.

passed to consumers. The internet can now be regulated by standards set by the International Telecommunications Union (ITU), a UN agency that oversees information and communication technology.

The FCC claims that it will regulate with a light touch, exercising forbearance, in which all powers available will not be enforced.

Assurances like these don’t tend to last very long . Expect regulation to ratchet up as time goes on. – Ajit Pai FCC Commissioner 2012-present [Dissenting vote]

WHY did this happen?

The FCC decision is a culmination of shrewd branding, an aggressive campaign by progressive groups, and court battles. However, its origin is more basic.

Follow the money….

Net Neutrality stems from market disagreements between public corporations with disparate interests: content vs. hardware providers. Content providers include Apple, Amazon, Google, Facebook, Netflix, etc. The hardware providers comprise telecommunication companies (telecoms): Internet Service Providers (ISP) like Comcast, AT&T, Time Warner Cable, Verizon and their hardware suppliers such as IBM, Cisco Systems, etc. In a truly free market, these disagreements are handled privately.

But technology has moved so rapidly that demand for bandwidth has outstripped capacity: Roku, internet ready TVs, online video, and explosion of mobile. Online streaming (Netflix, Amazon Prime, etc.) is quickly replacing Cable TV. Currently, YouTube (owned by Google) and Netflix consume 50% of capacity, 35% for Netflix alone. Telecoms have invested substantial capital in broadband infrastructure as the cable TV business erodes.

As with any supply vs. demand situation, tiered pricing called “fast lanes” was proposed by the telecoms. However Google, Netflix, and other content providers disagreed and sought assistance from the FCC to retain their current business models. Led by Google and Netflix, they pushed “equal treatment” for all content providers regardless of capacity or the costs to the ISPs for adding capacity. And progressives went along for the ride. Soros’ Open Society Foundation and Ford Foundation spent $196M funding groups that support Net Neutrality.

HOW did we get here?

Prior to the FCC decision, broadband was classified as an information service under Title I of the Communications Act of 1934. This continued after deregulation of the cable industry with the Telecommunications Act of 1996, a response to the technological advances of the prior decades. With approval of cross-media ownership, the telecom industry exploded, growing from 394M users in 2000 to 1.9B users in 2009. By 2014, the number of users exceeded 3 billion, 44% of the world population.

During this huge growth period, the term “Net Neutrality” was introduced in 2003 by Columbia law professor, Tom Wu. This is an extension of the common carrier concept or Title II which classifies a carrier as a regulated utility. As competitive forces advanced, the FCC was contacted to mediate private disputes. In 2005, AT&T proposed prioritizing traffic for a fee to strong objections by Google and Amazon. In exchange for FCC approval of their acquisition of BellSouth, AT&T agreed to not implement plans for 2 ½ years. In 2007, the Associated Press claimed through its nationwide tests that Comcast interfered in the traffic of file sharing networks such as BitTorrent, eDonkey, and Gnutella. Comcast maintained that any slowing was due to its traffic algorithm to manage periods of high use. However, progressive groups successfully filed a complaint to the FCC which issued an order to cease. The order was overturned by the D.C. Circuit Court of Appeals for lack of FCC authority within Title I.

In 2010, the FCC published rules, the Open Internet Order, in the Federal Register to take effect in 2011. After Verizon appealed, the order was overturned by the D.C circuit in 2014 for lack of FCC authority. In 2012, the enthusiasm of progressives for net neutrality accelerated when AT&T changed plan requirements for access to FaceTime, Apple’s video chat app. After pressure from customers and threats of FCC complaint from progressive groups, AT&T changed its pol icy within months; the market worked. With noise of legislative opposition in Congress in 2014, the FCC then proposed rules that endorsed fast and slow lanes if “commercially reasonable” with commentary on Title II classification. The FCC website crashed on several occasions due to comments, estimated 4 million, from advocacy groups for net neutrality which influenced Chairman Wheeler.

The tipping point occurred after the elections on November 20, 2014 when President Obama called for Title II authority for the internet. In February 2015, the FCC reclassified broadband from an information service (Title I) to a telecommunications service (Title II). The FCC refused to make the rules public until after the vote. The rules were posted online two weeks later.

See Part 2 for discussion of the impact on liberty and future steps.