Bridge Span 14-1: The FCC Thrown Into the Regulatory Briar Patch

Exactly three weeks ago, the D.C. Circuit court ruled in Verizon v. FCC that the FCC’s net neutrality order regulating the operations of broadband companies, hence the Internet itself, was illegal.  All the judges agreed that the FCC’s order that a telecommunications provider must treat all data in the same way, regardless of any other factors, was impermissible given how the FCC was trying to do it.

Why reject this particular means of regulation?  Because the net neutrality rules functioned like they were under one title of the Communications Act which is where plain old telephone is regulated, as opposed to broadband, “information services,” which are under a different title of the law.  The ruling effectively said that the FCC will not be allowed to regulate broadband like it regulates the telephone, because the legislation as crafted by Congress was clear that they are not to be regulated the same way.  This outcome was completely unsurprising.  One would never imagine other agencies to blend laws to make up what they want.  Imagine if the IRS suddenly decided to apply corporate taxes to an individual so that the IRS could extract more revenue.  Without a doubt this was a “win” for consumers and broadband providers, freeing broadband from smothering “common carrier” regulations.   The decision allows the Internet to remain free and open to innovation to the betterment of consumers.

The court did not stop with that.  They overtly rejected the argument that Congress did not provide the FCC with jurisdiction over broadband access. The court found that section 706 of the Communications Act did provide the FCC with an affirmative grant of authority from Congress, or in other words, Congress empowered the FCC to be the broadband cop on the beat.  So while the specific rules were struck down, the court was not opposed to, and seemed wholly open to, other rules and regulations.

So what can the FCC do now?  There has been much talk about whether the FCC would “reclassify” broadband as a communications service rather than an information service and therefore allow the imposition of net neutrality, and a whole host of 19th Century, regulations on the Internet.  But that path is, at best, challenging, fraught with political and legal challenges.

The general affirmation of authority to regulate broadband means that a new thicket of innovation can grow, that choking regulations will begin anew.  One day information service regulations could be as damaging as communications service regulations are today – a legal and administrative briar patch.  If the FCC can make a plausible case that a company is somehow impeding broadband rollout or competition then, presumably, it would be successful in justifying regulating service providers and maybe even Web services.  Need proof of the direction things are headed?

As reported in Politico today, “A group of congressional Democrats is drafting a bill to restore the Federal Communications Commission’s net neutrality rules – reversing, at least for a time, the federal court decision that struck them down. The still-unreleased proposal, from California Reps. Henry Waxman and Anna Eshoo and Sen. Ed Markey of Massachusetts, would allow the FCC to revive its Open Internet Order, requiring service providers to treat all kinds of Web traffic equally, according to two industry sources. That power would remain in place until the FCC can devise a policy to replace the one rejected by the court, the sources said.”

Newly confirmed FCC Chairman Wheeler spoke to the issue last week at the annual Congressional Internet Caucus, State of the Net Conference explaining that to him the court did explain what could be done, interpreting the “court decision as an invitation” and that “he intends to accept that invitation.” He indicated that he wants to establish a foundation of principles that “will take on a life of their own.”  He explained that the FCC should provide the canvas, the broad outline of “what we want” and then address the specifics saying “that’s not right” and acting to stop those things.

All of this could be “bluster,” or as some have suggested “noises,” to make sure that those who want broadband regulated feel like they are being taken care of, or it could be the green shoots of a briar patch.  Right now there is much talk, the answer will manifest in action, or lack thereof.

A new regulatory thicket would result in real costs.  The costs are not necessarily in any one rule so much as in the push for the expansion of regulatory control, a system not nearly so predictable and one less in touch with the people than through legislative action.  Also, the investment drop off that would have occurred with a reclassification would still take place as new regulations sprout up, ultimately leaving consumers holding the bag with higher costs and impeded innovation, not to mention less jobs and a slower economy.  In all, new regulations would put at risk the tens of billions of dollars every year that broadband providers spend to expand and improve their networks to the benefit of consumers – a total of $1.2 trillion over the years.  As some are calling for wireless to be included in new regulations, the risks are increased by another margin, $30 billion invested last year alone.

Regardless of whether new regulations will be drafted immediately is hardly the issue.  That the court has interpreted the language of Congress to allow wide-ranging broadband regulation by the FCC is the issue. The time is well past for Congress to review and tightly focus the powers they have granted to the FCC, making sure it is appropriate, and preserving the massive investments that have been one bright spot in an otherwise bleak patch for economic growth.

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