Regulation - What is it Good For?

An End-run Around Broadband Regulation

In a recent article in Wired, Susan Crawford, the Harvard law professor who follows tech policy and telecom writes about the long-term strategy of the big ISPs to avoid regulation. She discusses the attempt of ISPs to equate some of their actions to be the equivalent of free speech – thus removing any such ISP actions from regulation.

The big ISPs aren’t the only big corporations adopting this strategy which has been enabled due to the Citizens United v. Federal Election Commission decision in 2010. This landmark Supreme Court decision ruled that the free speech clause of the First Amendment to the Constitution prohibits the government from regulating independent expenditures for communications from corporations – specifically in that case campaign contributions to politicians. Corporations have been emboldened by that ruling to push to widen the definition of First Amendment rights for corporations. While not entirely accurate, the most common interpretation of that case is that corporations now have some of the same First Amendment rights as people, and corporations want to expand that list of rights.

The heart of the big ISP argument is that transmitting speech is protected by the First Amendment. The ISPS want to equate the act of transmitting a voice call or sending any transmission of data as protected speech – the same as speech between two people. Susan Crawford’s article describes the big ISP argument, and to a non-lawyer the big ISP logic is a bit hard to understand. However, what matters is that the big ISPs are hoping to get a favorable hearing of the issue should this ever make it to the Supreme Court – a ruling in their favor would effectively eliminate the possibility of regulated ISP broadband transmissions.

To anybody who is not a constitutional lawyer this seems like a silly argument. It’s clear to most of us that big ISPs can best be classified as utilities. They sell services that we think of as utility products. Depending upon the market, the ISPs differ in the degree of competition, but even where there aren’t telecom monopolies, we understand that the big cable companies and telcos act like oligopoly providers and don’t vigorously compete with each other on price. I think the average person believes that the big ISPs services ought to be regulated to some extent since we are all aware of ways that the big ISPs have abused their customers in the past.

The big ISPs are currently enjoying the least amount of regulation they’ve ever seen. The current FCC effectively walked away from regulating broadband. While there are still telephone and cable TV regulations on the books that derive from acts of Congress, the current FCC is regulating those products in the lightest manner possible.

However, the big ISPs know this could change in a hurry. In 2017 the Supreme Court ruled that the prior FCC had the authority to impose net neutrality rules using Title II regulation. The ISPs understand that as future administrations change, they could get a future FCC that is pro-consumer rather than pro-ISP. They also understand that a future Congress could pass new laws that provide for stricter regulations.

In fact, it’s almost inevitable that the regulatory pendulum will swing the other way – that’s how regulation of all industries has always worked. The government will implement new regulations and the companies that are regulated will challenge those regulations and over time weaken them. When regulation become too lax, the government will restart the cycle with a new round of tougher regulations. The very nature of regulation leads to this cycle of swings between tougher and weaker regulation.

ISPs are their own worst enemy, because like all monopolies they can’t seem to control themselves from going too far in the way they treat customers. Just in recent news we saw the State of Minnesota suing Comcast for lying about hidden fees on cable bills. We just heard about the big wireless carriers selling real-time customer cellphone location data to the highest bidders like bounty hunters, after promising the government they would stop the practice. The big ISPs (and all monopolies) are unable to police themselves because the desire for greater profits always overrides common sense – which is the primary reason that we regulate big corporations.

As a consumer I feel that the current FCC has gone too far towards deregulation, and as someone who understands regulation, I’ve always assumed the pendulum would swing the other way. You have to give the big ISP lawyers credit for thinking out of the box, and they have found a tactic that they hope might remove them from the regulatory cycle. I think anybody that buys services from these big ISPs hopes that they are unsuccessful in this effort.

Regulation - What is it Good For?

Can the FTC Regulate Broadband?

When the FCC wrote themselves out of the regulation of broadband, one of the primary arguments made by Chairman Ajit Pai was that the Federal Trade Commission (FTC) would still be empowered to step in to stop any ISP abuses of broadband customers. The FTC has the general mandate to stop large corporations from engaging in unfair or abusive practices and Pai’s argument was made that ISPs are no different than other large corporations and that FTC oversight is sufficient.

There are several reasons why this argument is full of holes and the FTC cannot be an adequate replacement for the FCC. First, the FTC is not structured to regulate monopolies. We are now watching cable companies become a virtual broadband monopoly for residential service in most markets. The FCC loves to point out that there is still usually a telco DSL option, but when Comcast increases minimum broadband speeds to 150 Mbps while DSL is at a small fraction of that speed, then cable broadband and DSL are no longer equivalent services. The cable companies are winning the broadband war and becoming broadband monopolies as DSL disappears from the conversation.

One of the natural roles of government is to regulate monopolies. FERC heavily regulates local electric companies. The FCC was originally created to deal with the monopoly power that the old Ma Bell held over 95% of the country’s telephony needs. The government regulates industries where a few players hold all of the power like airlines and banks.

The government has always dealt with monopolies in one of two ways – regulate them to curtail abuse of monopoly power or else break up the monopolies up to create competition. The government forced the divestiture of the Bell System when it became apparent that their continued existence was a natural barrier to competition. It seems ironic that the FCC would wash its hands of regulating broadband at the point in time when cable companies are becoming classic monopolies.

The other primary reason that the FTC cannot regulate broadband is that they regulate purely by exception. The agency is empowered to pursue specific abuses by a specific corporation and can require and fine a given company for bad behavior. This puts the FTC in the role of corporate policeman – they can go after an ISP for a bad business practice but that doesn’t directly prohibit other ISPs from engaging in the same behavior. The FTC’s powers are pale compared to the ability of a regulatory agency like the FCC to make a ruling that instantly applies to every ISP in the industry. Ajit Pai’s argument that the FTC can take the FCC’s place is faulty because policing is not regulating.

As weak as the FTC’s power is over regulating broadband there is a chance they will lose even that ability. The FTC sued AT&T in 2014 because the company throttled data usage by unlimited customers to try to get them to drop their unlimited data plans. AT&T challenged that lawsuit and argued that the FTC had no authority over the company. Recall that this was at a time when the FCC still claimed jurisdiction over broadband issues.

The US District Court of Northern California recently ruled against AT&T in favor of the FTC. AT&T has until May 29 to appeal that ruling to the Supreme Court. If the company appeals, it will be to directly ask the Supreme Court if the FTC has jurisdiction over them. A ruling in AT&T’s favor would remove the last vestige of broadband regulation and would make broadband a completely unregulated industry.

It’s not hard to imagine how a truly unfettered broadband industry would react over time if not regulated. We will see big price increases, data caps, the free use and abuse of customer personal data and a violation of all of the principles of net neutrality. This would push broadband in the wrong direction by making it too expensive for many households while degrading the online experience for all broadband customers. The Internet as we know it can be broken if the ISPs are allowed to ignore customers and answer only to Wall Street.

We are already near to this point even if the AT&T suit against the FTC doesn’t conclude with an AT&T victory at the Supreme Court. After the FCC washed their hand of broadband regulation we now have the only regulation of the industry being the FTC which can tackle bad behavior at a single ISP on a single topic. Mass bad behavior by all of the big ISPs will quickly swamp the FTC, and within a few years the higher prices and bad ISP behavior will likely become the industry norm.

The fact that only a few companies own the wires of the broadband network makes this industry a natural monopoly just like electricity, water and natural gas delivery. Nobody likes to be regulated and I can’t even fully believe I am advocating for more regulation. Even before the FCC withdrew from broadband regulation it was one of the mostly lightly regulated monopoly industries in the country. Big ISPs have always fought against being regulated, but I don’t think even they thought that all broadband regulation would be removed in one fell swoop. We are going to have to somehow put regulations back in place or watch our industry go down a very ugly path.

Regulation - What is it Good For?

An Alternative to Title II

Since major sections of last year’s net neutrality ruling are being reviewed by the courts, I started wondering what would happen if the courts reverse that ruling and say that the FCC doesn’t have the authority to regulate broadband under Title II.

It’s hard to think that the courts will overturn this completely because to a large degree the courts aimed the FCC at the current solution in their order vacating the FCC’s first attempt to regulate broadband. But there are a lot of lawyers who think that the FCC rushed the current ruling into place without following its own rules – and that could cause problems in the court.

There is one interesting alternative to the net neutrality ruling that was published late last fall. It’s called the Grand Bargain and was published by the Information Technology and Innovation Council (ITIC). This is a think tank that includes several federal congressmen, academics, and representatives of tech companies like Cisco, HP, Amazon, Google, Oracle, Intel, IBM, Qualcomm and Microsoft.

The main thrust of the Grand Bargain is that broadband ought not to be considered as a “telecommunications service” which would mean that it would not be appropriate to regulate it under Title II. The ITIC sees nothing inherently wrong with data prioritization and understands that there are already many places in the web and network today where prioritization is essential – such as priority given to automated stock traders or to gamers.

The ITIC reports says that “the real issue should not be prioritization versus no prioritization, but what kind of traffic can be prioritized under what business arrangements.” The ITIC feels that the net neutrality ruling places too much emphasis on the negative aspects of paid prioritization without looking at the overall good it can create.

The Grand Bargain doesn’t just favor pro-carrier solutions but is also in favor of some of the FCCs thinking on consumer issues like the broadband adoption programs and strong privacy protections for consumers. It’s an interesting proposal that looks at the beneficial ideas that came from both sides of the net neutrality arguments. It’s very much a middle-of-the-road set of ideas and there is something in there for everybody to like.

But the proposal has one big flaw that I think is shared by every alternative net neutrality idea that I’ve seen: the proposal looks at goals that the ITIC would like to see FCC achieve but does not look at the FCC’s underlying authority to do what they are suggesting. The current net neutrality order was somewhat heavy handed in claiming Title II authority over broadband, but I can’t see that the FCC has any alternative.

Recall that the FCC’s first attempt to regulate broadband contained some of the aspects of the Grand Bargain, and the courts said that the FCC did not have the authority to regulate broadband in general.

This inability to regulate broadband was the FCC’s own doing when years earlier they had declared that broadband was an information service and was not a telecommunications service. The Grand Bargain and every other alternative to net neutrality fails to deal with the basic underlying question of the FCC’s authority to regulate broadband outside of Title II.

It’s clear that the companies behind the ITIC don’t want to see FCC regulation of the parts of the Internet that they think should be wide open and unfettered. But without some kind of regulation the Internet was already headed towards a very ugly future. It’s not hard to imagine a future where half a dozen large companies control most aspects of the Internet. We were already starting to see hints of that as Facebook and other big web companies were negotiating with large ISPs to make their products part of the base broadband packages – to the detriment of other web content. It’s inevitable that companies like Facebook and Google will try to make deals that expand reach and influence on the web. Title II regulation looks to be the only way that a regulator could apply brakes to such deals by regulating the ISP half of the equation.

It would be nice if we had an FCC that could just pick and choose what to regulate and which was free to do the kind of things proposed by the Grand Bargain. There are other countries that can do this. But the FCC is constrained by the laws that govern telecom and broadband and the only way for the FCC to regulate broadband outside of Title II is for Congress to give it the direct authority to regulate broadband without having to jump through any hoops. Unfortunately we live in a time of political gridlock and a largely ineffective Congress, and so this kind of solution is not likely coming any time soon. So I am still hoping that the court can find a way to allow Title II regulation. It’s better than all of the alternatives.