The FCC’s Plan for Net Neutrality

This is already stacking up to be the most disruptive year for telco regulations that I can remember in my career. While 1996 and the Telecom Act brought a lot of changes, it looks like it’s possible that many of the regulations that have been the core of our industry for a long time might be overturned, re-examined or scrapped. That’s not necessarily a bad thing – for example, I think a lot of the blame for the condition of the cable TV market for small providers can be blamed on the FCC sticking with programming rules that are clearly obsolete. 

We now know for sure that one of our newest regulations, net neutrality, is going to largely be done away with at the FCC. FCC Chairman Ajit Pai has now told us about his plans for undoing net neutrality. His plan has several components. First, he proposes to undo Title II regulation of ISPs. Without that form of regulation, net neutrality naturally dies. It took nearly a decade for the FCC to find a path for net neutrality, and Title II was the only solution that the courts would support to give the FCC any authority over broadband.

However, Pai says that he still supports the general concepts of net neutrality such as no blocking of content and no paid priority for Internet traffic. Pai proposes that those concepts be maintained by having the ISPs put them into the ISP’s terms of service. Pai also doesn’t think the FCC should be the one enforcing net neutrality and wants to pass this responsibility to the Federal Trade Commission.

It’s hard to know where to start with that suggested solution. Consider the following:

·         I’m concerned as a customer of one of the big cable companies that removing Title II regulation is going to mean ever-increasing broadband rates, in the same way we’ve seen with cable rates. While the FCC said they didn’t plan to directly regulate data rates, they’ve already put pressure on the big ISPs over the last few years to ease up on data caps. Since the big ISPs have tremendous pressure from Wall Street to always make more, they have little option other than increasing data rates as a way to increase the bottom line.

·         Unless some federal agency proscribes specific and unalterable net neutrality language, every ISP is going to come up with a different way to describe this in their terms of service. This means that the topic can never really be regulated. For example, if somebody was to sue an ISP over net neutrality, any court ruling would be specific to only that ISP since everybody else will be using different language. Regulation requires some level of consistency and if every ISP tackles this in a different way then we have a free for all.

·         Probably the most contentious issue that brought about net neutrality was the big fights between ISPs and companies like Netflix over the interconnection of networks. I recall the FCC saying during some of those cases that they were one of the most challenging technical issues they had ever tackled. It’s hard to think that the FTC is going to have the ability to intercede in disputes of this complexity.

·         The proposed solution presupposes that the FTC will have the budget and the staff to take on something as complex as net neutrality. From what I can see it’s more likely that most federal agencies are going to have to deal with smaller budgets in coming years. And we know from long experience that regulations that are not enforced might as well not exist.

Interestingly, the big ISPs all say that they are not against the general principles of no paid priority and no blocking of content. Of course, they have a different interpretation of what both of those things mean. For example, now that a lot of the big ISPs are also content providers they think they should be able to offer their own content on a zero-rating basis. But overall I believe that they were okay with the net neutrality rules. They don’t like the Title II regulation because they fear rate regulation, but I think they mostly see that an open Internet benefits everybody, including them.

The one thing that big ISPs have always said is that the thing they want most from regulation is consistency and predictability. All of the changes that the FCC are making now are largely due to a change in administration – and in the long run the ISPs know this is not to their benefit. Of course, they have always complained about whatever rules are in place, and frankly that’s part of the industry game that has been around forever. But the last the thing the big ISPs want is for the rules to swing wildly back the other way in a future administration. That creates uncertainty. It’s hard to design products or to devise a 5-year business plan if you don’t know the rules that govern the industry.

The Latest on Federal Broadband Infrastructure

There is a lot of talk in DC of working towards a federal infrastructure funding plan this year. So today I’m going discuss some of the latest news about infrastructure, particularly as it affects broadband funding.

Shovel Ready Projects. A few weeks ago the White House said that they only favored funding ‘shovel-ready’ projects. meaning those projects that have already had enough engineering and financial work done to understand the costs and benefits. The President said that he didn’t want to fund projects that would then take ten years to get started, something that is not that unusual for highway projects.

Size of the Funding. US Transportation Secretary Elaine Chao last week said that the administration’s infrastructure plan would be for $1 trillion spread over ten years. That’s the first time we’ve heard any specific numbers and time frame. There is no telling at this point whether the funding would be spread evenly over the years. Secretary Chao said the details of the plan would be released later this year.

Including Broadband? Secretary Chao said that that “the proposal will cover more than transportation infrastructure, it will include energy, water and potentially broadband and veterans hospitals as well.” This certainly tells us that broadband funding is not a sure thing at this point.

Probably Not Outright Grants. Secretary Chao also reiterated what the administration had said earlier that any funding was going to favor public-private partnerships and was not likely to directly fund projects. This has always been expected, but this doesn’t tell us anything about the nature of the support. There was talk during the transition of the infrastructure plan to heavily favor using tax credits, meaning that it would favor and induce large companies to invest in infrastructure.

I suspect the idea of public private partnerships for roads tells us to expect a lot of new tolls roads. Advisers to Trump have said they would rely on federal tax credits and public-private partnerships rather than federal spending to pay for a new infrastructure program. The concept of public-private partnership is a bit puzzling when it comes to broadband in that there are many states where local governments can’t participate in broadband or are severely restricted from doing so.

FCC’s Position. FCC Chairman Ajit Pai said recently that any broadband funding ought to be handled through the Universal Service Fund mechanisms since it already has the processes in place to handle such funding. The Chairman came out heavily in favor of significant broadband funding for rural areas as well as funding what he calls Gigabit Opportunity Zones that would provide tax incentives for serving low income areas.

Bipartisan Support for Broadband. In early February 48 US Senators from both parties sent a letter to the President supporting the idea that any infrastructure plans should include funding for broadband. My guess is that this is due to the complaints that all politicians are hearing these days from those without adequate broadband.

Democratic Alternative. And of course, since this is Washington DC, there is also an alternate infrastructure plan. Senate Democrats unveiled an alternative $1 trillion plan that would more directly fund infrastructure with mostly outright grants. Their plan includes not only roads and bridges, but also broadband networks, hospitals run by the Department of Veterans Affairs, and schools. In general there is a lot of Democratic support for broadband funding and the plan allocated $20 billion for broadband. I guess the trillion dollar question will be if this is a topic that might find some bilateral agreement.

What are the Odds? When it comes to Washington and politics I don’t have any better crystal ball than anybody else. But it does look like there is bipartisan support for doing something with infrastructure and even more bipartisan support to make sure that broadband is included in any funding package. It’s probably a good time for small service providers to make sure that your DC representatives hear from you. And it’s a good time for those without broadband to yell even louder.