The Ugly Truth About Obama's "Net Neutrality"

The Ugly Truth About Obama's "Net Neutrality"
AP Photo/Pablo Martinez Monsivais

This week, the Federal Communications Commission (FCC) will start a proceeding to determine a better way to secure an Open Internet than the Obama administration’s 2015 proposal. As expected, Internet activists are positively apoplectic, with some going so far as to harass FCC Chairman Ajit Pai at his home on Mother’s Day. 

Let me begin by reminding everyone what this debate is all about — and what it’s not.

The current iteration of the net-neutrality debate is not really about an “Open Internet” or free speech or even apple pie; it’s about whether government should be permitted to expand its power and encroach on private actors’ due process protections. At stake, in other words, is whether an administrative agency should be permitted to re-write the law — especially when it does so simply to fit a political agenda.

While some folks are busy screaming about the need for “Title II,” I’d wager most have no idea what that means. The FCC under President Obama sure as heck didn’t. As someone who has practiced telecommunications law for over 23 years, including a stint in the FCC’s Office of General Counsel, please let me provide a quick tutorial. Title II does not accomplish what Internet activists claim it does. 

First, Title II — properly applied  — means that Broadband Service Providers (“BSPs”) get to charge “edge” providers, such as Google and Netflix, a positive price for terminating their bits to broadband users. Let me repeat: Title II does not mean edge providers are exempt from paying a fee for transmission of their content. By statutory definition under Title II, a “telecommunications service” is a service sold “for a fee.” Moreover, these edge providers impose a direct cost on the network and, as such, the Fifth Amendment demands that BSPs be compensated appropriately. As such, Title II prohibits the FCC from imposing a “below cost” (i.e., “confiscatory”) rate of zero

Second, Title II — properly applied — means that BSPs must file tariffs with the FCC. A tariff is a document establishing a government-set rate that publicly announces what prices will be charged for what services beforehand. The FCC has generally done away with tariffs because they don’t make sense in a competitive market. That is, the FCC has recognized that in a competitive marketplace, tariffs drive providers to charge similar prices, thus undercutting the very point of having companies compete on price. By contrast, according to the theory that held sway in Obama’s FCC — the case for using Title II to secure an Open Internet — all BSPs are “gatekeepers” and “terminating monopolies.” In other words, the commission doesn’t trust the market to ensure that rates are “just and reasonable.” Taking that argument at face value, this means that the FCC — by its very own logic — cannot eliminate tariffs in a non-competitive market by the plain terms of the Communications Act. (This point was made explicit by now-Chairman Ajit Pai’s lengthy dissent to the 2015 Open Internet Order.) 

Third, Title II — properly applied — specifically permits BSPs to engage in reasonable discrimination, provided that customers are not “similarly situated.” As such, Title II expressly prohibits the FCC from imposing a rule that would mandate blanket non-discrimination to all comers. 

Unfortunately, the plain language of Title II — not to mention the 80 years of case law supporting it — proved inconvenient for the Obama administration. Its solution? To ignore the “vast majority of rules adopted under Title II,” selectively picking and choosing whatever provisions of Title II it found convenient to achieve a results-driven outcome.  Pleased with its handiwork, the FCC proudly proclaimed that it rewrote the statute by successfully tailoring “Title II … for the 21stCentury.” 

Given this abuse of power, we should applaud Chairman Pai for trying to return the rule of law at the FCC. Who knows? Perhaps after 12 long years of the net-neutrality debate we might finally have a rational discussion about how to protect an “Open Internet” in a way that is both legally sustainable and economically sound. 

Lawrence J. Spiwak is the President of the Phoenix Center for Advanced Legal & Economic Public Policy Studies (www.phoenix-center.org), a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.

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