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The Constructive Alternative to Net Neutrality Regulation (Thierer & Wendy - PFF)

The Constructive Alternative to Net Neutrality Regulation (Thierer & Wendy - PFF)

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Published by Adam Thierer
In this white paper by The Progress & Freedom Foundation (www.PFF.org), Adam Thierer and Mike Wendy discuss the Federal Communications Commission's (FCC) misguided effort to pigeonhole the Internet and broadband networks into the regulatory regime of a bygone era. Specifically, the agency's recent efforts to imposing “Net neutrality” regulations on broadband networks, or reclassify them as Title II services under the Communications Act, raises the likelihood of delayed or foregone investment, will discourage innovation at both the core and edge of networks, and increases the likely politicization and bureaucratization of high-technology policy more generally. Thierer and Wendy argue that there are constructive alternatives to such a destructive regulatory path. The better alternative would be based on (1) a new legislative framework centered on an FTC-like enforcement model of ex post adjudication grounded in antitrust law; (2) increased industry self-regulation, technical collaboration, and alternative dispute resolution mechanisms; and (3) greater reliance on community policing and expert third-party oversight.
In this white paper by The Progress & Freedom Foundation (www.PFF.org), Adam Thierer and Mike Wendy discuss the Federal Communications Commission's (FCC) misguided effort to pigeonhole the Internet and broadband networks into the regulatory regime of a bygone era. Specifically, the agency's recent efforts to imposing “Net neutrality” regulations on broadband networks, or reclassify them as Title II services under the Communications Act, raises the likelihood of delayed or foregone investment, will discourage innovation at both the core and edge of networks, and increases the likely politicization and bureaucratization of high-technology policy more generally. Thierer and Wendy argue that there are constructive alternatives to such a destructive regulatory path. The better alternative would be based on (1) a new legislative framework centered on an FTC-like enforcement model of ex post adjudication grounded in antitrust law; (2) increased industry self-regulation, technical collaboration, and alternative dispute resolution mechanisms; and (3) greater reliance on community policing and expert third-party oversight.

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Published by: Adam Thierer on May 19, 2010
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05/28/2010

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Progress on Point 
Volume 17, Issue 9 May 2010
1444 EYE STREET, NW
SUITE 500
WASHINGTON, D.C. 20005202-289-8928
The Constructive Alternative to Net Neutrality Regulationand Title II Reclassification Wars
by Adam Thierer & Mike Wendy
The Federal Communications Commission (FCC) has embarked on what can only be described
as a “by any means necessary”
effort to pigeonhole the Internet and broadband networks intothe regulatory regime of a bygone era. The ramifications of this crusade for the digitaleconomy will be profound, as it raises the likelihood of delayed or foregone investment,discouraged innovation at both the core and edge of networks, and the increasing politicizationand bureaucratization of high-technology policy.Luckily, there are constructive alternatives to such a destructive regulatory path. As explainedbelow, the better alternative would be based on: (1) a new legislative framework centered on aFederal Trade Commission-like (FTC) enforcement model of 
ex post 
adjudication grounded inantitrust law; (2) increased industry self-regulation, technical collaboration, and alternativedispute resolution mechanisms; and (3) greater reliance on community policing and expertthird-party oversight.
The
Third Way
Is the Old Way in Drag
For the past year, FCC Chairman Julius Genachowski has been laying the groundwork for
imposing “Net
N
eutrality” regulations on broadband networks and
has stepped up this crusadein recent weeks.
1
He has done this despite the
D.C. Circuit’s recent decision in 
, which held that the agency lacked the authority to sanction Comcast for supposedly violatingNet Neutrality principles that did not have the force of law.
2
The Court concluded that the
Adam Thierer is President of The Progress & Freedom Foundation. Mike Wendy is Vice President of Press andExternal Affairs at PFF. The views expressed in this report are their own, and are not necessarily the views of the PFF board, fellows or staff.
1
 
See
Berin Szoka & Adam Thierer, The Progress & Freedom Foundation,
Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction
, P
ROGRESS
S
NAPSHOT
 
2
 
Comcast Corp. v. FCC 
 
Page 2 Progress on Point 17.9
FCC’s “ancillary jurisdiction” under Title I of the Communications Act was insufficient to
allowthe FCC to
regulate Comcast’s
actions.
3
 Chairman Genachowski has now concocted an alternative regulatory blueprint that hedescribes
as a
4
He claims that, simply by reclassifying the transmissioncomponent of broadband services under Title II of the Communications Act and
adopting “
arestrained approach
” to regulating it, America can have the best of both worlds
: innovation andinvestment, as well as (government-
ensured) “openness
.
 In reality, however, Genachowski
’s
Third W
ay” is
really nothing more than the old way theagency did business for decades
and with disastrous results. The history of communicationsunder strict Title II regulation was not a pretty one: Stagnant markets, limited consumerchoices, and lackluster innovation were the hallmarks of the old regulatory era. In attemptingto protect consumers, federal and state regulations perversely harmed them by preservingbarriers to entry that thwarted robust (or even minimal) competition and innovation.TheTelecommunications Act of 1996 marked an important turning point in this miserable history, as Congress finally acknowledged that facilities-based competition was possible andpreferable to the regulated monopoly era of the past. The purpose of the measure, as the first
six words of the Act made clear, was “
To promote competition and reduce regulation
.”
5
 Unfortunately, however, lawmakers were reluctant to completely cut ties with the pastregulatory regime, andopen access rules were included in the Telecom Act that forced incumbent telecommunications companies
but, importantly, not cable operators
tounbundle and share with their rivals certain elements of their networks.
6
 Thankfully, between 2002 and 2004, the FCC gradually came back to the pro-deregulatoryintent of the Act and wisely began dismantling
this “forced access” regime
for incumbent-provided broadband services. In doing so, it finally signaled to markets that the true era of all-out facilities-based investment and competition was to begin. For wireline and cablecompanies in particular, the gloves came off, unleashing a torrent of investment and growththat continues to this day. Thus, it is frequently forgotten that
America’s experiment with
facilities-based competition in the broadband world is really less than a decade old. Beforethen, regulatory paralysis generally ruled the day; but since 2005, broadband providers havebeen able to invest with greater confidence that they could recoup the cost of their significantinvestments. This, in turn, has spurned heretofore unseen levels of digital innovation
at boththe core and edge of digital networks.
3
Barbara Esbin, The Progress & Freedom Foundation Blog,
The Nobles Must Follow the Law 
4
Julius Genachowski, Federal Communications Commission,
The Third Way: A Narrowly Tailored Broadband Framework 
5
Telecommunications Act of 1996, Public Law 104-104, 104th Congress.
6
 
See generally 
Adam Thierer & Clyde Wayne Crews, W
HAT
S
Y
OURS
I
S
M
INE
:
 
O
PEN
A
CCESS AND THE
R
ISE OF
I
NFRASTRUCTURE
S
OCIALISM
(2003).
 
Progress on Point 17.9 Page 3
Why “Just Trust Us” Isn’
t Good Enough
That’s what makes the FCC’s new approach so troubling.
It represents a preemptive surrenderon
America’s experiment with
facilities-based competition and the beginning what ScottCleland has correctly labeled
a
.
7
To return to Title II regulation wouldbe to transport the broadband business back to the era of rotary dial telephony, whengovernment had more control over communications networks but, as noted, competition wasnon-existent and consumers and subsequent product and service innovation suffered.Chairman Genachowski
promises to exercise “restraint” and use a “light touch”
by onlyapplying certain provisions of Title II. Such promises are meaningless in the highly politicizedworld of communications policy. Regulators exist to regulate. That is their job, and where theirinstitutional incentives direct them. As Craig Moffett of Bernstein Research predicts,
the FCC’s
move,very specifically opens the door to price regulation, and it makes otherregulation materially more likely in the future. The FCC has voted itself a loadedgun, pointed it at the Carriers (cable and telco alike) and then promised not to
shoot. The world doesn’
t seem like a safer place.
8
 Of the six powers the Commission claims it will use only sparsely, Sections 201
9
and 202
10
seemmost ominous. Section 201 places a duty on carriers to extend services
upon “reasonable
request.
It also allows the Commission to compel interconnection with other facilities wheredeemed by the Agency to be
in the “public interest
.
” Finally,
Section 201 props open the doorto full-
on rate regulation, instructing carriers that only “just and reasonable” charges, practices,
and classifications will be considered lawful. Section 202 goes further by, among other means,
proscribing common carriers from “unreasonable discrimination
in charges, practices,classifications, regulations, facilities, or services
…”
 Similar language can be found in the six Net Neutrality principles proposed by the FCC as part of itsOpen Internet / Net Neutrality Proceeding.
11
The Court of Appeals in 
 saidthe Commission lacked the requisite authority to enact such regulations in that context, so itremains a delicate tightrope walk
if it can be accomplished at all
to do so with a Title II
sleight of hand.
Moreover, i
t’s important to recall that this regul
atory regime was neverapplied to the cable sector as it now apparently will be. This raises additional grounds for a
7
Scott Cleland,
The Harms of a Potential New FCC De-Competition Policy,
 
P
RECURSOR
B
LOG
8
Craig Moffett, Bernstein Research,
U.S. Cable: Pulling the Plug... Regulatory Uncertainty Clouds Terminal Growth Rates
, May 10, 2010, at 3.
 
9
10
11
Federal Communications Commission,
In the Matter of Preserving the Open Internet, Broadband Industry Practices
, Notice of Proposed Rulemaking, Notice of Proposed Rulemaking, GN Docket No. 09-191, 07-52 (rel.Oct. 22, 2009) (
Open Internet 
 
NPRM
” 

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