- The Washington Times - Tuesday, April 13, 2010

ANALYSIS/OPINION:

“If you come to a fork in the road, take it.”

That’s one of my favorite Yogi Berra aphorisms. I am reminded of Yogi’s injunction because the Federal Communications Commission (FCC), now that it has released its broadband plan, is approaching a big fork in the road as it confronts the net neutrality proceeding it initiated last October. Although Yogi is too smart to have ever offered advice regarding net neutrality, I am less reticent. Indeed, I want to propose a new way forward.

In a sharp departure from the overly broad and usually vague regulations traditionally adopted by the FCC, and which the agency has proposed for net neutrality mandates, this new direction would tie the FCC’s regulatory oversight of broadband Internet service providers (ISPs) closely to marketplace-based determinations of alleged competitive injuries.

First, a brief explanation of the FCC’s proposed net neutrality rules. They would prohibit all Internet providers, such as AT&T and Time Warner Cable, from blocking or degrading a subscriber’s access to any Web site. Most significantly, they would strictly prohibit ISPs from discriminating in any way against unaffiliated applications and content providers. The discrimination prohibition would require Internet providers to charge every customer the same price regardless of the customer’s usage, and it would prevent an ISP from prioritizing Internet traffic in any way, regardless of the time-sensitive nature of the traffic.

As a practical matter the proposed net neutrality rules would largely turn today’s broadband providers, regardless of whether their services are delivered over wire, fiber, cable, satellite or wireless platforms, into traditional common carriers. Indeed, the most strident net neutrality proponents are not content to rely on mere practicalities; they advocate actually classifying the ISPs as common carriers for all purposes.

If the FCC adopts regulations embodying this approach with its sweeping anticipatory prohibitions, there will be several adverse impacts. Common carrier-type regulation, with its strict anti-discrimination mandates and price controls, dampens investment and innovation, especially in technologically dynamic, constantly-evolving markets. Even the FCC admits that in such markets, “discrimination” among applications and content can benefit consumers as Internet providers seek to differentiate their network offerings in novel ways responsive to perceived variations in consumer demand.

Even though the rules are drawn broadly to anticipate all potential harms, inevitably they will contain ambiguities that lead to drawn-out administrative and judicial litigation. For example, the FCC’s proposed rules allow ISPs to engage in “reasonable network management” activities and to offer “specialized” or “managed” services outside of the neutrality strictures. The inherent vagueness of such exceptions will discourage ISPs from experimenting with new business models or adopting new practices that may enhance their subscribers’ online experience.

Finally, another disadvantage of the FCC’s proposed approach is that it likely infringes the First Amendment rights of the Internet providers. Any regime that dictates in an anticipatory fashion, without any showing of competitive or consumer harm, that ISPs must carry all content, even that with which they disagree, or that prevents ISPs from preferring any content, raises serious free speech issues.

So the FCC should turn away from the fork in the road represented by its proposed rules. Instead, it should take a less intrusive, less rigid approach that will still give it the tools it needs to deal with any real anti-competitive abuses that cause consumer harm. While the likelihood is increasingly small that such abuses will occur in a marketplace in which consumers generally have a choice of Internet providers, nevertheless there is a proper role for the FCC to play in policing and remedying any anti-competitive acts.

Rather than adopting broad-brush regulations that place off-limits many ISP practices that may benefit consumers, the FCC instead could adopt a simple rule prohibiting ISPs from engaging in practices that constitute an abuse of significant and nontransitory market power. A market-oriented rule like this would provide the FCC with a principled basis for adjudicating allegations that ISPs are acting anti-competitively and causing consumer harm. Using traditional antitrust-like jurisprudence that incorporates rigorous economic analysis, the commission would focus on specific allegations in the context of the particular marketplace situation, including, of course, existing and potential competition.

A competition-based rule linked to the presence of market power, while providing a means for remedying specific abuses, is much less likely to deter investment on a broad scale, and less likely to constrain the development of innovative business models responsive to evolving consumer demands. And it has the advantage of being more First Amendment-friendly by eschewing a prioriblanket mandates tied explicitly to the treatment of Internet content.

It may well be that any rule regulating Internet provider conduct will be found by the courts to exceed the FCC’s jurisdiction. If so, and if Congress determines some form of net neutrality regulation is needed, then it should amend the Communications Act to adopt the competition-based approach recommended here.

For many years, net neutrality advocates have been urging that Internet service providers be regulated in a common carrier-like fashion akin to the way that Ma Bell was regulated when it had a monopoly. And the FCC has now proposed rules that, to a large measure, embody such regulatory overkill.

It’s time for a new approach that acknowledges that, in the relatively rare cases when there may be a demonstrated market failure, there may be a need for remedial FCC action. But any such remedial action should be targeted narrowly to redress specific consumer harms.

In other words, the FCC must choose the right fork in the road.

Randolph J. May is president of the Free State Foundation, a free market-oriented think tank located in Rockville, Maryland. He is the editor of the book, “New Directions in Communications Policy” (Carolina Academic Press, 2009).

LOAD COMMENTS ()

 

Click to Read More

Click to Hide