Broadband Legislation and Net Neutrality Soap Opera

Randolph J. May wrote this opinion piece. His is the president of the Free State Foundation, a free market-oriented think tank located in Rockville, Maryland. He is the editor of the recent book, New Directions in Communications Policy.

Now that Congress has recessed until at least after the November elections, it is a good time to assess where things now stand - and what ought to come next - with regard to the proposals for government-imposed net neutrality regulations. These are the proposed regulations intended to prohibit any differential treatment of Internet traffic by Internet service providers.

Since shortly after the April 2010 federal appeals court's Comcast decision, which casts strong doubt on the Federal Communications Commission's authority to regulate Internet service providers, I have argued that, if the FCC is to take any action at all to impose net neutrality rules, it should do so only if Congress explicitly grants it authority to do so. And I have suggested that any such legislation granting the agency authority to regulate the practices of Internet providers should be narrowly circumscribed. In mid-June, I even suggested model language to accomplish this purpose.

Under my proposal, the FCC would be given authority "to prohibit broadband Internet service providers from engaging in acts or practices that are determined to constitute an abuse of substantial, non-transitory market power and which cause harm to consumers." And the agency's rule making authority would be narrowly circumscribed; its regulation of Internet providers would be exercised primarily through adjudication of individual complaints alleging abusive practices.

While Congress deliberates on broadband policy, the Commission should suspend consideration of all proposals to impose net neutrality regulations by administrative fiat. This certainly includes consideration of FCC Chairman Julius Genachowski's "Third Way" proposal which would classify broadband Internet providers as traditional common carriers under Title II of the Communications Act. This is the regulatory regime that applied to Ma Bell in the last century when narrowband service providers operated in a monopolistic environment.

Last week, a draft bill, written by House Energy and Commerce Chairman Henry Waxman, surfaced which would grant the FCC authority over Internet service providers. The draft contains some positive elements which provide a basis for Congress to move forward to consider adoption of broadband legislation: the requirement that the FCC enforce net neutrality requirements through adjudication of individual complaints and not rulemaking; recognition of the importance of allowing Internet providers to engage in reasonable network management practices; a prohibition on the FCC's continuing its rulemaking to classify Internet providers as common carriers under Title II; and an December 2012 expiration date.

In contrast to these positive elements, of significant concern is the provision prohibiting wireline broadband Internet providers from "unjustly or unreasonably discriminat[ing] in transmitting" traffic. This legacy common carrier-type restriction could easily be interpreted too rigidly by the FCC so as to inhibit development of new, differentiated services in response to evolving consumer demand.

In the few days remaining before the congressional recess, without the prospect of any hearings or time for further deliberation, no Republican signed on to Chairman Waxman's draft, and he did not actually introduce the draft as an actual bill. Instead, he issued a statement outlining the draft's provisions, and concluded: "I do not close the door on moving legislation this Congress....If our efforts to find bipartisan consensus fail, the FCC should move forward under Title II. The bottom line is that we must protect the open Internet. If Congress can't act, the FCC must."

So, this is where things stand now in the long-running net neutrality saga (some might say soap opera). The question is: What ought to come next?

While Chairman Waxman's draft bill should not be enacted into law without modifications, it does, as I said, contain positive elements which provide a basis for continuing legislative efforts. Circulation of the draft should have the effect of clarifying certain fundamental principles that should guide the way forward.

First, the draft bill should cement the still growing, and already large, bipartisan consensus that the FCC should not adopt net neutrality mandates in the absence of legislation granting the agency authority to do so. No one is arguing that there is any present market failure or pattern of abusive practices causing consumer harm requiring hasty remedial action. Chairman Genachowski says he wants to "preserve the freedom and openness of the Internet." Even the Free Press organization, the most vociferous net neutrality advocate, suggests the government needs to act "to ensure that the Internet remains open for everyone." In other words, the claim of net neutrality advocates is not that it is urgent for new laws or regulations to be adopted to remedy a market failure; rather they want to take anticipatory action to, in their own words, ensure that the Internet remains open in the future.

In this circumstance, and having in mind the law of unintended consequences and the FCC's history of bureaucratic overreach, a persuasive case can be made that neither the FCC nor Congress need take any action unless and until a marketplace failure or consumer harms become evident.

But assuming the FCC's three member Democrat majority continues to threaten, albeit ill-advisedly, to impose net neutrality regulations, it makes sense for Congress to continue efforts to fashion appropriate legislation. And as long as there is the prospect that Congress may legislate in this area, it ought to be unthinkable for the agency to charge ahead with the ill-conceived Title II classification proposal that would convert Internet providers into traditional common carriers.

Finally, an important point on developing legislation. Consistent with the model language I suggested in June, the troublesome provision in the Waxman draft on discrimination should be replaced with one that requires proof that the Internet provider alleged to have committed a discriminatory practice possesses substantial market power and that the alleged abusive practice causes consumer harm. This heightened standard should require the FCC, before imposing any regulatory sanction, to engage in a rigorous economic analysis that explicitly takes into account marketplace competition and general consumer welfare. Absent such a rigorous standard of proof, the FCC will be left with overly broad discretion to regulate Internet providers in ways that may stifle innovation and investment.

The opinions expressed in this commentary are solely those of the author.