Yesterday, Federal Communications Commission Chairman Ajit Pai announced his intention to reverse Obama administration “#net neutrality” rules governing the #internet that were put in place in 2015. Some commentators are criticizing the announcement as a give-away to large telecom companies and an attack on consumers. But the Obama rules create some serious problems for consumers—problems that Pai says he wants to correct.
Under the Obama rules, internet service providers (ISPs) are subject to “rate-of-return” regulations, which the federal #government previously applied to AT&T’s long-distance telephone service back when it was a monopoly more than 50 years ago. Ostensibly, rate-of-return #regulation gives government officials the power to review and approve or reject #ISP rates. In reality it basically guarantees ISPs government-enforced market protection and profitability, in exchange for regulators ensuring that ISPs won’t be too profitable.
As explained in this 2014 post, rate-of-return regulation involves more than just telecom. It is an attempt to settle fights between “producers” and “shippers”—whether those are farms, mines, and factories on one side and railroads and shipping lines on the other, or Netflix and Hulu on one side and ISPs on the other. In all those cases, the producers and shippers need each other to satisfy consumers, but they fight each other to capture the larger share of consumers’ payments. If shippers charge more, then farmers, factories, and Netflix must charge less in order to maintain the same level of sales.
The political resolution of the producer–shipper fights was the Interstate Commerce Act of 1887 and its rate-of-return regulations, which were initially written with railroads in mind. Similar efforts were later extended to trucking, air transportation, energy, and telecom. It took about 100 years for policymakers to accept that those efforts hurt consumers much more than it helped them, forcing on consumers too many bad providers with high prices and poor quality.
Since 2007 Regulation has published seven articles on traditional telephone regulation and why such regulation would be inappropriate for the internet:
Hopefully, Pai’s efforts will mean that bad regulations on internet service will be thwarted before they have been allowed to take hold. However, the news isn’t entirely good. As this June 2016 post explains, an appeals court approved the Obama rate-of-return regulations despite previous court rejections of other attempts to regulate the internet under different provisions of the Telecommunications Act. The 2016 decision may complicate Pai’s attempt to reverse course.
Net Neutrality is one of the most misleadingly named things to come out of DC in a long time. It actually has nothing to do with openness on the Internet at all! To understand what it does, you have to look past the name and into the technical details.
The FCC has been trying to grab power for years. Over and over again they tried to apply the same regulation to the Internet that they get to apply to phone companies. And we all know how well the phone companies work. Well, the Congress actually had the sense to keep (the) FCC from running the Internet the way it runs phone companies. It passed the Telecommunications Act, which orders (the) FCC to treat telecommunications services differently from how it treats phone companies.
As a result of the limits placed on FCC, every time it tried to take over the Internet, it lost in court. Finally tired of losing, Obama’s FCC tried a drastic step in the name of Net Neutrality. It declared that it was “reclassifying” ISPs to fall under Title II of the Communications Act. It was basically doing an end run around the law, by ruling that the new law didn’t apply, but rather the older law applied instead. This gave FCC a regulatory free hand.
The reason they could do this, and get away with it in court, is that the courts give broad deference to regulators that interpret the laws that are instead supposed to govern them. This is known as the “Chevron deference,” named for the court case that established it: Chevron USA vs Natural Resources Defense Council.
It’s on the Congress to close this loophole, but for now, Ajit Pai is going to reverse that reclassification, and return the Internet to the regulatory light touch that let it flourish.
Obama’s FCC harmed us. Reclassification deterred ISPs from making investments into building fiber optic Internet into people’s homes. Since it happened people have lamented this, without understanding why the build out stopped.
Government wasn’t the solution to our problem. Government was the problem, and Ajit Pai is right to roll back this terrible mistake.
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