Net Plus? Will FCC Regulate or Run?

Is the Internet a telecommunications service or an information service? That question will likely be decided after years of litigation following the Federal Communication Commission’s recent decision to reclassify broadband lines and regulate the Internet like it does telephone service.

The prospect of regulating the Internet under rules established for telephone service more than 70 years ago was the best option remaining for groups that favor "Net Neutrality," the proposition that the Internet should remain free and open space for individual users and promote a level playing field for businesses of all sizes.

Following a recent court rebuke, FCC Chairman Julius Genachowski announced last month the agency plans to reclassify broadband transmission services as Communications Act Title II telecommunication services. The ruling applies not to content and applications carried over broadband networks, but to the so-called "last mile" connection to consumers.

Although the likes of AT&T, Verizon, and Comcast are likely to resist further regulation, the FCC’s decision was made because it’s the path of least legal resistance. The Commission is still smarting after the U.S. Court of Appeals, citing several Supreme Court decisions, ruled the FCC exceeded its Title I (ancillary) authority when regulators barred Comcast from interfering with Internet traffic from peer-to-peer, video-sharing services. In Comcast’s view, those peer-to-peer sites were consuming too much Internet bandwidth, slowing down overall Internet traffic in the process. The Court sided with Comcast, ruling the FCC lacked an explicit right to regulate broadband service.

Net Neutrality advocates like Free Press, a media reform advocacy group, favor consumer protections to curtail provider abuses. In their view, the failure to do so would give telecom giants the freedom to hinder the free flow of information, discriminate against economically disadvantaged consumers and businesses, and potentially undermine innovation.

Chris Riley, policy counsel for Free Press, favored the option eventually chosen by the FCC because it unravels deregulatory orders established by the FCC under President Bush, which classified broadband as an information service because its transmission and information services were integrated, and in their view could not be separated for the purpose of regulation. Riley believes that Genachowski’s decision is the most likely to survive court review, it’s the best way to ensure the FCC has the authority to protect consumers, and it represents the best understanding of what Congress set out to do in the Telecommunications Act of 1996.

The other options — appealing the recent Court ruling, pursuing more regulatory authority in Congress, and continuing to move forward under ancillary authority — were deemed either too legally futile or time-consuming, although Congressional authority remains a long-term goal.

"It’s not really about classifying the Internet," Riley said of the FCC’s chosen route. "It’s just about classifying the residential last-mile connection, just the company that controls the wire or wireless connection between you and the Internet. So none of the people involved here are proposing the FCC do anything to Google or to Amazon or to e-Bay, or to the Internet more broadly. It’s really just about the last-mile, residential broadband connection, because that’s the connection where we’ve seen abuse."

Lighter on the Regs

Those who argue for a lighter regulatory hand warn that government interference with the Internet could stifle investment in technology deployment, and eventually business innovation. Drew Petersen, director of external affairs and communications for TDS Telecom, believes the existing regulatory system has worked well to check potential abuses. He cited a handful of cases where providers have been accused of slowing down the Internet.

"In each case, the FCC took swift and decisive enforcement action and remedied the situation," Petersen said.

In general, Petersen said broadband providers can’t afford to restrict or limit access to the Internet, especially if they want to be the dominant broadband provider in their respective markets. He said broadband is the most legally addictive product a company can sell. As such, providers have every incentive to make available each website customers want to visit, and that they invest in fraud deterrent and identity theft software and hardware.

TDS views broadband as the future platform to deliver voice services, electronic medical records, and entertainment services that might, provided the service is robust, make obsolete the linear cable model. "That’s absolutely where we’re headed, and I think we want to continue to incentivize private carriers to make those investments," Petersen said. "I think that’s why large carriers have guarded against additional regulatory restrictions on the Internet."

The communications industry has not done a good job of pointing out that the Internet has only been a commercial product for about 15 years, Petersen said, and more than 85% of the country has access to broadband services at fairly robust speeds. He noted that providers of network infrastructure have made multi-billion dollar investments to deliver "life-changing" technology, adding, "In many instances, it costs north of $4,000 per household to build an upgraded network with the appropriate electronics to deliver that online experience that is robust and future-proof."

Riley also cited the future of innovation, noting that his organization’s concern is not that providers offer different tiers of service in the form of different speeds for different customers at different prices. Free Press is worried about a more nuanced tiering where providers charge different fees for varying levels of priority within their networks.

This is why businesses should care about Net Neutrality — because the incentive of broadband providers could skew away from the Internet model and toward the business model of cable television, which charges more for a larger package of content. "This is a much more subtle or nefarious system," Riley said, "and it’s not about giving different customers the ability to purchase different speeds. It’s about skewing what has been a competitive and innovative market for websites by allowing service providers to speed some customers up and slow some down, and charge a lot of money for that."

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