Want CNET to notify you of price drops and the latest stories?

The FCC's disingenuous 'third way' on broadband

The FCC chairman's proposed approach to reclassifying Internet access is more about price regulation than discrimination prevention, argues Phoenix Center President Lawrence Spiwak.

Lawrence Spiwak President, Phoenix Center
Lawrence Spiwak is president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, a nonprofit think tank based in Washington, D.C. The views expressed in this column do not necessarily represent the views of the Phoenix Center, its adjunct fellows, or any of its individual editorial advisory board members.
Lawrence Spiwak
4 min read

Editors' note: This is a guest column. See Lawrence Spiwak's bio below.

Despite his protestations to the contrary, Federal Communications Commission Chairman Julius Genachowski is about to reverse a 25-year bipartisan tradition of removing heavy-handed public-utility-type regulations over new technologies and services.

Although Genachowski maintains that such regulatory interventions will be "modest," Genachowski's proposed approach is entirely disingenuous. Instead, for those of us who study this industry closely, it is readily apparent that the FCC now wants to regulate almost all aspects of the Internet.

In the past, the FCC, under both Democrats and Republicans, recognized that it makes no sense to burden burgeoning (and possibly game-changing) technologies with legacy regulatory requirements that could possibly raise entry costs, or deter deployment and adoption (much less pretend that government was a suitable guide for technology evolution). These technologies ran the full gamut, from voice mail to voice over Internet Protocol (VoIP), and various forms of broadband services were no exception.

To accomplish this goal, the FCC classified broadband services an interstate "information service" under Title I of the Communications Act instead of a "telecommunications service" under Title II of the Communications Act. In the FCC's mind, therefore, broadband was never fully "deregulated," but rather simply "lightly" regulated under its exclusive Title I ancillary jurisdiction.

However, when the FCC tried to extend its Title I ancillary jurisdiction over how broadband service providers, or BSPs, actually manage their networks (something that is not even permitted under Title II), the D.C. Circuit found that the FCC had gone too far.

Last month, the D.C. Circuit held in Comcast v. Federal Communications Commission that the agency failed to demonstrate a clear nexus between its efforts to regulate how broadband service providers manage their networks' actions and its "statutorily mandated responsibilities" under the act.

Undeterred, Genachowski just announced a "third way," whereby the FCC will seek to reclassify broadband transport as a common-carrier "telecommunications service" under Title II and then use its forbearance authority under Section 10 of the Communications Act to remove excess legacy regulation. In so doing, the FCC would ostensibly end up with some sort of "Title II Lite." Yet, with all due respect to the chairman and his track record of the last year, once he has the power to regulate, why should anyone trust him and his colleagues to resist the temptation to regulate aggressively?

The proposed rule is unquestionably the regulation of pricing and has nothing to do with preventing discrimination.

For example, Genachowski claims that reclassification would "not change established policy undertakings at the FCC...such as the practice of broadband prices or pricing structures." However, this statement completely contradicts Genachowski's prior actions.

First and foremost, Genachowski's initial proposal to regulate the Internet, last autumn's "open Internet" Notice of Proposed Rulemaking, is unambiguously price regulation of Internet carriers. Under the plain terms of the FCC's proposal, the "nondiscrimination" rule mandates "that a broadband Internet access service provider "may not charge...for enhanced or prioritized access." The proposed rule is unquestionably the regulation of pricing and has nothing to do with preventing discrimination.

Genachowski also fails to acknowledge that his proposed price regulation rules are completely incompatible with the very statutory mandate Genachowski now wants to re-impose on broadband service providers. Traditional Title II jurisprudence rejects Genachowski's presumed "bright line" nondiscrimination standard in favor of the more nuanced concept of "undue" discrimination. That is, Title II allows carriers to sell different services at different prices, so long as all of the offerings are available to "similar situated customers." In Genachowski's world, however, carriers would be forced to sell two completely different services (enhanced and standard service) for the exact same price.

In Genachowski's world, carriers would be forced to sell two completely different services (enhanced and standard service) for the exact same price.

But there are other problems. Besides doing absolutely nothing to stop the purported conduct at issue in the Comcast case (i.e., blocking of traffic), Genachowski's approach prohibits efficient voluntary market-based transactions and is certain to raise prices for consumers. Thus, what may be good for Google is not necessarily good for the rest of America.

Given that Genachowski has already broken his promise not to impose price regulation for broadband services, his promise not to regulate end-user prices also rings particularly hollow. To wit, in the FCC's new consumer survey, conducted as part of the National Broadband Plan, the FCC staff established a price point of $25 per month of what people consider to be "affordable."

Similarly, the National Broadband Plan stated that the FCC intends to conduct more granular market by market analysis of the state of competition, including gathering and analyzing price data. If Title II regulation is back on the table, then anything is in the realm of the possible.

And speaking of higher broadband prices, reclassification will now force all broadband service offerings to contribute to the Universal Service Fund, thus resulting in what currently amounts to an additional 15 percent tax on service offerings. (Indeed, eliminating this "tax" was one of the main motivations for reclassifying broadband as an "information service" in the first place.) How does raising the price for broadband help achieve Congress' goal of universal and affordable broadband? Answer: it doesn't.

Of course, there is a legitimate third option for the FCC: it can adhere to the guidance provided by the Comcast court and attempt to draft narrowly tailored "open Internet" rules that would legitimately fall under its Title I ancillary jurisdiction. This option means having the FCC abandon its intrusive attempts to regulate how BSPs manage their networks and instead stick to its knitting, such as guaranteeing interconnection between network providers, promulgating quality of service requirements, promoting transparency and disclosure so consumers know what they are getting, and ensuring that BSPs sell "like services" on the same terms and conditions to "similarly situated" customers.

If not, we can thank Genachowski for imposing a regulatory regime that will inevitably lead to higher broadband prices, reduced investment, and very likely increased industry concentration.