Relatively speaking, the last several years have been pretty good for the U.S. broadband industry. Although the Biden Administration initially promised an aggressive regulatory agenda, thanks to the skillful political maneuvering of Senator Mitch McConnell, the Federal Communications Commission (FCC) was held to a two-two tie for almost three years, thwarting any regulatory mischief and allowing the agency to focus on real problems. In the meantime, starting with assorted Covid pandemic relief legislation and culminating with the Infrastructure Investment and Jobs Act, Congress allocated hundreds of billions of federal taxpayer dollars for both broadband infrastructure expansion and demand-side adoption subsidies.
But as the old expression goes, there is no such thing as a free lunch. The recent confirmation of Democrat Commissioner Anna Gomez has broken the political gridlock at the FCC, and the bill for those billions in subsidies is now due.
The invoice came on October 20, 2023, when the FCC issued a Notice of Proposed Rulemaking to reinstate in large part the Commission’s 2015 Open Internet Order, which would again subject broadband internet access service (BIAS) to legacy public utility common carrier obligations under Title II of the Communications Act of 1934. As the D.C. Circuit upheld the FCC’s 2015 Open Internet Order in United States Telecom Ass’n v. FCC, the FCC believes that its regulatory revival is on firm legal ground.
This is not an unreasonable assumption by the Commission.
As I explained in a 2019 law review article entitled USTelecom and its Aftermath, rather than demonstrate that the 2015 Rules violated nearly eighty years of established public utility caselaw, the broadband industry’s legal strategy focused primarily on the statutory interpretation of what constitutes a “common carrier”—a dubious argument given the history of the industry. Unsurprisingly, the D.C. Circuit—granting the Agency expansive judicial deference—upheld the FCC’s legal gymnastics on everything from basic ratemaking principles to forbearance.
The net result? The state of Title II jurisprudence is a hot mess. As I argued then, and continue to believe now, the D.C. Circuit in U.S. Telecom created a dangerous precedent by
greatly expand[ing] the FCC’s authority to set the rates, terms, and conditions of private actors well beyond its statutory mandate. Accordingly, the statutory construct of “Title II” now has no meaning; it is some bizarre legal hybrid that the FCC made up and the D.C. Circuit has, albeit indirectly, sanctioned.
So now that it is déjà vu all over again, how will the industry respond? Given the Supreme Court’s recent ruling in West Virginia v. EPA, it appears that the central argument against the FCC’s latest efforts will be that reclassification violates the Major Questions Doctrine. While the Major Questions Doctrine is certainly a strong argument, it is always unwise to put all of your litigation eggs into a single basket (a mistake the industry made the last go round). Accordingly, I offer some alternative strategies below.
Title II “Properly Applied”: FCC officials claim that net neutrality is not rate regulation, but this statement simply is not true. Since the inception of the net neutrality debate, the FCC has tried to impose a “no blocking” requirement. However, the D.C. Circuit in Verizon v. FCC specifically found that the FCC’s “no blocking” rule forced firms to provide service at a regulated price of zero. Thus, as the “no blocking” rule is, in fact, zero-price rate regulation, then the FCC must adhere to basic ratemaking principles to ensure the due process requirements and takings prohibitions of the Fifth Amendment are met. In particular, how did the FCC reach a rate of zero? Did it establish a ratemaking methodology or conduct a cost study? Of course not. As a coauthor and I demonstrated in a 2015 law review article, Tariffing Internet Termination: Pricing Implications of Classifying Broadband as a Title II Telecommunications Service, using the FCC’s own assumptions (assumptions which have not changed in the current iteration), a proper application of Title II would require tariffed rates at a positive price. The FCC’s “no blocking” rule is a confiscatory rate, pure and simple, and it should be explicitly challenged as such.
Investment Effects: When the FCC issued its 2015 Rules, the Commission claimed, citing the “virtuous circle” of investment, that reclassification would actually promote new broadband deployment. However, as the Phoenix Center pointed out, because the FCC misstated the economics, reclassification would, in fact, result in a reduction in investment. The FCC dismissed our critique, confidently proclaiming that there was nothing to worry about. And when the FCC’s investment prognostication was challenged on appeal in U.S. Telecom, the D.C. Circuit refused to address the topic, choosing instead to defer to the FCC’s then-predictive judgment.
But the FCC under Republican Chairman Ajit Pai respected economics. So when the FCC reversed the 2015 Rules two years later in its Restoring Internet Freedom Order (RIFO), the Commission did not rely on specious economic theories or predictive judgments; instead, the Commission took advantage of peer-reviewed econometric evidence which demonstrated that industry investment had suffered as a result of reclassification. (For a full explanation of what economic evidence the FCC relied upon in the RIFO, see here.) Other studies show the same.
Yet in its current NPRM, the FCC claims that “the Commission’s conclusions in the [RIFO] that ISP investment is closely tied to the classification of BIAS were unsubstantiated.” (NPRM at ¶ 57). This is cognitive bias at its best. The Commission ignores, out of nothing more than convenience, legitimate, peer-reviewed research substantiating the argument. Moreover, there is not a single credible study—i.e., one that meets basic professional standards—demonstrating otherwise. Instead, all of the studies purporting to show no investment effects are plagued by severely flawed empirical methods; and some simply make up data. (See analyses of some of these studies here, here, here, here, here, and here.) In one instance, a published study claiming no investment effect was so rife with obvious errors that the editors of that journal were forced to issue an interregnum post-publication (in other words, they were forced to all but “unpublish” the paper).
The current FCC attempts to pivot from the 2015 Order’s “economics free zone” by arguing that reclassification will protect the billions of new government dollars allocated for broadband subsidies and deployment since the start of the pandemic. The Agency provides no rational argument for this position, and history belies it.
For example, when Verizon bought the Upper C Block spectrum in 2007, which the FCC encumbered with open access requirements, we demonstrated that the FCC’s conditions cost the U.S. taxpayers approximately $3.1 billion in lost auction revenues. If the FCC moves forward with reclassification, then no one should be surprised when the Commission finally gets its spectrum auction authority reinstated that auction revenues will be depressed, depriving the U.S. Treasury of much needed funds to pay down our spiraling national debt.
Similarly, when the National Telecommunications and Information Administration (NTIA) under the Obama Administration tried to impose open access requirements for firms to qualify for Broadband Technology Opportunity Program (BTOP) funds provided by American Reinvestment and Recovery Act of 2009 (which were only a paltry $7.2 billion, chump change by today’s standards), major ISPs—the firms which, with existing networks and facilities already in place, could build out to unserved and underserved areas most efficiently—stayed away. The result was a complete failure of the BTOP program, which produced no positive effect on home broadband adoption. Unsurprisingly, firms are already refusing to participate in NTIA’s administration of the Infrastructure Act’s Broadband Equity, Access, and Deployment (BEAD) Program because NTIA is attempting to impose de facto rate regulation. If the FCC wants help NTIA sabotage one of President Biden’s signature achievements by imposing legacy public utility regulation on the internet, then have at it.
Public Safety: The FCC, once again, claims that reclassification is necessary to protect public safety. And, once again, to support its argument, the FCC points to the infamous case of the Santa Clara, California, fire department, which had its wireless service throttled in the midst of raging wildfires. As always, the FCC likes to overlook that the fire department did not buy a commercial plan (which would have included a greater degree of reliability) but was using a residential plan.
Regardless, the FCC’s anecdote is moot. What is widely available now, and which was not available in 2015, is FirstNet—the nation’s dedicated, nationwide interoperable public safety network. Thus, it seems odd that the FCC believes that heavy handed public utility regulation is required to protect public safety when the U.S. Government has already instituted (and continues to oversee) a successful solution to the problem.
Wrapping Up: The internet is not broken, and thus it doesn’t need to be fixed by massive government intervention. Since the FCC issued its RIFO, investment has surged, and speeds have increased. Most importantly, unlike our highly-regulated international counterparts, U.S. networks were extremely resilient during the pandemic, just when Americans needed the internet the most. But in these hyper-partisan times, naked politics appear to trump sound legal and economic policy making. Broadband providers have done nothing to draw this renewed attention to regulation. Net neutrality by Title II regulation is not a real issue; it is a purely political decision made every four years in November.
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