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Network Neutrality: Regulating a Duopoly

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February 22, 2011

Network Neutrality: Regulating a Duopoly

By Barlow Keener, Attorney

The Dec. 23, 2010 FCC Network Neutrality order, "Preserving the Open Internet," is the FCC’s attempt to regulate the problems created by the lack of broadband provider competition to the home. Commissioner Copps framed the problem in his statement:

Allowing … monopoly or duopoly broadband Internet access service providers ­to exercise unfettered control over Americans’ access to the Internet not only creates risks to technological innovation and economic growth, but it poses a real threat to freedom of speech and the future of our democracy.

If there were a sufficient number of broadband competitors, Commissioner Copps may have considered the network neutrality rules to be superfluous.

The alternatives to protecting consumers from the ability of monopoly/duopoly providers to "exercise unfettered control" are a) structural separation of the last mile similar to the structural separation Ofcom imposed on BT (News - Alert) in the U.K., b) unraveling the 2003 FCC order bringing line sharing to an end, or c) reversing the FCC’s 2005 decision that effectively ended the requirement that ILECs sell facilities-based transmission to ISPs who were competing with the ILEC’s broadband Internet service offering.  The 2005 FCC order ended such competition. The 2005 order explained:

In contrast to the classification of wireline broadband Internet access service as an information service, there is considerable disagreement in the record as to the appropriate classification of the transmission component of such Internet access service. …  Specifically, if the transmission component is a telecommunications service under the Act, providers of that service are subject to common carrier regulation under Title II of the Act in their provision of that service. … based on the record, we decline to continue our reflexive application of the Computer Inquiry requirement, which compelled the offering of a telecommunications service to ISPs.   

The 2010 Network Neutrality order addresses the lack of last mile broadband competition as rationale for the rules mixed with other rationale like protecting innovation, infrastructure investment, and the Internet.  My reading of the order focuses on Copps’ understanding that the fundamental reason for the Network Neutrality order is to ensure that the limited number of competitors does not negatively effect the consumers. Typically, the FTC (News - Alert) (Federal Trade Commission), the Antitrust Division, or a court (like Judge Green’s 1983 court) would address and solve anti-competitive issues presented by an industry dominated by one or two companies.  The FCC failed to address the competitive issue with statutory authority it has in Title II over transmission facilities.  Rather, the Commission took what could be, as Commissioner McDowell asserts it is in his comment, the beginning of the regulation of Internet content by the government, something I am sure the supporters of network neutrality did not intend.

The National Broadband Plan, cited in the Network Neutrality order, points out that 80 percent of the homes have no more than two wireline broadband providers. These two providers can be seen by looking up in the air at the two providers (typically 2 fibers (copper, glass, or HFC) on the poles outside every home. If there were multiple choices of providers (say six or more) for each home, providers could compete by delivering blocked service or non-blocking service depending on the customer's tolerance for blocking.  If a provider blocked Netflix, the consumers could vote with their feet and switch to one of many competing broadband providers.  But now, 11 years after broadband took off, the reality delivered by the FCC's regulatory strategy implemented in 2005, is extremely limited broadband competition for, most likely, one of the highest in demand consumer products of the decade: 70 million "units" of broadband sold to 70 million homes. 

Imposing a regulatory scheme that would deliver multiple competitors is not politically feasible today in the U.S., although it seems to be in other countries where competing Internet service providers use incumbent local transmission facilities to deliver broadband.  So the alternative to creating a regulatory regime that delivers multiple broadband competitors is regulating the way the limited number of broadband competitors deliver the Internet.  The Network Neutrality order attempts with good intention, but without adequate statutory support, to solve the problems created by a limited number broadband competitors by regulating the Internet itself, which up until now has succeeded without regulation. 

The question all observers are asking is whether the 2010 Network Neutrality order will survive the recent January 20th Verizon (News - Alert) "license modification" appeal to the D.C. Court of Appeals. The Network Neutrality order set forth a phalanx of statutory rationale not included in the 2005 network neutrality policy order. Even though the Comcast (News - Alert) D.C Court of Appeals order declared as nugatory the reliance of the Commission on Section 706 of 1996 Act (47 U.S.C. § 1302(a)), the Commission re-asserted that 706 was the principal support for the latest iteration of network neutrality.  However, the Commission bolstered its potential to argue in the appeal process ancillary jurisdiction authority by citing other support including a creative concept that by blocking over-the-top VoIP, such as provided by Skype (News - Alert), the broadband provider would possibly be violating Title II (§ 201).  

The Commission has indirectly regulated over-the-top VoIP, declared an information service, by requiring that VoIP providers comply with 911 and USF regulations. Such over-the-top VoIP regulation relied on the FCC’s ancillary jurisdiction from Title II authority.  The Network Neutrality Order rightly points out that the FCC has “not determined” whether over-the-top VoIP is a telecommunications service.  Without expressly asserting that Section 201 provides the necessary “ancillary” jurisdiction, as discussed at length in the Comcast D.C. Court of Appeals decision, the Network Neutrality order reasons that over-the-top VoIP "contribute[s] to the marketplace discipline of voice telecommunications services."  In addition, the Network Neutrality order relied on Title III and VI, again without expressly stating that such reliance is “ancillary authority,” by asserting that blocking certain video, like the video of local television stations, could interfere with the “orderly development . . . of local television broadcasting."  

The order’s reliance on Title II, Title III, and Title VI and its arguments that the delivery of VoIP and video over broadband are tied to the Commission’s statutory mandate to regulate telephone service and cable service are interesting.  The obvious direction we are headed to is that all voice and video will be delivered through broadband in a few years.  Most, if not all, telephone calls will be over-the-top VoIP, and most, if not all, video will be viewed through TV everywhere type services over broadband, similar to Comcast’s Xfinity.  Even the average American citizen assumes that the FCC will be regulating VoIP and cable TV regardless of how it is transported.  The home owner will look up at the poles outside and see the fiber coming into their home and think, that it sure looks and walks like the same wire entering their home 10 years ago and the FCC must be regulating that wire.   But the answer will be “no” because the FCC abrogated the authority to regulate the transmission of broadband in 2005.

The issue being avoided by the FCC is that the last mile transmission facility carrying all the great “information services” known as the “Internet” has an underlying transmission component that should be “telecommunications” and should be regulated by the FCC.  The transmission facility looks like, walks like, and quacks like “telecommunications” and but it is not regulated as “telecommunications.”  The result of FCC regulation that could ensure the Internet would be open to all is by opening the last mile transmission facility to ISP competitors.  Such regulation is needed where only two facilities competitors control the gateway for 70 million consumers. 

The answer is not to attempt to regulate the transfer of content over the Internet, including over-the-top VoIP and TV everywhere services. The Internet should be unfettered by government regulation.  The answer, rather, is to regulate the underlying transmission facilities to ensure healthy broadband competition.

Barlow Keener, attorney with Keener Law Group, writes the Law & Regulation column for TMCnet. To read more of Barlow's articles, please visit his columnist page..

Edited by Tammy Wolf

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