Roosevelt Issues Forum: Net Neutrality

On February 1, Roosevelt @ UGA hosted a Roosevelt Issues Forum to examine Net Neutrality. Undergraduate students Tarun Ramesh and Branham Culpepper were active participants in the policy-driven discussion. In the following post, both Tarun and Branham further elaborate their views on Net Neutrality for our readers.

 

Tarun:

With nearly universal opposition towards a recent FCC decision to repeal internet regulation rules imposed by the Obama administration, net neutrality continues to be a deeply politicized debate that will shape the future of the internet in the United States. Net neutrality devolves power from the large conglomerates of Internet Service Providers (ISPs), such as AT&T and Comcast, towards intermediary, service-based companies like Facebook, Netflix, and Google, but it primarily guarantees unbiased and uncensored internet access to the consumer. In 2015, the FCC implemented an Open Internet rule after it designated the internet as a telecommunications industry rather than as an information service. This clarification allowed the internet to be regulated by Title II of the Communications and section 706 of the Telecommunications Act of 1996. This shift meant that ISPs could no longer block access to any specific website, offer preferential treatment to a specific website or company by giving it access to higher bandwidth, or favor certain higher-paying consumers from others—a practice known as ‘fast lanes.’

These new regulations played a large part in spurring new investment and innovation in the telecom industry. FCC commissioner’s Ajit Pai’s criticism rests on the $2.4 billion decrease in spending by Sprint. However, the Hal Singer study, a frequently cited paper, ignores the $2 billion worth of capital-leased investments, which were returned after the end of the fiscal year. Critics highlight the quarterly loss in 2015, but the decreased spending in the industry quickly turned around. By the end of 2015, Comcast's new investment in the industry increased 13% and 8.6% in 2016 for a net gain of over $8.6 billion, showing a rapidly growing industry in the long-run. ISPs can now charge higher prices to companies in order to access a ‘fast lane,’ which equips them to greater bandwidth and speeds. This severely disincentives smaller technology companies from entering the marketplace, since they cannot compete with the financial backings of larger conglomerates. Now, they have a higher burden to enter into the market, leaving them vulnerable for acquisition. With this ‘fast lane,’ consumers are subjected to an internet that is biased towards larger companies, since traffic would be geared towards those with websites that generate quicker hits. In fact, there lies precedent for ISPs to stifle out competition such as AT&T’s 2012 decision to substantially decrease the bandwidth afforded to Skype, since it was perceived as impacting the larger company’s profits.

In areas with only a single internet provider, artificial price manipulation could allow the ISP to continually increase prices, since demand for the internet is a constant. Even intermediary companies such as Netflix and Amazon have begun to react to the repeal by increasing prices for consumers as the ISPs increase rates. Since prices for the entire streaming industry are increasing, consumers have no substitute to decrease costs. According to the Hill, 83% of Americans favored keeping FCC regulations, so Ajit Pai’s rogue decisions do not represent the people, but rather serve the interests of men in million dollar suits.

 

Branham:

America recently experienced an explosion of press surrounding the issue of net neutrality. Most reports, however, only gave a shallow analysis that failed to inform Americans about the harms these regulations enabled. The specifics of the rules that the FCC promulgated tell a different story than the one that propagated in the news.

The 2015 rules put forth by the FCC changed the regulation of internet service providers (ISPs) from Title I (for “information services”) of the Communications Act of 1934 to Title II (for “telecommunication services”). This gave the FCC much broader power to control ISPs’ behavior; these rules were originally intended to govern Ma Bell, the state-enforced telephone monopoly, and were written decades before the internet’s creation. Among the new powers the FCC gained was the ability to impose the Universal Service Fee (already applied to American telephone bills) to internet charges. The FCC promised forbearance in this matter (and did not impose the fee during the two years the rules were in place), but to expect a federal agency to simply leave money on the table long-term is unreasonable.

Prior to 2015, trade disputes involving ISPs were within the purview of the FTC, like those involving other industries. Part of the rationale behind Ajit Pai’s decision to rescind the net neutrality rules was a belief that managing these trade disputes was not within the scope of the FCC’s role in regulating broadband and that FTC was better equipped to handle them, based on its past performance.

An additional effect of the FCC’s rules was the creation of substantial legal ambiguity. While some commissioners claimed that the rules were fenced in by the “bright-line” restrictions on throttling access and paid prioritization, the rules also included a “general conduct standard” for ISPs’ trade behavior. This standard was not specifically defined; when asked what it entailed, then-chairman Tom Wheeler simply stated, “We don’t know.” The rule was to be interpreted and applied by the FCC’s commissioners on a case-by-case basis, creating an opportunity for arbitrary and uneven application. According to current FCC chairman Ajit Pai, the only case involving an alleged general conduct violation was brought against T-Mobile for offering its customers unlimited data (not exactly the usual example of problematic trade practices).

These new, heavier-handed regulations imposed new costs on ISPs as they had to figure out how to comply with the law. Money spent on regulatory compliance, obviously, is not spent on anything else. Thus, in the two years from the net neutrality rules’ imposition, investment in new broadband infrastructure declined 8%. Furthermore, heavy regulation favors large, incumbent firms. Regulatory costs are similar for all firms, but large ones have greater resources to manage them. While the lack of competition in ISP markets is a legitimate issue, increasing the difficulty of entering that market only makes the problem worse.

The 2015 rules also contained a little-known loophole that threatened the entire project. While there was a “bright-line” rule banning ISPs from preventing access to certain content, a potential first-amendment conflict existed for closely-held religious ISPs. Thus, the rules contained a provision creating a religious exemption to the content rule. This created not only an avenue to avoid following the net neutrality rules, but also a financial incentive to disobey them, as ISPs would eliminate significant regulatory costs.

While the principles underlying net neutrality are superficially attractive to many in the general public, the manner in which the FCC pursued its policy were bound to increase costs, reduce competition, and encourage capricious regulatory behavior. Chairman Pai is right to seek the end of these onerous rules.
 

Tarun Ramesh is a first-year at the University of Georgia pursuing a B.S. in Economics and a B.S. in Genetics. Next year, he will serve as Roosevelt @ UGA Communications Director. Tarun intends to enter into the medical field, but is engaged in a wide range of policy studies.

Branham Culpepper is a first-year at the University of Georgia pursuing a A.B./M.A. in Economics and a B.A. in Romances Languages. He is interested in studying general economic topics, namely international trade and governmental regulations. Following graduation, Branham intends to become a consultant in Latin America.