Ev Ehrlich's Everyday Economics

You Bet Your Life

Today’s papers report an important and unanimous decision from the U.S. Court of Appeals for the District of Columbia that the Federal Communications Commission lacks the authority to implement “net neutrality.”   The FCC argued that it had this authority, since “neutrality” was “ancillary” (the law’s term, not a value-laden description) to its mandate to protect the public interest.

The Court differed.  It agreed that if an agency has a mandate and new issues arise, “ancillary” authority is a perfectly fine premise to take action.  But “neutrality,” they found, was so far afield from the FCC’s rate-making regulatory mandate that it failed to meet this (rather less than formidable) test.

First, let’s review the case that got us here.  A few years ago, Comcast’s network was experiencing (short-term) congestion, so Comcast decided to slow down the traffic of users using BitTorrent to run file sharing applications. 

I think that decision on Comcast’s part was completely defensible.  BitTorrent is used for file sharing, and file sharing is lovely, but it’s generally not as pressing a use of bandwidth as are most other applications – information gathering, e-commerce, personal communications, and so on.  As I’ve said before, I think of it as being analogous to water districts announcing prohibitions on lawn watering during droughts.  No one likes a brown lawn, but as a first-order, simple way to manage a temporary reservoir shortfall, it beats policies that cut into water uses related to hygiene or commerce, and it’s easy to enforce.  (There might be people who argue that we might as well let prices resolve the matter, given that some people would rather bathe less than let their lawn wither, but I’m pretty sympathetic to the idea that water is some kind of human right and the losses in human well-being associated with impinging on the “rather water the grass than bathe” crowd aren’t all that severe.  Call me the scourge of liberty, but that’s the kind of crank I am.)

On the other hand, I agree with the idea that if Comcast’s policy was to slow P2P when the network was overloaded (which it now is changing), they should tell their customers – any network manager should.  All networks need management now and then – the idea that they should just sit back let the flow of bytes rip without somehow optimizing the system is absurd – it’s like saying we can have roads without traffic rules.   The sooner consumers understand how these things work, the better.

The “neutrality” camp, predictably, has predicted that the world as we know it will now end.  Derek Turner, Executive Director of the Open Internet Coalition said the decision put the FCC is “an existential crisis”  and that the FCC now “has virtually no power to make policies to bring broadband to rural America” or other unserved areas.    Markham Erickson, Executive Director, Open Internet Coalition said that “the FCC has no option but to…clarify its authority over broadband network providers under Title II” of its Act," which means that it would define the Internet as “a telecommunications device” and regulate it as it did the phone system.   Parul P. Desai, Vice President of Media Access Project, said his organization “continues to maintain that the Commission must have the authority to protect all Internet users against harmful and anticompetitive conduct by Internet service providers.”  

But these remarks miss the point.  Let’s go back to Desai’s remark that, absent the FCC, nothing would protect us from harmful or anticompetitive conduct.  Wait a minute!  Competition generally does that.  But when it fails, there’s anti-trust law!  There’s a Federal Trade Commission with nothing to do all day but find bad actors and hammer them.  We know what predatory and anti-competitive behavior is – there’s over a century of case law on this score. There’s a Justice Department full of lawyers with the express purpose of putting people in jail for that kind of stuff.  If the FCC wants to push the Justice Department to prosecute somebody for monopolistic behavior, all it has to do is find some and walk across the street with a file.  And we have a right to privacy in the Constitution -- or so some of us think -- as well as intellectual property law, and they all bear on what happens on the Internet.

And as for Turner’s view that now the FCC can’t subsidize creating broadband infrastructure in unserved areas, that’s just ridiculous.  All the Congress needs to do is appropriate the money, give it to the FCC (or whomever else – as a former Commerce Undersecretary, I think they’d do a great job), and tell them to get the job done.  What are you smoking?

But then we get down to the real deal – the advocates' view that the FCC has to “clarify its authority” under Title II of  the Telecommunications Act of 1996, meaning that the FCC would go back to court and say, “Ancillary, hell!  In fact, broadband is just another telecommunications device and we have the authority to regulate it as such.”

The amazing part of this, to me, is that the “neutrality” enthusiasts, who have argued the broadband Internet is so new and innovative, so transformative and unique, that we have to regulate it in a special way, are now reduced to urging the FCC to go in front of a judge and say, “Your Honor, the Internet is just another ol' telephone.”  Is the paradox lost on them?  There are all sorts of regulatory features that we applied to the technologies the Internet is displacing that we don’t apply to the Internet – the fairness doctrine, obscenity guidelines (which words would Carlin be unable to use on the Net today?), and the like.  Arguing that we should treat the broadband Internet as we did telephones would be not only archaic (why not just refer to it as “a series of tubes”) but stupid – the phone regulatory system gave Ma Bell a guaranteed profit in exchange for running a stagnant service.  We cut that deal with the phone companies because phones were a “natural monopoly” – it really only made sense to have one system in place given the scale and cost.  But we already have more than one system in place to bring you broadband – cable, telcos, wireless all compete for your business, and as technology expands, we’ll have more competitors, not fewer.  Should we get rid of that competition and regulate the providers instead – forcing them to open their systems to free-riding competitors, telling them how to manage their networks?  Is that the Internet you want?

But there’s a downside to the “Title II”  stratagem thees advocates want.  If the courts entertain this argument – broadband is just another telecommunications device – and then reject it, then the FCC has more than an “existential crisis.”  It’s lost a game of You Bet Your Life.  It would never be able to compel broadband carriers to do much of anything, as its broad mandate to do so has now been rejected, and its specific mandate to regulate telecommunications would be found irrelevant.

I’ve argued before and often that there are plenty of places in the economy that don’t have enough regulation – greenhouse gas emissions and the behavior of financial institutions, for example.  And every so often – Enron, Love Canal, or the tragic news today out of West Virginia – we’re reminded why those regulatory efforts are often sorely needed.  But this isn’t one of those cases.

The FCC could have a very productive life as an honest broker of the broadband Internet, representing the government (and the public interest) on good ideas found in the National Broadband Plan – consumer information on speeds and prices, working with localities to get the best deal when trying to entice a provider to enter a rural or low-income neighborhood.  But it would have to abandon the idea that it can shape the Internet in ways that the interaction of providers and their customers would not.

I’ve had existential crises in life, believe me.  Just writing the sentence makes me wince.  We all have them.  And we emerge from them having learned something about who we are and what we need to do in life.  I don’t want to reify a government agency, but there’s something unfortunate about the FCC clinging to an old role as opposed to forging into the future, having used the moment to rethink how it relates to a rapidly-changing medium.  

Playing You Bet Your Life was a good play for Groucho.  Not for broadband policy.