The Best Path Forward on Net Neutrality

By and / 9.4.2014

Net neutrality—the notion that all Internet traffic, regardless of its source or type, must be treated the same by Internet Service Providers (ISPs)—is back on the nation’s political radar. The catalyst was the D.C. Court of Appeals’ decision last January in Verizon v. FCC, which overturned the Federal Communications Commission’s (FCC) “Open Internet Order.” The essence of the Court’s ruling was that the FCC lacked legal authority to impose the specific non-discrimination requirements embodied in that order, which prohibited ISPs and content providers from negotiating rates for speedier delivery or “paid prioritization.” The Court’s rationale was that the FCC had previously declined to designate Internet access “common carriage” under Title II of the Telecommunications Act, a classification that the Court essentially suggested could have justified its order.

Importantly, the Court also articulated a less-invasive path for regulating such arrangements, in which ISPs and content providers could voluntarily negotiate the terms for priority delivery. The FCC could serve as a backstop to adjudicate disputes if negotiations broke down and discrimination was to blame. Moreover, the Court signaled that the FCC could invoke this alternative approach under its existing (Section 706) authority without reclassifying ISPs.

The Court’s decision has unleashed a vigorous debate over both paid prioritization and whether Internet access now should be subject to Title II. Broadly speaking, public interest and some consumer groups, coupled with some in the tech community (collectively, the “netizens”), want the same (zero) price for all types of online content, regardless of the volume of traffic on each site. The surest legal way to that result, many in this camp believe, is for the FCC to accept the Court’s implicit invitation to impose Title II regulation on Internet access. Understandably, the ISPs, parts of the tech community and many economists oppose that path forward. They fear that imposing public-utility style regulation on Internet access—complete with rate filings and FCC approvals, among other requirements—would dampen innovation and investment in more, faster broadband.

Unfortunately, the debate between the two sides has taken on the character of a religious dispute, with the FCC caught in the crossfire. The key to a possible resolution, however, may be the eventual realization by the Commission that Title II regulation of Internet access would (1) reduce ISP investment at the “core” of the Internet by more than what it stimulated at the “edge” by content providers, resulting in a net loss in investment, and (2) could one day boomerang on certain major tech companies or be expanded to regulate other ISP offerings. In that case, the FCC will need another way to move forward on net neutrality—and we propose one in this report.

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