FCC’s Wheeler Plays Hand Courts Dealt Him

By / 4.29.2014

FCC Chairman Tom Wheeler’s determination that he can allow Internet Service Providers to offer differentiated service options to websites and content providers – an ability that “net neutrality” advocates regard as decidedly non-neutral – surprised many people.  But perhaps it shouldn’t have.

Wheeler’s announcement resolved a mystery created by a recent court decision that the FCC lacked the power to regulate the way broadband providers manage their networks.  Specifically, in a case brought by Verizon, the Court denied Wheeler and the FCC authority to specify that there must be only one tier of service on the Internet, the essence of the neutrality program.  But the Court also recognized his authority to regulate broadband as part of the FCC’s larger obligation to promote the Internet.

Predicting that it was time for Wheeler to lead the FCC past the neutrality debate and modernize the regulation of the Internet was not necessarily an act of clairvoyance – it was simply the product of a level-headed reading of the situation.  I participated in a Progressive Policy Institute forum last month in which a variety of experts, including some advocates of net neutrality, came to a surprising degree of consensus about Chairman Wheeler’s response to the U.S. District Court’s decision. Basically, we thought he had three options for regulating the Internet, and two of them weren’t going to work.

The first, and most radical, would be to declare that the Internet was really “just a telephone network” and therefore subject to the most intrusive regulations the FCC can muster.  That would have been a radical step from several perspectives.  First, and most obviously, saying that the Internet is really “just like” the Ma Bell phone system is like saying a Maserati is “just like” a Model T and should be subject to the same speed limits. But it should also be recalled (particularly by those who think the Internet should be a state-owned “public utility”) that the FCC’s regulation of phones was premised on a sanctioned monopoly in which companies invested without significant risk.  In contrast, the modern Internet was built by over a trillion at-risk, private dollars pouring into competing technological platforms.  On these and a variety of other bases, “reclassifying” Internet as telephony would have a very hard time passing the laugh test in court.

(Nor, in fact, might that resolve the problem – read the original 1934 Telecommunications act and you’ll be surprised  to see that it’s quite comfortable with differentiated services, so long as they’re made available to all.  Which is, of course, exactly Wheeler’s position eighty years later.)

A second option was to go to the Congress for explicit legislative authority to regulate conduct on the Internet.   I’m not a professional political analyst but…good luck with that.

To be fair, there may be an emerging middle ground in the Congress for an Internet policy perspective that might not be far from where Wheeler is today; in the past few weeks, for example, over 70 House Democrats signed a letter calling for open and unrestricted spectrum auctions, a sharp departure from the view held by some of their colleagues that the winners of those auctions should be prejudged by the FCC.  That’s a vote of confidence in competition.   But some in Congress advocate not just for net neutrality, but for extended public ownership and control of the Internet, while many on the other side doubt that we need any regulatory protections whatsoever, let alone an effort to extend the Internet’s role in such areas as health and education, or addressing the “digital divide.”  So there’s no obvious consensus on any issues of Internet regulation, let alone imposing neutrality through regulation.

Which leaves Wheeler with a third option – to play the hand the Court dealt him.  And he appears to be doing so smartly, by allowing ISPs to offer websites and content providers (often called “edge providers”) prioritization for those services that want it (perhaps high-definition video conferencing or real-time, interactive services such as health, teaching, or gaming and entertainment) while letting the rest of Internet traffic – your e-mail sharing a video of a cat playing the xylophone – to move as it always has, unabated.  He also made it clear that allowing some content to move on “express lane” terms is not the same as blocking other content, and that he would reserve the right to make sure that any prioritization deals were “commercially reasonable.”  Hopefully, this will mean a case-by-case review of actual transactions that have inflicted actual harm on an actual someone, not making judgments that reflect nothing more than the sensibilities of bureaucrats.  In fact, the PPI panel was also in broad agreement on this point – that it was time to embrace a new regulatory perspective that allowed “experimentation” in the way service is provided and that adjudicated contentious issues after the fact and after demonstrated harm has occurred, rather than through blanket, a priori, regulatory pre-emptions.

Wheeler seems to have embraced this approach. He’s getting us off “Square Zero” by recognizing that tiered service has its place, and putting to rest the neutrality debate that my colleague Hal Singer said last month “is sucking all the oxygen out of the room.”  In that sense, Wheeler’s most important accomplishment in announcing his view might be to make clear that opponents have mischaracterized “prioritization” as being the same as “blocking competing content,” “permitted innovation,” threatening the “open Internet,” and other slogans.

These catchphrases are commonly accepted by many media outlets, but now have been put to shame, and hopefully, rest.  Prioritization doesn’t change the reality that everyone who wants to bring content to the Internet can do so without impediment; in fact, the ISPs desperately want them to do so, since that’s the value proposition of what they’re selling.  Making that clear only ratifies what the market has already decided.  Nor does it mean that the ISPs will decide who can innovate and who can’t any more than the post office decides who can send a letter and who can’t when it offers First Class Mail and then Priority Express.  Wheeler has, to his credit, made clear what the real issues are.

And he appears to be disregarding the complaint that prioritization would be unfair to “the little guy.”  If that were the standard, every sector of the economy would come under regulation.  The little guy has to pony up to put his product on supermarket shelves or to buy a $5 million Super Bowl spot.  The Internet will remain a more competitive sector than virtually any other in the economy.  In fact, the Internet is already tilted against the small, start-up website; Big Websites already have speed advantages over the “little guy” due to pervasive caching of content.  Prioritization may make it easier for the “little guy” to catch up.

Let me make two predictions.  First, “prioritization” will change the Internet less than many think.  Network speeds in the US are increasing rapidly, and we have gone from 22nd in the world to 8th in a very short time (once the courts removed regulatory impediments to sustained investment).  And, we are one of the few nations on Earth that have competing platforms bringing broadband to the consumer – phone companies, cable companies, wireless (where we lead the world), and satellite, as opposed to the nations that staked their bets on a national phone company and are coming to regret it.  So our prospects for leadership are excellent.  I’m not sure how many sites will jump at the chance to improve their stream given how good the system as a whole is becoming.

And the second prediction is that Wheeler has now broken the ice and will lead the FCC into a series of decisions in which a ‘sensible center” finally holds sway. This would include accelerated auctions of spectrum now held by the government and broadcasters, open auctions for new spectrum, allowing the market for “peering” and other backbone transactions to evolve as any other competitive market would, and – one hopes – a revitalized National Broadband Plan to realize the Internet’s social potential.  In all of these cases, the FCC Chairman can reproduce the successful strategy he employed to move the “neutrality” debate forward – seizing the only realistic option in front of him and running with it.

Everett Ehrlich is the president of ESC Company, and a senior fellow at the Progressive Policy Institute.