Net Neutrality: FCC vs. FTC

By SBE Council at 22 August, 2013, 2:14 pm

by Raymond J. Keating-

Verizon has challenged the Federal Communications Commission (FCC) in court over the agency’s net neutrality regulations, which, in effect, would allow the FCC to dictate how Internet service providers manage online traffic. The case is pending before the D.C. Circuit Court of Appeals.

Verizon correctly argues that the FCC lacks statutory authority to impose these rules.

In 2011, when Verizon filed its challenge, Michael E. Glover, Verizon senior vice president and deputy general counsel, said: “Verizon is fully committed to an open Internet.  We are deeply concerned by the FCC’s assertion of broad authority to impose potentially sweeping and unneeded regulations on broadband networks and services and on the Internet itself.  We believe this assertion of authority is inconsistent with the statute and will create uncertainty for the communications industry, innovators, investors and consumers.”

This FCC regulatory venture would indeed create enormous uncertainty regarding business and pricing models, which in turn, is not good for investment and innovation. Net neutrality regulation also is regulation in desperate search of a problem, given the economic reality that broadband providers have no incentives to undermine their own customers, namely, both consumers and content providers – with small businesses counted among consumers, content providers, as well as the firms involved in expanding networks.

Interestingly, amidst this ongoing debate and court case, Joshua Wright, a member of the Federal Trade Commission (FTC), made the case on a panel at a Technology Policy Institute conference that net neutrality regulation should fall under the purview of the FTC, not the FCC.

As reported by TheHill.com, Wright “argued that discriminatory Internet practices that hurt consumers would largely already be prohibited under existing antitrust law. The FTC could also punish Internet providers who promise to manage their network one way, but then violate that promise. Wright argued that the FTC would be a more flexible regulator than the FCC and that ‘categorical’ bans on certain business practices rarely benefit consumers.”

That last point on bans is critical.

Later, a similar point was highlighted: “Kevin Leddy, a vice president for Time Warner Cable, and Robert Quinn, a vice president for AT&T, argued that their companies should be able to charge content providers for favorable access to Internet users. ‘I think it’s something we ought to be able to experiment with,’ Leddy said during the panel discussion. ESPN has reportedly had talks with major cellular carriers to exempt its content from monthly data caps. It is unclear how the FCC would react to such business deals. Wright suggested that he would support such business arrangements, saying they are ‘generally pro-competitive’ and benefit consumers.”

It’s encouraging that Wright, as a regulator himself, recognizes that the competitive workings of the marketplace generate consumer benefits. As an economist, perhaps it’s not surprising that he understands this process.

However, such an understanding of economics and the market process is the exception among regulators, and there is nothing per se to indicate that the FTC ultimately would prove a more intelligent net neutrality regulator than the FCC given the incentives that regulators work under, in particular, the incentives to expand power and control. The problem, obviously, is government regulating in the first place when there is no need to regulate.

It will be up to the courts and/or our elected officials to stop net neutrality regulation in its tracks.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book, published by SBE Council, is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship. It’s available from Amazon.com here.