Justice Department Correctly Challenges California Overreach on Broadband Regulation

By at 2 October, 2018, 9:17 am


California is at it again. This time imposing its regulatory will and authority over broadband service, which the U.S. Congress never granted. The Department of Justice has taken action to stop the state from disrupting interstate commerce.

by Raymond J. Keating-

It’s not surprising that California lawmakers have attempted to grab power they do not have – violating the Commerce Clause of the U.S. Constitution which grants Congress the power to regulate commerce among the states – by trying to regulate broadband internet service in the name of “net neutrality.” Fortunately, the U.S. Department of Justice has stepped up with a lawsuit seeking to overturn a California law signed by Governor Jerry Brown on Sunday, September 30th.

The phrase “net neutrality” has been deceptive since arriving on the policy scene. Does “net neutrality” mean that broadband service providers should not block, throttle, or otherwise unreasonably discriminate against particular internet traffic? Well, that’s basic common sense. It’s also what broadband providers have always done and are incentivized to do in the marketplace. By the way, entrepreneurs and small businesses have benefitted, accordingly, as both providers of goods and services, and as consumers.

But when it comes to regulation, “net neutrality” means government dictating business operations, from pricing to business models. The Wheeler Federal Communications Commission (FCC) tried to impose such a regulatory regime in 2015. That effort was focused on imposing utility regulations meant for a 1930s telephone monopoly on the dynamic, innovative, and competitive broadband market.

Congress, however, never granted such regulatory authority over broadband service to the FCC. The subsequent FCC, under the leadership of Chairman Ajit Pai, thankfully rolled back this Wheeler regulatory overreach.

But now we have California lawmakers imposing these intrusive regulations in their state. This amounts to little more than lawmakers in one state having a regulatory hissy fit. Over the years, both Democrats and Republicans have recognized the obvious fact that broadband is an interstate service, and therefore subject of federal policy. Apparently, that’s been tossed out in California.

In a statement, Attorney General Jeff Sessions correctly observed, “Under the Constitution, states do not regulate interstate commerce—the federal government does. Once again the California legislature has enacted an extreme and illegal state law attempting to frustrate federal policy. The Justice Department should not have to spend valuable time and resources to file this suit today, but we have a duty to defend the prerogatives of the federal government and protect our Constitutional order.”

Think about the economic mess created if California were to prevail in this effort. A crazy quilt of conflicting state and even local laws would raise costs, multiply uncertainty, and reduce investment and innovation. Entrepreneurs and small businesses would suffer, including, by the way, the small enterprises at work in the telecommunications sector, where 84.1 percent of employer firms have less than 20 employees.  As stated by SBE Council president & CEO Karen Kerrigan in a media release applauding the DOJ’s action:

“California’s action is extreme and a clear overreach. The law places a heavy hand on top of the entrepreneurial spirit of the internet.”

Reacting to the Justice Department’s lawsuit, FCC Chairman Pai noted that the internet inherently is an interstate service, but he also noted the striking anti-consumer aspect of the California law: “Not only is California’s Internet regulation law illegal, it also hurts consumers.  The law prohibits many free-data plans, which allow consumers to stream video, music, and the like exempt from any data limits.  They have proven enormously popular in the marketplace, especially among lower-income Americans.  But notwithstanding the consumer benefits, this state law bans them.”

Both the Wheeler and California attempts to overreach in terms of broadband regulation serve as glaring examples of misguided politics trumping common sense, sound economics and the Constitution. Congress would do well to make clear that the light regulatory touch that has prevailed for the past two-plus decades – but for the brief Wheeler experiment – is the law of the land.

In closing, it’s worth noting that the lead “regulator” of broadband service – Chairman Pai – has a firm grasp of how this works in the market:

“I look forward to working with my colleagues and the Department of Justice to ensure the Internet remains ‘unfettered by Federal or State regulation,’ as federal law requires, and the domain of engineers, entrepreneurs, and technologists, not lawyers and bureaucrats.”

Indeed, the last thing that entrepreneurs, small businesses and consumers need are politicians – federal, state or local – deciding that they know better, deciding to dictate business practices and experimentation by broadband service providers.


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

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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