Network Neutrality, Ajit Pai, and Title II
On Tuesday, the F.C.C. chairman, Ajit Pai, announced plans to eliminate even the most basic net neutrality protections — including the ban on blocking — replacing them with a “transparency” regime enforced by the Federal Trade Commission. “Transparency,” of course, is a euphemism for “doing nothing.” Companies like Madison River, it seems, will soon be able to block internet calls so long as they disclose the blocking (presumably in fine print). Indeed, a broadband carrier like AT&T, if it wanted, might even practice internet censorship akin to that of the Chinese state, blocking its critics and promoting its own agenda.
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The problem for Mr. Pai is that government agencies are not free to abruptly reverse longstanding rules on which many have relied without a good reason, such as a change in factual circumstances. A mere change in F.C.C. ideology isn’t enough. As the Supreme Court has said, a federal agency must “examine the relevant data and articulate a satisfactory explanation for its action.” Given that net neutrality rules have been a huge success by most measures, the justification for killing them would have to be very strong.
The idea of network neutrality is very appealing, but I find this editorial by the coiner of that term rather unconvincing. His main example is the Madison River case, where Vonage was fined for violating antitrust rules. This was 10 years before network neutrality became law. Where is the evidence of the “huge success” as a result of the 2015 change? Most of the examples that people cite seem to not actually be cases where network neutrality was relevant. In fairness, the evidence that the law has caused harm also seems to be weak.
We need to weigh the potential costs and benefits of keeping vs. repealing Title II and also look at what would happen if we’re wrong. It seems to me that, if it’s repealed and then there is abuse, this would be a relatively easy thing for Congress or the FCC to address. There would be a clear goal with a lot of popular support. Whereas, it is difficult to see which opportunities and innovations Title II might be preventing, and so there is no mechanism for a possible course correction from that side. So I think the structure of the issue favors a wait-and-see approach.
Via Tyler Cowen:
Keep in mind, I’ve favored net neutrality for most of my history as a blogger.
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If you are wondering why I have changed my mind, it is a mix of new evidence coming in, experience over the 2014-present period, relative assessment of the arguments on each side moving against NN proponents, and the natural logic of the embedded trade-offs, whereby net neutrality typically works in a short enough short run but over enough time more pricing is needed. Of course it is a judgment call as to when the extra pricing should kick in.
Pai said it is necessary to repeal the net neutrality rules because of their effect on broadband investment. Capital expenditure in broadband declined by 5.6 percent since Title II was adopted in 2015, which amounted to over $3.6 billion in lost investment.
“These heavy-handed regulations as we find in the order are having an effect on investment and innovation, making companies less likely to raise and spend capital building out networks, especially in rural, and low-income urban America,” he said.
I don’t find this very convincing, either. I don’t see how the repeal would incentivize Comcast to upgrade my local infrastructure or make it possible for another ISP to compete with them. Frankly, I don’t think the fight is about helping those of us in rural areas with little competition. It’s primarily a struggle between two different groups of large companies, the ISPs and carriers vs. the tech giants who fill their bandwidth.
Of course ISPs should be neutral — again, who could be against such a thing? What is missing in the ongoing debate, though, is the recognition that, ever since the demise of AOL, they have been. The FCC’s 2015 approach to net neutrality is solving problems as fake as the image in Wu’s tweet; unfortunately the costs are just as real as those in Congressman Khanna’s tweet, but massively more expensive.
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To put it another way, given the stakes, the benefit from regulation must be massive, which is why the “net neutrality” framing is so powerful: I’ll say it again — who can be against net neutrality? Telling stories about speech being restricted or new companies being unable to pay to access customers tap into both the Internet’s clear impact and the foregone opportunity cost I just described — businesses that are never built.
That, though, is exactly the problem: opportunity costs are a reason to not regulate; clear evidence of harm are the reasons to do so despite the costs. What is so backwards about this entire debate is that those in favor of regulation are adopting the arguments of anti-regulators — postulating about future harms and foregone opportunities — while pursuing a regulatory approach that is only justified in the face of actual harm.
The fact of the matter is there is no evidence that harm exists in the sort of systematic way that justifies heavily regulating ISPs; the evidence that does exist suggests that current regulatory structures handle bad actors perfectly well. The only future to fear is the one we never discover because we gave up on the approach that has already brought us so far.
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And, I’d add, if neutrality and foreclosed competition are the issue net neutrality proponents say they are, then Google and Facebook are even bigger concerns than ISPs: both are super-aggregators with unprecedented power and the deepest moats ever seen in technology, and an increasing willingness to not be neutral.
The key idea to keep in mind is that the basic principles of “net neutrality” and the specific regulations put in place by the Obama administration in 2015 are different things. You can be in favor of net neutrality in principle but be opposed to the current regulatory structure as the best way to achieve and protect it.
All these claims are dubious. Where the FCC says broadband investment has fallen since 2015, ISPs have consistently told their investors (via legally-binding financial disclosures) that net neutrality regulations were not impeding them. Almost every major network operator — from Comcast and Verizon to Time-Warner, Sprint, and T-Mobile — has engaged or is actively engaging in some form of blocking, paid prioritization, or (particularly) throttling with little or no disclosure to customers. And network operators didn’t set up fast lanes in the “light-touch” regulatory era before 2015 because they were waiting to see how a number of court challenges to FCC authority were going to turn out.
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When proposing to undo net neutrality, Pai promised a “far more transparent” process than that used by the FCC in 2015. Yet the process the FCC implemented this time around apparently gave no thought to filtering out automated spam and trolling of the comment process, leading to the FCC claiming that it was just too burdensome on them to, you know, actually process the comments. Also too burdensome? Publishing the comments, or responding to inquiries about the comment process. In the words of Commissioner Mignon Clyburn, the process completely ignored “thousands of consumer complaints and millions of individual comments that ask the FCC to save net neutrality and uphold the principles that all traffic should be created equal.”
Recently, Verizon began throttling video streaming on their cellular network, too, with the exception of its NFL app which, by the way, is also exempt from data caps. The FCC under Tom Wheeler said that AT&T was violating net neutrality rules when they exempted their own DirecTV service from users’ data caps, too, giving it an unfair advantage over other streaming video services. Comcast hilariously argued that their broadband-powered service for streaming video to laptops was exempt from the anticompetitive agreement they signed when they acquired NBCUniversal.
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There is clearly plenty of evidence that ISPs will not treat data the same if offered the opportunity to do otherwise. And, I stress again, we aren’t simply talking about internet providers here — these are vertically-integrated media conglomerates which absolutely have incentive to treat traffic from friendly entities differently through, for example, zero-rating, as AT&T did with DirecTV, Verizon does with their NFL app, and T-Mobile does for certain services.
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In fact, zero-rating is, in general, covered by the 2015 net neutrality rules. That’s why the FCC sent a letters to AT&T and Verizon stating that aspects of those companies’ zero-rating practices discriminated against competitors.
To summarize the takeaways:
- Unregulated cable broadband grew faster than highly-regulated DSL
- Removing the mandate that telephone companies open up their networks was correlated with a significant increase in DSL growth relative to cable, suggesting increased investment
- Harmonizing regulation further increased DSL growth relative to cable (and, from the vantage point of 2017, precipitated significant investments in fiber offerings)
Note the Canadian broadband control set: there was not a similar shift in DSL numbers in Canada, suggesting that it is unlikely a secular technology shift drove these numbers.
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The question that must be grappled with, though, is whether or not the Internet is “done.” By that I mean that today’s bandwidth is all we all never need, which means we can risk chilling investment through prophylactic regulation and the elimination of price signals that may spur infrastructure build-out (that being the elimination of paid prioritization).
Previously: Network Neutrality.
Update (2017-12-01): Jared Newman:
Absent some new legislation, the current Title II rules are the only protection consumers have against zero-rating. Although the practice has some consumer-friendly uses—T-Mobile’s Binge On program, which is open to all streaming video services at no cost, is one example—it also allows for anti-competitive behavior. Investigating the latter would be a way to keep internet providers honest.
All of which may explain how cable companies and telcos can now claim to support net neutrality, and how Comcast can specify that it’s against the notion of internet “fast lanes” and “anti-competitive paid prioritization.” Those tools are no longer necessary to gain an advantage in streaming video. The ever-present threat of data caps can do the heavy lifting instead.
Update (2017-12-07): See also: Exponent and Mike Masnick (via Nick Heer).
Update (2017-12-08): Nick Heer:
Pai has claimed that his proposed rollback will encourage net neutrality practices without regulation because it will require ISPs to be fully transparent. In a shocking turn of events for statements and policies originating from the top minds of this administration, that claim turns out to be a complete lie: ISPs won’t have to be as open and transparent about their pricing and policies, and they have repeatedly stated that they would use tactics like paid prioritization to manipulate network traffic if given the opportunity.
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"It’s primarily a struggle between two different groups of large companies, the ISPs and carriers vs. the tech giants who fill their bandwidth."
I don't think this is the correct formulation. The tech giants, including Apple, seem firmly, if quietly, on the side of the ISP's here.
I'd pose it as a struggle by all deep pocket incumbents to raise entry costs in order to protect their territory.
(And gah, Ben Thompson, as usual, wildly misses basic points whenever he strays into public policy territory. I appreciate much of his industry writing, but he has no idea of what he doesn't know.)
My initial comment was badly phrased to the point of being nonsense. What I was trying to get at was that the tech giants don't seem all that opposed to the ISPs' position here, with the rationale being that while getting rid of net neutrality isn't their ideal solution, it does have the significant upside of protecting tech incumbents against upstarts.
A good piece in the NYT today goes into detail on how weak the tech giant opposition has been.
But the online protests also highlighted how the biggest tech companies, such as Facebook and Google, have taken a back seat in the debate about protecting net neutrality ... In the past, the companies have played a leading role in supporting the rules.
