Apr 27, 2017 - 5:15pm

The Future of Internet Regulation Means Going Back to What Has Worked


Senior Editor, Digital Content

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Ajit Pai, chairman of the FCC, speaks during a Senate Commerce, Science and Transportation Committee hearing.
Ajit Pai, chairman of the FCC, speaks during a Senate Commerce, Science and Transportation Committee hearing.

Whether you are a digital native or neo-luddite, the internet is ubiquitous. It’s the digital backbone of our economy. Businesses and people move money, data, and information 24 hours a day, seven days a week, 365 days a year.

The internet’s growth has come from it being open and free. Starting with President Bill Clinton’s administration, the federal government used a light-touch in regulating it, allowing entrepreneurs and innovators to invest, take risks, and develop products and services for consumers. For almost two decades, this approached built new industries, created millions of new jobs, and generated trillions of dollars in wealth.

Yet despite the internet’s dizzying success in digitizing our economy and society, the Obama administration pushed through regulations to fix a problem that didn’t exist.

In order to impose the principle of “net neutrality,” in 2015, the FCC under Chairman Tom Wheeler, declared that broadband internet be regulated like the 20th Century phone system. Title II classification ended the successful light-touch regulatory approach and, as William Kovacs, Senior Vice President for the Environment, Technology & Regulatory Affairs at the U.S. Chamber, wrote, “empowered the federal government to set rates, determine levels of privacy, and control the business operations of the internet providers.”

Such regulations can have lasting repercussions for investment, jobs, and economic growth.

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Historical Broadband Provider Capex
Historical Broadband Provider Capex

A New FCC Chairman Take a New Approach

But with a new president and head of the FCC, we can go back to what was working.

In a speech at the Newseum, Chairman Adjit Pai announced a proposal that will reverse the 2015 Open Internet Order, classifying broadband internet service as an information service.

He explained the harmful effects Title II classification has had on internet investment [emphasis mine]:

Now, when you talk about less infrastructure investment, many people’s eyes glaze over.  But it’s important to explain in plain terms what the consequences are.  Reduced investment means fewer Americans will have high-speed Internet access.  It means fewer American will have jobs.  And it means less competition for consumers.

So what happened after the Commission adopted Title II?  Sure enough, infrastructure investment declined.  Among our nation’s 12 largest Internet service providers, domestic broadband capital expenditures decreased by 5.6% percent, or $3.6 billion, between 2014 and 2016, the first two years of the Title II era.  This decline is extremely unusual.  It is the first time that such investment has declined outside of a recession in the Internet era.

And the impact hasn’t been limited to big ISPs.  Smaller, competitive providers have also been hit.  For example, one small Arkansas ISP called Aristotle told Congress last year: “Before the [Title II Order] was adopted, it was our intention to triple our customer base” and “cover a three-county area.  However, we have pulled back on those plans, scaling back our deployment to three, smaller communities that abut our existing network.”

Other small providers followed suit.  KWISP Internet, which serves 475 customers in rural northern Illinois, delayed its plans to upgrade its network and increase consumers’ speeds from 3 Mbps to 20 Mbps.  Wisper ISP, a provider that serves 8,000 customers around St. Louis, Missouri, also cut back its investments, resulting in slower speeds. 

This lack of investment hurts those Americans who could be helped the most from better internet access:

When businesses cut back on capital expenditures, the areas that provide the most marginal returns on investment are the first to go.  And in the case of broadband, that means low-income rural and urban neighborhoods.  As a result, Title II has kept countless consumers from getting better Internet access or getting access, period.  It is widening the digital divide in our country and accentuating the practice of digital redlining—of fencing off lower-income neighborhoods on the map and saying, “It’s not worth the time and money to deploy there.”

Pai’s plan for reforming broadband internet regulations also means the FCC, under something called, the “internet conduct standard,” would stop going after companies who had the nerve to offer consumers free data. As Pai explained:

The FCC used the Internet conduct standard to launch a wide-ranging investigation of free-data programs.  Under these programs, wireless companies offer their customers the ability to stream music, video, and the like free from any data limits.  They are very popular among consumers, particularly lower-income Americans.  But no—the prior FCC had met the enemy, and it was consumers getting something for free from their wireless providers.  Following the presidential election, we terminated this investigation before the FCC was able to take any formal action.  But we shouldn’t leave the Internet conduct standard on the books for a future Commission to make mischief.

Opponents of Chairman Pai’s proposal—those who drink deeply from the “Internet is a Public Utility” fountain--will want you to think without the Title II classification of broadband services, the internet will (in Pai’s words) “devolve into a digital dystopia.” Not even close. Regulators will still be watching and enforcing unlawful and fraudulent conduct:

Repealing Title II will simply restore the FTC’s authority to police broadband providers’ privacy practices.  That means the nation’s most expert and experienced privacy regulator will once again be a cop on the beat protecting Americans’ online privacy.  In short, we will return to the tried-and-true approach that protected our digital privacy effectively before 2015.

Title II and Net Neutrality

Now, don’t conflate Title II and net neutrality. The latter is a principle, while the former is one possible means of achieving it. Americans want an open internet with the ability to access the content and services they want, and ISPs understand that desire. “Service providers have said openly they have no intention to block or slow internet speeds to the public,” Kovacs wrote.

Also, history shows that a regulatory sledgehammer like Title II is not the only way to achieve a free and open internet. “For decades before 2015, we had a free and open Internet.  Indeed, the free and open Internet developed and flourished under light-touch regulation,” said Pai (his emphasis).

A Plus for Transparency

Chairman Pai released his plan publically to get the public involved from the get go. People will be able to read, debate, and comment on the proposal as it works its way through the FCC rulemaking process. This transparency is a refreshing change from his predecessor, Tom Wheeler, who had the FCC pass his regulations before the public could see them.

What Chairman Pai is proposing is going back to what was working. Since the 1990s, a light touch on the internet allowed it to thrive, creating new jobs, driving innovation, and generating economic growth.

By trying to fix a problem that wasn't there, the Obama administration created heavy-handed regulations that hold back the internet from achieving its full potential as a catalyst for innovation, jobs, and economic growth.  It’s time to shift gears and get back on track, encouraging companies to invest, innovate, serve their customers, and allow a free and open internet to shape our economic future.

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.