William Kovacs


April 18, 2017


Now that President Trump has signed the Congressional Review Act Resolution disapproving the Federal Communications Commission’s (FCC) broadband privacy rule, policymakers should focus their attention on eliminating the root of the Commission’s power grab—the reclassification of internet service providers (ISPs) as a public utility.

In 2015, three unelected FCC commissioners decided to designate broadband providers as “common carriers” under Title II of the depression era 1934 Communications Act. Simplified, these commissioners placed the dynamics of the internet in the same classification as the now-forgotten rotary dial telephone. These actions were taken to achieve what is termed “net neutrality,” to achieve an “open internet,” that prohibits internet service providers from blocking or slowing lawful content. It also prohibits entering into agreements to create internet “fast lanes,” which provide higher speeds. But service providers have said openly they have no intention to block or slow internet speeds to the public. The more important issue is whether internet providers can operate their businesses as businesses rather than as a public utility. Without this operational freedom, the internet will stagnate just like the old rotary dial telephone.

But for the new administration the former leadership at the FCC would have succeeded in reclassifying broadband as a public utility which would have empowered the federal government to set rates, determine levels of privacy, and control the business operations of the internet providers. This regulatory burden would have discouraged investment, just as it did when the rotary dial telephone industry was subject to stringent FCC regulation. An independent study commissioned by the U.S. Chamber of Commerce found a reduction in capital spending of $23 billion during the period the FCC mandated network sharing arrangements in the telephone industry.

Historical Broadband Provider Capex

When the Internet industry was lightly regulated investment thrived. In 2004, the year prior to FCC implementation of the light touch regulatory approach to broadband, capital expenditures by the industry were approximately $58 billion for the year. By 2014, the year prior to the FCC imposing utility style regulation of the internet, capital expenditures rose to $77 billion.

That isn’t the story anymore, according to Hal Singer of George Washington University's Institute for Public Policy:

New data from 2016 suggest an even larger impact from the draconian rules, which effectively barred Internet service providers (ISPs) from raising revenues from edge providers. Domestic broadband capital expenditure (“capex”) declined sharply in 2016 relative to 2014, the last year before reclassification as a common carrier. Relative to 2014 levels, the twelve largest ISPs invested $3.6 billion less in domestic broadband in 2016, a 5.5 percent decline.

Reducing broadband investment is not only bad for internet companies, it’s bad for consumers and localities which benefit from smart cities, the Internet of Things, and 5G technology. A study by Accenture estimates that the economic impacts of 5G technology could lead to $500 billion in GDP growth and three million jobs created. Without broadband investment, Americans cannot experience the full benefits of economic growth flowing from advanced technologies. Title II reclassification, unless checked, will continue to negatively affect much-needed infrastructure investment.

The reclassification of broadband providers as a public utility also threatens many of the innovative service plans enjoyed by internet customers. Before leaving the Commission, Chairman Tom Wheeler’s FCC declared that certain sponsored data plans (where customers are not charged for data used for specific content) violated the Open Internet Order. In declaring the internet essentially a public utility, the FCC’s regulatory overreach actually deprived consumers of innovative billing methods that would save them money. It’s no wonder that broadband providers feel a regulatory pinch that threatens to hinder innovation. Shortly after, new Chairman Ajit Pai dropped the investigation into sponsored data plans.

Policymakers should now get to work to roll back the overly burdensome regulations imposed by classifying broadband providers as Title II common carriers, i.e. public utilities. Although the Federal Communications Commission could initiate another rulemaking to undo reclassification (given the wide range of deference the D.C. Circuit granted the Commission in upholding the Open Internet Order), a future Commission after Chairman Pai could once again designate the internet as a public utility.

The best way to solve this issue, encourage stability, and create economic growth from the internet ecosystem is for Congress to pass legislation that provides a light touch regulatory structure, similar to the FTC, for the internet service providers to operate within. Republicans put forward compromise draft legislation that would eliminate the classification of internet service providers as a public utility while codifying core principles of net neutrality.

It’s time for Congress to spark economic growth in the digital economy by removing outdated regulatory barriers to the deployment of broadband. It is possible to achieve a thriving and open internet without the heavy hand of regulators using Title II to hinder some of the nation’s most innovative companies.

(A previous version listed Hal Singer as affiliated with the Progressive Policy Institute.)

About the authors

William Kovacs