NetCompetition Comments to FCC Opposing Title II Utility Regulation of Broadband

FCC Open Internet Order Remand Request for Comments (GN Docket No. 14-28) Submitted by: Scott Cleland, Chairman of NetCompetition, September 9, 2014

The case against the FCC regulating broadband as a telephone utility is overwhelming. Please see eight strong arguments against FCC Title II reclassification of broadband below.

The Summary Case against FCC Title II Reclassification of Broadband

1. The FCC rejected Title II reclassification in 2010 for many good reasons.

2. Broadband info services classification is consistent with law, national policy, and FCC precedent.

3. Broadband info services classification has been exceptionally successful.

4. Broadband info services classification is now foundational to the Internet ecosystem.

5. There is no problem to solve.

6. Common carrier regulation has become increasingly obsolete in the U.S.

7. Title II reclassification would be exceptionally destructive and destabilizing.

8. Title II reclassification would be legally vulnerable.

The Detailed Case against FCC Title II Reclassification of Broadband

1. The FCC rejected Title II reclassification in 2010 for many good reasons.

   1. Unintended consequence of regulating Internet companies as Title II common carriers: The FCC knew the Supreme Court Brand X decision that affirmed the FCC’s authority to classify cable modem service as an info service, did so by spotlighting the consequent regulatory risk that a Title II broadband classification would have for Internet companies. 

      1. Supreme Court Brand X decision: If the Communications Act classified “as telecommunications carriers all entities that use telecommunications inputs to provide an information service,”… the Act “would subject to mandatory common carrier regulation all information service providers that use telecommunications as an input to provide information service to the public.” … “The relevant definitions do not distinguish facilities-based and non-facilities-based carriers”… so reclassifying would “subject to common carrier regulation non-facilities-based ISPs that own no transmission facilities.”

      2. Simply, the Supreme Court effectively ruled that Title II reclassification of broadband would capture most all Internet companies because they use telecommunications “as an input” to transmit their “information services” to the consuming public.

      3. Specifically, the FCC had no interest in challenging the Supreme Court’s precedent or in risking the perception or reality of having to apply Title II common carrier regulation to Google, YouTube, Netflix, Yahoo, Facebook, Amazon, Microsoft, eBay, etc. if the FCC reclassified broadband as Title II.

      4. In addition, the FCC clearly understood that the potential “fix” of forbearing from regulating Internet companies as Title II common carriers would “chill innovation” and provide Internet companies minimal regulatory certainty going forward, because a subsequent three-vote-FCC majority could reverse that forbearance and reapply Title II common carrier regulation to them in the future. 

   2. Bipartisan Congressional Opposition: Members of Congress opposed Title II reclassification by a 6-1 margin, in letters to the FCC, specifically because they wanted to encourage competition, private investment and legal certainty.

      1. A bipartisan majority of Congress 56% (299 of 535 members) wrote in opposition; see: House Democrat letter, House Republican letter, & Senate letter.

      2. A small minority of Congress 9% (49 of 535 members) wrote in support. 

   3. Risk to National Broadband Plan & broadband deployment: The FCC decided to not risk slowing the Nation’s rapid broadband deployment or risk undermining the FCC’s goals and consensus surrounding the FCC’s just-approved National Broadband Plan -- that was succeeding and strongly supported by the broadband industry.

   4. Risk to investment, jobs & economy: A unified broadband industry wrote a letter to the FCC in strongest opposition that argued: “Regulating the Internet as these parties propose [as Title II] would be a profound mistake with harmful and lasting consequences for consumers and the economy.” The strong letter explained:

      1. The FCC’s bipartisan treatment of broadband as an “information service has produced huge benefits for American consumers.”

      2. “There is no factual or legal basis for” reclassifying broadband as a Title II service.

      3. Title II reclassification of broadband “would have negative consequences across the entire Internet ecosystem.”  

   5. Market Reaction: The stock market reacted negatively to news that the FCC was considering Title II reclassification, driving cable and telco stocks down 3-4% below the market.

      1. Influential Bernstein Research analyst downgraded cable stocks because of uncertainty over FCC Title II regulation.

   6. Industry Cooperation: Industry worked closely and cooperatively with the FCC to address their concerns.

      1. The broadband industry voluntarily created BITAG, the Broadband Internet Technical Advisory Group with a mission to: “Bring together engineers and other similar technical experts to develop consensus on broadband network management practices or other related technical issues that could affect users Internet experience.”

      2. This multi-stakeholder approach provides an inclusive way to bring transparency and clarity to network management practices and to resolve potential problems in a practical, collaborative fashion rather that a slower, adversarial FCC enforcement proceeding. 

   7. Big Picture National Risk Overhang: The FCC did not want to hinder or up-end the strongly positive and broadly successful market trajectories of:

      1. Rapid national broadband deployment and adoption by consumers;

      2. World-leading private sector investment in broadband infrastructure;

      3. World-leading facilities-based broadband competition for consumers’ business; and

      4. World-leading dynamic Internet innovation throughout the Internet ecosystem. 

          

          

2. Broadband info services classification is consistent with law, national policy, and FCC precedent.

   1. FCC Computer Inquiries precedents:

      1. I -- 1970: To facilitate computer services and innovation, the FCC created two categories of service: “pure communications,” and “pure data processing.”    

      2. II -- 1980: FCC devised a “bright line test” that any enhancement of transmission would be considered an “enhanced service,” not a “basic service” that was common carrier regulated.

      3.  III – 1986: FCC applied Computer II to the DOJ breakup of AT&T.

   2. 1993: The Clinton Administration, through the National Science Foundation, privatized operation of the Internet backbone with three commercial carriers. This privatization meant that Internet peering agreements were privately negotiated as unregulated enhanced services, and not subject to common carrier regulation.   

   3. 1993: Congress authorized private spectrum auctions, and prohibited cellular wireless services from being treated as a Title II common carrier in 1993 Omnibus Reconciliation Act.

   4. 1996: The Telecommunications Act’s:

      1. Preamble: “To promote competition and reduce regulation…” and

      2. Internet policy statement: “It is the policy of the United States… to preserve the… competitive free market… Internet… unfettered by Federal or State regulation.”

   5. 1997: The Clinton Administration “Framework for Global Electronic Commerce;” guided in its first two principles that: 1) “The private sector should lead.” 2) “Governments should avoid undue restrictions on electronic commerce.”  

   6. 1998: FCC Chairman Kennard opposed common carrier regulation of broadband: “if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America.”

   7. 1998: The FCC’s Report to Congress stated: “…we are concerned that including information service providers within the ‘telecommunications carrier’ classification would effectively impose a presumption in favor of Title II regulation of such providers. Such a presumption would be inconsistent with the deregulatory and pro-competitive goals of the 1996 Act. In addition, uncertainty about whether the Commission would forbear from applying specific provisions could chill innovation.”  

   8. 2002: FCC unanimously classified cable modem service as an information service.

   9. 2004: FCC 4-1 classified Voice over IP VoIP as an interstate service not subject to state common carrier regulation.

   10. 2004: FCC in its Supreme Court brief in the Brand X cable information services decision said: “The effect of the increased regulatory burdens [Title II] could lead cable operators to raise their prices and postpone or forego plans to deploy new broadband infrastructure, particularly in rural or other underserved areas.”

   11. 2005: FCC unanimously classified DSL as an information service. 

   12. 2007: FCC unanimously classified wireless broadband an information service.

        

        

3. Broadband info services classification has been exceptionally successful.

   1. U.S. broadband adoption over the last decade is among the fastest national adoption of any new technology.

      1. Overall per the White House (6-13):

         1. “Broadband networks at a baseline speed of >10 megabits per second now reach more than 94% of U.S. homes.”

         2. “There are over 500 million Internet-connected devices now in American homes and businesses.” 

      2. Wire line broadband:

         1. >75% of American households subscribe to wire line broadband service; specifically ~84m American households subscribe to either cable or telco broadband service per Leichtman Research.  

         2. 93% of U.S. households have cable IP broadband service available to them per NCTA.

      3.  Wireless broadband:

         1. “In 2012, North America’s average mobile data connection speed was 2.6 Mbps, the fastest in the world, nearly twice that available in Western Europe and over five times the global average,” per the White House.

         2. ~74% of total U.S. mobile phone users already have adopted IP smart-phones per eMarketer. 

         3. 96% of U.S. mobile subscribers subscribe to a broadband data plan per Nielsen.

         4. 99.5% of the U.S. population enjoys availability of wireless broadband service per the FCC’s 16^th mobile competition report.

         5. The U.S. leads the world in 4G LTE adoption with 69% of worldwide 4G LTE subscribers in mid 2013 per Broadband for America data.  

   2. World-leading broadband investment: Treating broadband as an information service has encouraged $1.2 trillion in broadband private capital investment since 1996 per US Telecom data in order to increase capacity to enable quality of service, and video streaming, mobile broadband, gaming, and cloud computing -- among other innovations.

      1. Broadband providers lead U.S. capital investment among non-financial companies, with 2 of the top 2, 3 of top 10, and 5 of top 20 per Progressive Policy Institute data.  

      2. The info services approach encouraged facilities-based competition between competing technology platforms, copper-DSL, coaxial cable, fiber to node/home, mobile wireless, fixed wireless, power-lines, satellite etc. so that the consumers in the marketplace could determine which service provided the most value.

      3. In contrast, the EU -- which has adopted Government-funded, common carrier regulation -- has fallen behind the U.S. in wire line and wireless broadband investment, per European officials.

         1. Given the European financial crisis, the EU cut its proposed government funding for EU broadband infrastructure investment by 88% for the next seven-year EU budget spanning 2014-2020. “Such a smaller sum does not leave room for investing in broadband networks” said Europe’s digital commissioner Nellie Kroes.

         2. The EU Vice President overseeing broadband, Neelie Kroes, said: “Japan, South Korea, and the USA have around the same population, but over 8 times more fixed fibre broadband and about 15 times more 4G. Europe needs to catch up.” per The Telegraph.

         3. France Telecom’s Deputy CEO told the WSJ in June: “It’s humiliating – we’re behind… the web was mainly invented by a European, but the big companies are American and the fastest networks are in the U.S. and Asia.”  

   3. World-leading broadband competition:

      1. 91% of the U.S. population enjoys a competitive choice of at least 3 wireless broadband providers and 82% at least 4, per FCC’s 16^th mobile competition report.

   4. The U.S is second in the world in Internet usage.

      1. The U.S. trails only South Korea in Internet usage and has twice the Internet usage of Europe per U.S. Telecom data.

      2. 93% of U.S. households have cable IP broadband service available to them per NCTA.

         1. The U.S. is the only country in the world to have a ubiquitous second national wire line broadband infrastructure – cable. Most all countries have only the original telephone infrastructure with common carrier regulation, which makes it uneconomic for an alternative to work.  

   5. The information services classification enabled and fostered the U.S.-led smart-phone/tablet revolution – in less than seven years since its invention, three-quarters of American mobile phone users have smart-phones per eMarketer. 

      1. Smart-phones and tablets would not have the utility and value they enjoy if people could not ubiquitously access wirelessly mobile video and high-bandwidth consuming apps and games via broadband networks.

   6. High consumer satisfaction with broadband:

      1. According to the FCC, 93% of U.S. consumers are “satisfied” with their home broadband service and more than half are “very satisfied.”

          

          

4. Broadband info services classification is now foundational to the Internet ecosystem.

   1. The unregulated info services classification enables and fosters “innovation without permission” and the “virtuous cycle” of investment and innovation, that has made America the font of the world’s Internet innovation and growth.

   2. The entire mobile computer/smart-phone/tablet revolution has been predicated on wireless broadband classified as an information service and not a Title II common carrier service.

      1. In 1993, Congress prohibited commercial mobile services from being subject to Title II common carrier regulation.

      2. On March 22, 2007, the FCC unanimously classified wireless broadband as an information service, three months before Apple introduced the first smart-phone June 29, 2007.

      3. Smart-phones and tablets would not have developed as they did, or as exceptionally fast as they did, if everyone had to go to the FCC for permission to take the next step.

   3. Almost one trillion dollars in private capital investment is predicated on the core economic assumption that broadband networks are an unregulated information service where market forces, not the FCC determines prices, terms, conditions, profits and return on investment.

      1. The info services classification enabled, fostered and encouraged many broadband infrastructure innovations: Verizon FIOS; Cable DOCSIS 3.0; AT&T U-Verse; ClearWire WiMax; HughesNet/WildBlue satellite; Cable TV Everywhere; Verizon Cantenna fixed wireless; Wireless 4G LTE; etc.

   4. Most all of the voice-related IP innovations in the marketplace emerged under the foundational assumption that they were not subject to FCC common carrier regulation: Google Voice/Hangout; Microsoft-Skype; Apple iChat/Facetime; Facebook video conferencing; and voice communication apps like Heytell, Walkie Talkie, etc.    

       

       

5. There is no problem to solve.

   1. In the FCC’s 2010 Open Internet order, the FCC could identify only a few instances of a threat to “openness,” and those few instances were all very different alleged problems, over a period of five years, that did not constitute a pattern, and none of them were repeat offenders or offenses.

   2. To put this in perspective, the U.S. has 1,660 broadband ISPs per FCC data; that means the FCC in its Open Internet order intimated potential problems with only ~.25% of ISPs.

      1. In other words, should the ~99.75% of ISPs that have never been alleged to have done anything wrong for over decade be subjected to preemptive common carrier economic regulation?

   3. Literally quadrillions of communications occur every year in the U.S. and only a handful of isolated problems have been identified. Title II re-classification would be like saying an entire beach should be preemptively regulated for pollution because a few grains of sand may potentially be partially polluted.

       

       

6. Common carrier regulation has become increasingly obsolete in the U.S.

   1. Airlines: Congress ended common carrier regulation of airlines in the 1978 Airline Deregulation Act. Congress abolished the legacy Civil Aeronautics Board CAB in 1984.

   2. Railroads: Congress ended common carrier regulation of railroads in the 1980 Staggers Rail Act. Congress abolished the Interstate Commerce Commission in 1995.

   3. Trucking & Buses: Congress ended common carrier regulation of railroads in the 1980 Motor Carrier Act. Congress abolished the Interstate Commerce Commission in 1995.

   4. Cellular: Congress prohibited FCC common carrier regulation of commercial mobile services in the 1993 Omnibus Budget Reconciliation Act.

   5. IP Transition: ~75% of Americans already have chosen to subscribe to a non-common carrier telephone service, per USTelecom data.

       

       

7. Title II reclassification would be exceptionally destructive and destabilizing.

   1. Unprecedented uncertainty of all kinds could result from an FCC regulatory about-face after: 40 years of consistent FCC precedent; $1.2 trillion in private risk capital investment; and decades of bipartisan Congressional consensus surrounding de-regulation of computer innovation.

   2. Title II reclassification would cause:   

      1. Years of litigation uncertainty until Supreme Court ultimately ruled.

      2. Years of regulatory chaos and uncertainty as the FCC would have to undo and redo years of broadband as info service precedents, that in turn would prompt a cascade of forbearance petitions to address all the rippling unintended consequences.  

      3. Years of investment uncertainty over what the economics and return on investment would be or allowed to be. In 2010, when the FCC considered Title II reclassification, influential broadband analyst Craig Moffet warned “markets abhor uncertainty.” 

   3. Investment to upgrade infrastructure to keep pace with exploding bandwidth demand because of video streaming, apps, gaming and conferencing, logically would be cut back substantially because of uncertainty that it could ever earn a return on investment.

      1. Less broadband investment could precipitate large job losses throughout the country and slow economic growth. 

      2. Broadband companies never would have invested or operated as they have over the last decade, if there was the real potential that their networks could become monopoly-telephone, rate-regulated networks.

   4. Google Fiber, would likely stop deploying to new cities and would likely cease service completely given that Google Fiber’s head Milo Medin said Google did not offer voice service with Google Fiber because of the hassle of associated common carrier regulations.

      1. Thus Title II reclassification could stall the market leader in gigabit ultra-fast broadband.

   5. Discouraging ~$70b in annual infrastructure investment in broadband infrastructure in the foundational sector on which all Internet systems depend: video, gaming, cloud computing, etc., could have a significant hit to employment, revenues and economic growth for the sector.  

   6. Title II re-classification could destabilize the whole American Internet system.

      1. If the FCC completely changed its mind on what an information service is, Internet companies, per Supreme Court precedent would be subject to FCC common carrier regulation for the first time.

   7. Internationally, it could accelerate the balkanization of the Internet, by providing an example for the other countries that want to control Internet traffic coming into or out of their countries for censorship, taxation or rate regulation reasons.   

       

       

8. Title II Reclassification would be legally vulnerable.

   1. Facts and Merits Haven’t Changed: The FCC’s original decision to confirm broadband was an unregulated info service was consistent with decades of FCC Computer Inquiry precedents that sought to not regulate computer networks (like the Internet) in order to encourage innovation.

      1. The FCC, on the facts and merits, determined repeatedly that broadband networks were computer/information, router-based, packet-switched networks; and that they were not telephone-switched voice networks warranting monopoly telephone rate regulation. See FCC: cable modem decision; DSL decision, and wireless broadband decision.

      2. Those foundational technological, functional, and market facts and merits have not changed, if anything, they have grown more supportive of an information services classification.

   2. Conflict with the Communications Act: 1993 wireless law prohibits commercial mobile services (wireless broadband) from being regulated as a common carrier in order to promote competition.

   3. Arbitrary and Capricious: Reversing over 40 years of consistent FCC precedent that computer processing was not and should not be treated as a common carrier telecommunications service would require a substantial record proving a problem warranting reversal (that the FCC has yet to produce per the Open Internet order analysis), to not be judged as an arbitrary and capricious action. 

   4. Violation of First Amendment freedom of speech: would restrict competitive broadband providers’ actions as if they were monopolies when they are not.

   5. Violation of Fifth Amendment in taking property without compensation: The FCC consistently encouraged industry to invest $1.2 trillion dollars in private risk capital in multiple competitive broadband infrastructures based on the promise of an information services classification. A 180 degree policy reversal to Title II reclassification could be tantamount to a “bait and switch” government taking without compensation.