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President Obama Weighs In on Net Neutrality

In a surprising move last week, the Obama administration officially took sides in the net neutrality debate, calling for the FCC to regulate Internet service providers as common carriers under Title II of the Telecommunications Act of 1996 — much like phone companies. President Obama wants the FCC to use Title II powers to prevent ISPs from selectively blocking or throttling Internet traffic, and to prevent them from engaging in “paid prioritization” plans that would (colloquially) divide the Internet into fast and slow lanes. The plan would also require transparency not just in how ISPs manage
the last-mile connections to homes and businesses, but also how they interconnect with other networks and services elsewhere on the Internet. The idea is to treat the Internet like a “vital service,” and preserve the “open Internet” where all lawful Internet traffic is handled with equal, best-effort priority, regardless of an ISP’s relationships with competitors or other companies.

What’s New? — President Obama’s plan breaks with previous net neutrality proposals in a few key ways. First, it marks the first time an administration has openly called for regulating ISPs as common carriers — an idea that telecommunications companies have been resisting ever since they started offering Internet service. Second, it brings ISPs’ peering relationships with other network operators into the equation — those deals are at the heart of “paid prioritization” arrangements that have been described by the Open Technology Institute as causing “widespread, direct consumer
Third, the plan calls for mobile Internet to be regulated in the same way as landlines. Previous “open Internet” proposals have specifically exempted mobile Internet from most regulation.

ISPs and telecommunication operators are strongly opposed to being reclassified as common carriers under Title II, fundamentally because Title II is very complicated and, though updated in 1996, has provisions dating back to the 1930s; it’s not exactly an Internet-era law. Under Title II, the FCC has full authority to put a stop to any practices it finds “unjust or unreasonable” — and that can include regulating service rates.

Title II enables the FCC to regulate vital communications services — for instance, ensuring that Americans in remote areas can get a telephone at reasonable cost. In the administration’s view — and the view of many Americans — broadband now has the same level of importance.

However, from a commercial viewpoint almost nobody wants to get into a business where the government can control prices: it restricts revenue and puts off investors — both major concerns for companies considering pouring billions (more) into broadband. ISPs would prefer that revenue result from innovation in an open market, not government rules. Paid prioritization deals — like the ones Comcast and Verizon have extracted from Netflix — might be an example. For ISPs, they’re a business innovation that generates money without raising end-users’ rates. To a content provider, they’re more like blackmail.

Obama’s plan calls for net neutrality principles to apply not just to ISPs, but also to mobile operators and peering arrangements between networks. Mobile operators don’t want to be regulated any more than landline ISPs (for the same reasons), and argue that the FCC made the right decision when it exempted mobile from the last set of broadband rules back in 2010. ISPs don’t want peering arrangements regulated either — that would stifle innovations like paid prioritization — but network operators such as Level 3 Communications might like the idea.

Why Now? — The timing of the president’s proposal bears some scrutiny. Tom Wheeler became chairman of the FCC one year ago and moved quickly on net neutrality, proposing a new regulatory framework in May 2014 that he hoped, by the end of the year, could preserve an open Internet without reclassifying ISPs as common carriers. (See “FCC Moves Ahead with Internet “Fast Lanes” 16 May 2014.) That proposal would have allowed paid prioritization deals (“fast lanes”), and drew fire from all sides: in June, thanks to comedian John Oliver, public commenting got so furious, the FCC site crashed.

Since the FCC is an independent agency that doesn’t answer to the executive branch, the Obama administration’s plan basically amounts to a high-profile comment: legally, it carries no weight. The proposal also comes a week after mid-term elections that saw Republicans gain control of the U.S. Senate. Republicans don’t have enough votes to override a presidential veto — so they couldn’t legislatively overrule the president’s preferred approach to net neutrality — but the president doesn’t have enough support to get his own legislative initiatives passed, either. Obama has promised to preserve an open Internet since campaigning for the presidency in 2007, but this week’s announcement comes at what is arguably the nadir
of his administration’s domestic political power. The proposal might be a political tactic to look good on a stagnant campaign promise and try to induce more cooperation from ISPs as the FCC works on new rules, but otherwise it’s stillborn.

What Now? — Most reactions to President Obama’s plan were swift and predictable, with consumer advocates and many Internet companies indicating support while telecommunications firms and conservative lawmakers voiced opposition. Senator Ted Cruz (R-TX) characterized the administration’s proposal as “Obamacare for the Internet” in a now-deleted tweet, claiming the Internet should not be forced to move “at the speed of government.” Nonetheless, net neutrality principles seem to carry broad popular support: a recent survey from the University of Delaware found
that about four in five Americans oppose Internet “fast lanes,” with little variation by gender, race, education level, or political affiliation.

Officially, the FCC’s only response to the administration’s plan is to welcome the input and note that it has “more work to do.” The agency has also pushed back plans for a December vote on open Internet rules, meaning it will not take any action until at least early 2015.

In the meantime, no open Internet protections are in force in the United States other than a handful of transparency requirements (and a few temporary restrictions on Comcast, due to its purchase of NBC Universal) — meaning, if an ISP decides it wants to block an application or a site, it must disclose that action. It also means ISPs like Comcast and Verizon are free to continue pursuing paid prioritization arrangements with companies like Netflix, Google, Amazon, and Apple.

A Future of Uncertainty — Even if the FCC were to adopt new net neutrality rules today, they would eventually be challenged in court by ISPs and telecommunications operators. That challenge may not be immediate: ISPs could wait until the FCC tries to enforce a rule. A court battle will take at least a couple years, so the legal status of net neutrality will remain undecided until at least 2017 or 2018 — and who knows what the makeup of the FCC and Congress will be by then.

In the meantime, the uncertain future of Internet regulation may already be impacting broadband infrastructure in America. AT&T CEO Randall Stephenson recently told investors his company will stop investing in fiber build-outs to 100 U.S. cities until the Internet regulatory framework becomes clearer. The move echoes Verizon, which stopped building out its FiOS fiber network back in 2012.

The same uncertainty could impact continued expansion and development of mobile broadband, if the FCC decides to include mobile Internet access under open Internet rules. And the regulatory uncertainty does nothing to increase broadband competition, where most Americans have just one or two options for broadband Internet service — and, for service over 25 Mbps, usually just one.

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