Net Neutrality

	In 2015, the Federal Communications Commission voted, 3-2, that the Internet will be subject to many of the Title II regulatory provisions of the 1934 Communications Act. Applying Title II laws to broadband means regulating the Internet as a common carrier, akin to the telephone network, and gives significant control of the Internet to the FCC, lobbyists, and industry players. The Title II order and new net neutrality rules have not been released yet, but the thrust of the regulations is clear from commissioners’ statements and media reports. In short, the FCC’s rules represent a giant step backwards to the days of command-and-control of markets.
	The FCC’s actions derive in part from the myth that the Internet is neutral. In the evolving online world, the Internet gets less neutral—and better for consumers—every day. Through a hands-off approach from policymakers, the U.S. communications and technology sector has thrived as a supplier of innovation, but Title II rules effectively throw sand in the gears. If the FCC’s rules are not overturned by the courts, the days of permissionless innovation online come to a close. The application of Title II means new broadband services must receive approval from this federal agency. Companies in Silicon Valley will therefore rely increasingly on their regulatory compliance officers, not their engineers and designers. If courts do strike down the FCC’s net neutrality rules for a third time, the FCC should abandon its campaign to regulate the Internet. Instead the Commission should focus on increasing broadband competition across the nation, thereby reducing prices and increasing the availability of new broadband services. There is plenty of work to be done on this front, but pursuing Title II net neutrality rules distract the Commission and Congress from spearheading a pro-consumer innovation agenda.

	In view of the Federal Communications Commission (FCC) vote on February 26 to regulate the Internet under Title II of the New Deal–era Communications Act, it is critical to understand what these “net neutrality” rules will and will not do. Columbia Business School professor Eli Noam says net neutrality has “at least seven different related but distinctive meanings….” The consensus is, however, that net neutrality is a principle for how an Internet Service Provider (ISP) or wireless carrier treats Internet traffic on “last mile” access — the connection between an ISP and its customer. Purists believe net neutrality requires ISPs to treat all last-mile Internet traffic the same. The FCC will not enforce that radical notion because networks are becoming more “intelligent” every year and, as a Cisco network engineer recently put it, equal treatment for all data packets “would be setting the industry back 20 years.”
	Nevertheless, because similar rules were twice struck down in federal court, the FCC is crafting new net neutrality rules for ISPs and technology companies. Many of these Title II provisions reined in the old Bell telephone monopoly and are the most intrusive rules available to the FCC. The net neutrality rules are garnering increased public scrutiny because they will apply to one of the few bright spots in the US economy — the technology and communications sector.
	As with many complex concepts, there are many myths about net neutrality. Five of the most widespread ones are dispelled below.

Myth #1: The Internet Has Always Been Neutral
Reality: Prioritization has been built into Internet protocols for years. MIT computer scientist and early Internet developer David Clark colorfully dismissed this first myth as “happy little bunny rabbit dreams,” and pointed out that “[t]he network is not neutral and never has been.” Experts such as tech entrepreneur and investor Mark Cuban and President Obama’s former chief technology officer Aneesh Chopra have observed that the need for prioritization of some traffic increases as Internet services grow more diverse. People speaking face-to-face online with doctors through new telemedicine video applications, for instance, should not be disrupted by once-a-day data backups. ISPs and tech companies should be free to experiment with new broadband services without time-consuming regulatory approval from the FCC. John Oliver, The Oatmeal, and net neutrality activists, therefore, are simply wrong about the nature of the Internet.

Myth #2: Net Neutrality Regulations Are the Only Way to Promote an Open Internet
Reality: Even while lightly regulated, the Internet will remain open because consumers demand an open Internet. Recent Rasmussen polling indicates the vast majority of Americans enjoy the open Internet they currently receive and rate their Internet service as good or excellent. (Only a small fraction, 5 percent, says their Internet quality is “poor.”) It is in ISPs’ interest to provide high-quality Internet just as it is in smartphone companies’ interest to provide great phones and automakers’ interest to build reliable cars. Additionally, it is false when high-profile scholars and activists say there is no “cop on the beat” overseeing Internet companies. As Federal Trade Commissioner Joshua Wright testified to Congress, existing federal competition laws and consumer protection laws — and strict penalties — protect Americans from harmful ISP behavior.

Myth #3: Net Neutrality Regulations Improve Broadband Competition
Reality: The FCC’s net neutrality rules are not an effective way to improve broadband competition. Net neutrality is a principle for ISP treatment of Internet traffic on the “last mile” — the connection between an ISP and a consumer. The principle says nothing about broadband competition and will not increase the number of broadband choices for consumers. On the contrary, net neutrality as a policy goal was created because many scholars did not believe more broadband choices could ensure a “neutral” Internet. Further, Supreme Court decisions lead scholars to conclude that “as prescriptive regulation of a field waxes, antitrust enforcement must wane.” Therefore, the FCC’s net neutrality rules would actually impede antitrust agencies from protecting consumers.

Myth #4: All Prioritized Internet Services Are Harmful to Users
Reality: Intelligent management of Internet traffic and prioritization provide useful services to consumers. Net neutrality proponents call zero-rating — which is when carriers allow Internet services that don’t subtract from a monthly data allotment — and similar practices “dangerous,” “malignant,” and rights violations. This hyperbole arises from dogma, not facts. The real-world use of prioritization and zero-rating is encouraging and pro-consumer. Studies show that zero-rated applications are used by millions of people around the globe, including in the United States, and they are popular. In one instance, poor South African high school students petitioned their carriers for free — zero-rated — Wikipedia access because accessing Wikipedia frequently for homework was expensive. Upon hearing the students’ plight, Wikipedia and South African carriers happily obliged. Net neutrality rules like Title II would prohibit popular services like zero-rating and intelligent network management that makes more services available.

Myth #5: Net Neutrality Rules Will Make Broadband Cheaper and Internet Services like Netflix Faster
Reality: First, the FCC’s rules will make broadband more expensive, not cheaper. The rules regulate Internet companies much like telephone companies and therefore federal and state telephone fees will eventually apply to Internet bills. According to preliminary estimates, millions of Americans will drop or never subscribe to an Internet connection because of these price hikes. Second, the FCC’s rules will not make Netflix and webpages faster. The FCC rules do not require ISPs to increase the capacity or speed of customers’ connections. Capacity upgrades require competition and ISP investment, which may be harmed by the FCC’s onerous new rules.

	After the President’s announcement Monday morning on net neutrality, Mercatus research fellow Brent Skorup, who specializes in telecom issues, provided initial reaction.
	“It does not require a law degree to question the wisdom of imposing eighty-year-old rules intended for the government-blessed monopoly telephone network on the competitive, dynamic Internet. If the FCC—an independent regulatory agency—does what the President envisions, the change will represent a stark reversal of decades of deregulatory Internet policy pursued by Congress and FCC commissioners of both political parties. The application of Title II—sometimes called utility or common carrier regulation—would result in value-destroying government oversight of the Internet. Among other damaging effects, broadband Internet would be subject to rate regulation, taxes, and fragmented regulation by state commissions. Further, many advocates who cheer this announcement have made no secret that their aims stretch beyond economic regulation of the Internet. They also seek government oversight of media, websites, and political speech online. To that end, Title II instantly politicizes the Internet and puts significant power over this dynamic technology in the hands of unelected FCC officials, lobbyists, opportunistic industry players, and well-funded activists.
	“Market participants in Silicon Valley and at technology companies would increasingly rely on their risk-averse regulatory compliance officers instead of their creative engineers and designers. The complex Title II proceedings that ensue will be largely invisible and unintelligible to the public and their representatives in Congress. It would be a mistake to apply Title II’s stultifying provisions to one of the few bright spots in U.S. economy—technology and Internet services. The President’s announcement is puzzling because the political consensus is that the 1934 Communications Act should be retired in favor of modern, flexible laws that place consumers—not industries—at the forefront. Title II would impair the creative destruction that makes the U.S. technology sector a boon to consumers and the envy of the world.”
	Though the economy has improved only in fits and starts over the past few years, one bright spot remains constant: The technology and communications industry. Part of this success is because Silicon Valley and the tech sector aggressively develop popular consumer products before bureaucrats and lawmakers have time to delay them. Wisely, or perhaps coincidentally, Congress has treated the Internet with benign neglect. However, there is a well-funded contingent in the net neutrality movement seeking to increase Federal Communications Commission oversight of the Internet. These net neutrality proponents are – to paraphrase William F. Buckley Jr. – standing athwart the history of technology yelling, “Stop!” Their backward-looking approach would revive large parts of telephone regulations from the 1934 Communications Act. Their goal is to persuade the FCC to reinterpret the law and apply monopoly-era telephone regulations to today’s broadband providers. Net neutrality advocates conjure up a bogeyman that ostensibly threatens startups and consumers. Their cramped worldview does not see tremendous possibilities in lightly regulated broadband and they oppose the FCC’s current hands-off approach to the Internet.