Regulation

The FCC has a bellwether opportunity at its February 8th meeting to approve a Broadband Data Modernization proposed rule making, that respects the President's new Executive Order that regulations should be the "least burdensome tools to achieve regulatory ends."

• The FCC has announced that its proposed rule is to "streamline and modernize the collection of data"... "while minimizing burdens on voice and broadband providers."

Why this is an important test case:

The FCC's Open Internet order should be ripe for review and "fixing" given President Obama's pledge in his SOTU speech last night:

• "To reduce barriers to growth and investment, I've ordered a review of government regulations. When we find rules that put an unnecessary burden on business, we will fix them."

Clearly the FCC's preemptive bans, restrictions and economic/price regulation of competitive broadband providers based on scant and weak evidence of any real problem to solve, obviously place "an unnecessary burden on business" and the Administration should "fix them."

As I explained in my previous detailed post: "Why FCC's Net Regs Need Administration/Congressional Regulatory Review," the FCC's Open Internet order violates the President's pledge for regulations to:

Verizon is highly likely to win its appeal of the FCC's December Open Internet order, because the FCC's order is likely to deeply and broadly offend the legal sensibilities of the Appeals Court, just like the FCC offended the DC Appeals Court's sensibilities when it punished Comcast for violating a regulation that did not exist.

• The Court responded to that FCC injustice last April by ruling in its Comcast vs. the FCC decision that the FCC had no authority to regulate broadband or the Internet.

To understand the most likely outcome here, it is critical to cut through the FCC's claims, assertions, and arguments, and focus on the big picture context of what the FCC is actually doing in this Open Internet Order, i.e. what is the effect of the FCC's decision and process on the rule of law. That is what matters most to the Court.

To promote "America's free market," President Obama today ordered a government-wide review of regulations that "make our economy less competitive," in order to take us "toward a 21st century regulatory system."

Here is the case for why the FCC's December Open Internet order deserves to be atop of the Administration's regulations to review for abolition.

• (This regulatory review analysis is also highly relevant and applicable to Congress' review of the FCC order under the Congressional Review Act.)

First, the FCC's new Internet regulations violate the President's goal of a "21st century regulatory system" by applying "outdated" 19th century common carrier regulatory thinking and approaches to the previously un-regulated, and flourishing 21st century Internet. (Para 68)

Second, the FCC rules violate the President's goal of avoiding "excessive, inconsistent, and redundant regulation."

The FCC's 3-2 vote on its Open Internet order produces several  big takeaways, despite there being no actual order to review.

Take-aways:

First, the controversy over net neutrality isn't going away; it is on path to get more controversial.

The FCC signaled this was only the beginning of a broader FCC net neutrality rule making process.

If David Hatch's National Journal "exclusive" report is accurate, that the FCC's proposed Open Internet order is being changed to become much more regulatory in: "addressing concerns about wireless carriers, limiting Internet toll lanes, and adding protections for a new online pricing model" -- the FCC would be hurtling itself headlong down the very slippery slope of highly-destructive FCC Internet price regulation and micro-management.

The huge folly of this trajectory is that its hard enough trying to write an enforcement solution to a non-existent problem, it is mind-numbingly difficult to imagine that the FCC can economically price regulate and micro-manage the international Internet ecosystem.

If this is the direction the FCC is headed, it is the ultimate in regulatory hubris. Not only does the FCC have no legitimate justification, rationale, authority, or consensus to micro-manage the Internet with unprecedented price regulation, the FCC has no proven regulatory competence, business expertise, or analysis on how to achieve this equivalent of doing brain surgery in mittens on a roller coaster in the dark.

The crux of the FCC's non-transparent proposed Open Internet Order will be whether it envisions: a very limited Internet enforcement role for the FCC, or an expansive economic regulation and Internet management role for the FCC.

• The "Waxman Compromise" envisioned a very limited, two-year, enforcement-only role for the FCC that at core recognized the Constitutional authority of Congress to determine U.S. Internet policy.
• FreePress and the Open Internet coalition envision a permanent, expansive, economic-regulation, and Internet-management role for the FCC that snubs Congress' authority, policy, and consensus.

The real test of whether the FCC is limited or expansive will be whether the word "preserve" is used forthrightly in the actual text of the FCC Open Internet order: i.e. will it respect or abandon Congress' meaning of "preserve" in section 230: "to preserve the... competitive free market... Internet... unfettered by Federal or State regulation."

• A very-limited, Congress-deferring, true enforcement role for the FCC to address the potentiality of anti-competitive behavior,  could plausibly comport with the Congress' policy vision for a competitive, free-market Internet and also would have a better chance of surviving legal challenge.
• On the other hand, an expansive, Congress-challenging, economic-regulation, Internet-management role for the FCC cannot plausibly comport with Congress' policy of a competitive free market Internet and would have little chance of surviving legal challenge.

As an unapologetic proponent of competition over regulation, its disturbing to witness the de-facto de-competition revolution in Internet policy unfolding, where "net neutrality" and "openness" are overthrowing competition as both the central goal and primary means of implementing U.S. Internet policy.

• At core, the FCC's proposed Open Internet Order to be approved December 21st, effectively unilaterally repurposes U.S. Internet policy and the FCC -- to promoting net neutrality and openness via FCC economic regulation -- from the purpose in law, which is promoting competition via de-regulation.
  • See "The Harms of a Potential New FCC De-Competition Policy" here.

De-Competition Policy Developments

First, reports indicate that the FCC plans to use 1992 monopoly Cable Act law for ancillary legal authority to justify regulating the Internet with Net neutrality. This is wrong-headed for many reasons.

Now we know what "real net neutrality" and "openness" are, and that they are the antithesis of free market economics or competition.

As the FreePress-led letter to the FCC made clear on Friday: "Paid prioritization is the antithesis of openness. Any framework that does not prohibit such economic discrimination arrangements is not real net neutrality."

What is "paid prioritization?"

• It is quality of service guarantees, market economics, supply and demand, market-based pricing, investment incentives, competitive differentiation, and reasonable network management.
• Now we know "real network neutrality" and "openness" is more uneconomics from FreePress and the extreme left.

Remember FreePress' last Uneconomics 101 lesson was that "above-cost pricing" was an "unfair business practice."

The extent to which Level 3's business is underwater is the untold story behind Level 3's regulatory "hail Mary" claim that its Internet peering dispute with Comcast is somehow a net neutrality violation.

• Apparently Level 3 has concluded that since it hasn't found a straight-up way to compete successfully in the Internet marketplace on its own, it wants an Internet regulation bailout from the FCC, in which the FCC would: deem Level 3 a market winner; price regulate the Internet for the first time; and force its competitors to implicitly subsidize Level 3 with mandated Internet peering price subsidies.
  • (To appreciate how bogus Level 3's claims are, click here for a complete rebuttal.)

Why is Level 3 seeking a de facto Internet regulation bailout from the FCC?

First, Level 3 is a financially-sinking business with no legitimate growth prospects.