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FCC Title II Protectionism Creates a U.S. Digital Single Market like EU’s

On February 26th, the FCC executed President Obama’s call to “implement the strongest possible rules” to regulate the Internet as a telephone utility under “Title II” of the Telecommunications Act.

Legally, the result of this “reclassification” was for President Obama and the FCC to assert regulatory jurisdiction over the Internet ecosystem, creating a de facto American “Digital [Internet] Single Market” industrial policy, like the European Commission is in the process of creating for the European Union.

Legally, America now has a single digital telecommunications/Internet market/ecosystem because the FCC is effectively reclassifying Internet traffic as Title II telecommunications and Title II is a holistic, end-to-end, 1934 regulatory regime designed for the FCC to decide most everything in the assumed monopoly telecommunications ecosystem from originating and terminating local access, long distance, phone and network equipment manufacturing, directories, etc.

At this time, the FCC’s protectionist industrial policy is to selectively apply its holistic jurisdiction only to the ISP and Internet backbone segments for the purposes of applying zero-price regulation to Internet downstream traffic so ISPs and consumers economically subsidize Silicon Valley’s Internet business models.  

Politically, the result of the FCC decision is that it makes it much harder for America to credibly criticize the EU for implementing a protectionist industrial policy when the Obama Administration has effectively trail blazed a Title II protectionist industrial policy that picks Silicon Valley as market winners and ISPs as market losers.

In US-EU TTIP trade talks, the Obama Administration is now in the weak negotiating position of urging the EU to “do as America says not as America does.” Simply, those in glass houses should not throw stones.    

Practically, the result is that Google is more vulnerable to aggressive antitrust enforcement, and Google, Amazon, Facebook, Apple, and Silicon Valley are more vulnerable to heavy-handed regulation (telecom, competition, data protection, copyright, and tax) in the EU because the FCC already has adopted the most heavy-handed, holistic, U.S. regulation available that empowers the FCC to pick Silicon Valley as market winners via implicit, zero-price, economic subsidies paid for by ISPs and consumers.   

Let’s further compare and contrast the U.S. and EU digital single markets.

Federalization of Internet regulation?

The FCC’s decision over a decade ago that Internet traffic is subject to FCC federal jurisdiction and not state regulatory jurisdiction, combined with the FCC’s recent decision to reclassify Internet traffic as Title II telecommunications (which also legally exempts much of the Internet from the Federal Trade Commission’s (FTC) jurisdiction), means the FCC has effectively and largely federalized regulatory control over the Internet.

The EC’s proposed Digital Single Market effectively does the same thing, by federalizing Internet policy with the federal EC, rather than leaving it to the 28 EU member states.

Respecting an open constitutional process?

In last fall’s European elections, the creation of a Digital Single Market was a major political and economic issue in campaigns. The new EC then made creation of a Digital Single Market one of its top three EC goals. In December, the European Parliament voted ~2-1 to enforce competition law against Google and to implement the Digital Single Market. This week, the European Parliament reaffirmed those stances in a ~5-1 vote.

In stark contrast, the Obama Administration and FCC did not respect the U.S. constitutional process by proactively rejecting any Congressional involvement in resolving net neutrality policy or clarifying the FCC’s Internet authority. In a partisan 3-2 vote, the FCC implemented President Obama’s call to regulate the Internet as a utility under Title II of the 1934 Communications Act without involving Congress or allowing Congress or the public timely access to the rules it voted on.   

Creating a level playing field?

In creating a Digital Single Market, the EU is clear that its industrial policy to advance European interests is to impose the same new strict general market rules (for competition, data protection, copyright, and tax) to every entity foreign and European which operates in the new European Digital Single Market serving European citizens. The result will be a very tough, but level European playing field where all companies, European, American and foreign, must operate under the same set of Europe-centric rules.   

In stark contrast, the FCC is asserting legal and regulatory jurisdiction over the entire Internet ecosystem, but is planning to selectively enforce that assertion of Internet jurisdiction at this time, only for broadband ISPs and not other entities with much greater market shares, and only for the competitive local access and backbone interconnection Internet segments, and not for any of the other less competitive Internet segments. The market result will be an unlevel playing field that economically advantages Google, Netflix, Facebook, Amazon, and Silicon Valley at the direct economic expense of ISPs and consumers.

Protecting consumer privacy?

Post Snowden revelations of ubiquitous NSA surveillance of many European citizens, the EC is on path to impose some of the strictest consumer privacy rules in the world on any company foreign or domestic that operates in Europe serving Europeans. The rules are consumer-centric applying similarly to all companies, meaning that the commercial use of Europeans’ private information will legally require the consumers’ meaningful consent.

In stark contrast, the FCC has asserted jurisdiction over the entire Internet ostensibly to protect consumers, but it is unclear if the FCC will apply its new Title II Section 222 authority to actually protect consumers’ privacy on the Internet.

More specifically, is it legal for the FCC to assert jurisdiction over Internet traffic and customer proprietary information and then selectively enforce its jurisdiction against the Internet market segment that has most respected consumer privacy because they already operate under Section 222 for voice services, while totally ignoring the grossest violations of consumers’ privacy that routinely occur in other Internet market segments highly-prone to aggregation of market power?     

Conclusion

President Obama and the FCC have created a de facto Digital Single Market in the U.S. via the reclassification of Internet traffic to be Title II utility regulated telecommunications. The EC is in the process of creating a European Digital Single Market legislatively -- potentially as soon as this year or next.

America’s unlevel-playing-field, industrial policy picks Google, Netflix, Facebook, Amazon, and Silicon Valley as national champions and market winners via multi-billion dollar zero-price subsidies in the U.S. and in Europe, via politically selective regulation and law enforcement.  

Europe’s industrial policy toughens, but levels the playing field by dictating that in the European Digital Single Market, American, foreign and European firms must all operate and serve Europeans as new EU law will require. It will be very tough on American Silicon Valley companies, but the rules they must adjust to, everyone else must abide by as well.

In the EC’s antitrust enforcement against Google and in its TTIP trade negotiations with America, the FCC’s heavy-handed and politically-selective application of rule of law will embolden the EU politically to dictate tough EC Digital Single Market rules which will have the effect of harming American business in Europe.

However, President Obama’s and the FCC’s political industrial policy to strongly-advantage Google and Silicon Valley economic interests in the U.S. and abroad, undermine America’s ability to honestly criticize the EC because it would have to hypocritically say in essence “do as America says not as America does.”

The EC appreciates that those in glass houses should not throw stones.

 

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