FCC Reclassification is Eminent Domain, but with No Just Compensation or Authority

At core the FCC's contemplation of reclassifying, or effectively treating, unregulated broadband info services as regulated telecom services, would be tantamount to the FCC declaring "eminent domain" over private broadband providers, i.e. justifying a government takings of private property for public uses, but doing so "without just compensation" or any statutory authority. 

  • The U.S. Constitution's Fifth Amendment requires: "nor shall private property be taken for public use, without just compensation."

A gaping missing element in all the FCC's discussions of all the new "public uses" it envisions for broadband in its pending National Broadband Plan and its proposed preemptive Open Internet regulations is any consideration at all of the potential hundreds of billions of dollars of un-budgeted liability to the U.S. Treasury that could result from the takings of private network property without just compensation -- at a time of skyrocketing trillion dollar Federal budget deficits and rapidly mounting public debt.   

  • The FCC appears to be operating under the sweeping and heroic presumption that any prospective FCC regulatory action it may take here is essentially cost-free to the U.S. taxpayer and will be completely shouldered by broadband shareholders; in other words, the Fifth Amendment appears to be irrelevant to FCC decisionmaking.
  • It also appears that some at the FCC take the legally extreme stance that the FCC can put most any effective property easement for new "public uses" on private and competitive broadband networks (that three FCC commissioners declare is the "public interest") without incurring any public liability for the U.S. taxpayer.   

A supremely grand and untested assumption here is that the FCC can do whatever it did in a pre-1996 monopoly regulatory environment (which guaranteed monopolies a rate of return to address takings concerns), in a competitive broadband environment where carriers operate at market risk of bankruptcy without any guarantee of a rate of return.

  • It appears that some at the FCC are totally ignoring that:
    • The factual and market predicate underlying the FCC's 1934 Title I statutory authority has changed 180 degrees since the passage of the 1996 Telecom Act and the subsequent successful development of an increasingly competitive broadband market; and
    • The strong, fifteen-year-old, bipartisan consensus in Congress to not regulate or tax the Internet.  
  • It is supremely ironic that those who claim to have a forward-looking 21st century market and innovation perspective for the broadband Internet, choose to look at the world through short-sighted 1934 legal lenses that can't even see beyond 1996.      

1.  Why would the FCC''s contemplated regulations/plan implicate "Eminent Domain?"

Public use: The FCC's National Broadband Plan reportedly will propose ~40 FCC rulemakings and many changes to existing law to advance a wide variety of stated "public uses" for broadband: telemedicine and e-health records to improve health care and lower costs; smart grid to lower energy usage; e-learning to improve education and lower costs; improve public transparency and democratic processes; among many other "public uses" for broadband. 

  • FreePress calls for the FCC to "treat broadband as essential infrastructure."
  • Public Knowledge said in its filing that "reclassification would facilitate numerous goals previously cited by the Commission as critical to the success of the NBP" (National Broadband Plan).  

Condemnation via Eminent Domain:  Many of the regulatory powers envisioned by some at the FCC in the National Broadband Plan and the proposed Open Internet regulations effectively involve the FCC taking de facto control over parts of private networks in a form of a permanent regulatory "easement" on broadband network providers' network property for a public use that deprives the owners from much of the benefit of their property.

  • Interestingly much of the political justification for upcoming FCC regulatory action is the condemnation by some that the U.S. broadband system is effectively "blighted" requiring government intervention (some allege the U.S. is falling behind the rest of the world in access and available speeds and some allege that property owners have interests to behave "non-neutrally" in the absence of government control over networks.) 
    • The clear message of net neutrality proponents has been that government could do a better job than the market in achieving broadband leadership in the world and maintaining a neutral/open Internet -- yet they offer zero evidence or argumentation to support their assertion.   
  • Moreover, the FCC has effectively conflated the National Broadband Plan and its proposed preemptive Open Internet regulations by doing them concurrently and justifying them with many of the same "public use" arguments and desired outcomes.      

2.  The FCC does not have Eminent Domain authority.

  • The constitutional power of takings for public use with just compensation resides with the legislative branch, the U.S. Congress in this instance, not the FCC, an independent agency, which has unelected commissioners and which does not have specific delegated statutory authority from Congress to engage in the taking of private property with just compensation.
  • Moreover, any "just compensation" for any FCC takings of private property for public use under the U.S. Constitution would have to be authorized and appropriated by Congress -- in advance.

3.  What would be just compensation?

Just compensation for the takings envisioned by some at the FCC could involve hundreds of billions of dollars over time.   

  • The FCC estimates it could cost as much as ~$350B to bring world class broadband service to all Americans per WSJ reports
  • Another book end is that the enterprise value of U.S. broadband providers is  >$600B per Yahoo Finance
  • By any measure the market value of these private broadband networks is hundreds of billions of dollars.      

In sum, the FCC is clearly envisioning justifying new Open Internet regulations and the ~40 rulemakings in the National Broadband Plan by declaring that they advance multiple important "public uses."

  • To the extent that those "public uses" involve an effective easement on private network owners property rights that the providers do not voluntarily agree to, and that devalues the property to them, broadband providers have a strong constitutional argument for "just compensation" from the U.S. Treasury.

Moreover, the FCC does not have the constitutional or statutory authority to compel competitive private network providers -- that are not monopolies -- to essentially cede their property to the U.S. Government without just compensation from the U.S. Treasury. 

Given that the Adminstration just submitted a $3.8 trillion 2011 Federal Budget to Congress that includes no estimates for the unfunded liability of the FCC's National Broadband Plan or the FCC's proposed preemptive Open Internet regulations, the House and Senate Budget Committees should insist that the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), and the General Accounting Office (GAO) should study and estimate the potential long-term cost liability to the U.S. taxpayer of just compensation to private broadband providers if the FCC implements rules or proposes laws that effectively take private broadband property for public uses.    

Simply, the FCC does not have a "blank check" from the U.S. taxpayer to do whatever it wants.