On June 14, 2016, the D.C. Circuit Court of Appeals released its decisions upholding the FCC’s net neutrality rules. The legal questions having been resolved, but key policy issues remain.
From my patio in Los Angeles, removed from Inside-the-Beltway maneuvers, I have a few observations. The first week that I began tech policy work at the Cato Institute happened to be the week that the Telecommunications Act of 1996 passed, twenty years ago. Only a handful of legislators voted against it. The widespread bipartisan support for the 1996 Act reflected a consensus among policymakers and communications firms that the ground rules for telecommunications, broadcasting, and cable, were not working. Productivity and innovation lagged, especially as compared to the unregulated computer sector. Technologies that promised great benefit to consumers, such as wireless telephony, were delayed by years.
One idea that emerged from this consensus was the idea of “technological neutrality.” Under the Communications Act of 1934, telephone companies, cable companies, cellular telephone carriers, and broadcasters were all regulated differently. Increasingly these diverse markets were converging. It made no sense for each competitor to operate under a different rules. Regulation ought to be technology neutral. That is, the same rules should apply to wireless carriers as to wireline carriers, and to cable-affiliated broadband carriers as well as carrier who got their start in telephony. The now-current idea that communications could be regulated in layers (physical facilities, software, content, and so on) originated with this insight.
Young as I was, I could still be sure that “technology neutral” rules would be better. Who can object to “neutrality”? In the contentious and occasionally acrimonious environs of K Street and Capitol Hill, I found it refreshing to voice agreement with almost everyone about something. Twenty years later, never having questioned this idea, I read the FCC’s net neutrality rules of 2015 and was cheered to see that the FCC emphasizes (repeatedly) that the rules are technology neutral. My confidence in the FCC's carefulness lasted about fifteen minutes.
Unfortunately, to make a rule technologically neutral, it must be drafted using very general language. The rule cannot be focussed on a specific problem particular to certain players, equipment, or submarkets. By definition utterly lacking in precision, the application of the rule to cases will often be unclear. Indeed, in the case of net neutrality, the application of the rule to vast and significant subcategories of cases is unclear. The FCC insisted that the net neutrality regime offered “bright line” rules, but left key issues unresolved. How would discrimination permitted to allow “reasonable network management,” be defined? Would “zero rating” arrangements (which let consumers access popular sites such as Facebook or Google without paying data charges), violate net neutrality? Would the rules be applied to interconnection agreements between carriers? The net neutrality rules are not bright line rules.
In addition to being unclear, the rules are extraordinarily broad. Before the rules, only a handful of cases in which principles of nondiscrimination were violated had actually arisen. The rules could not be targeted to address pervasive real harms, and the rules apply across a wide array of contexts in which no real problem has arisen. By contrast, consider antitrust rules (which offer an alternative mechanism for reining in powerful carriers). Antitrust rules are technology neutral and vastly broad, and the application of the rules in particular cases is uncertain. But courts usually require the complainant to prove that consumers have been harmed. The need to discharge this burden of proof reduces the harm of overbroad antitrust rules to consumers and markets, and the potential for competitors to game the system. No such legal mechanism confines reach of overbroad FCC rules.
The FCC’s net neutrality regime threatens to create a quagmire as stultifying as the rules laid down under the Communications Act of 1934. This situation has arisen, not in spite of technological neutrality, but because technological neutrality was sought at the expense of other sensible ideas about regulation. The idea of technological neutrality was the easy, apparently non-controversial, lesson of 1996, but not the most important. The sounder impetus of the 1996 Act was the goal of deregulation, inspired by the unregulated computer and software markets. Rules should not be imposed unnecessarily. Regulatory discretion should be bounded, or it becomes a vehicle for anti-competitive shenanigans. Markets need certainty.
How can policymakers get back on the right track? At a bare minimum, one might require the FCC to bear the burden of proving that disputed actions under the net neutrality rules have harmed consumers in individual adjudications. Unless regulatory discretion is confined, regulation of communications “layers” is going to be a mess. If one is going to insist on technologically neutral rules at the expense of certainty, one had better have a commitment to minimalism as well.
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