The Consequences of the Comcast vs. FCC Ruling

The Washington, D.C. district court handed down its decision (.pdf) in the Comcast vs. FCC case on April 6, 2010.

The decision throws into focus the muddle that is current internet law in the United States.

“America needs competition among its high-speed internet providers. Open access has proved to be an effective way to do this elsewhere. Barring that, the FCC’s now-voided rules on net neutrality would have been a poor, but adequate substitute,” wrote The Economist, which is not a radical lefty ragsheet, in its response to the decision. The magazine recommended that Congress clarify the distinction between the internet and telecommunications.

All of this is necessary only because of a mistake the FCC made in 2002.

In February of that year, the FCC ruled that internet services are “information services, with a telecommunications component, rather than telecommunications services” which essentially deregulated the internet. Perhaps the real question is why it took so long between then and now for the internet to be deregulated, as it was by the DC Circuit court’s decision.

My colleague at the time Roy Mark quoted Jeffrey Chester, the executive director of the Center for Digital Democracy, as saying that the proposed rule changes should be called the “Cable and Bell Internet Monopoly Act of 2002. By declaring that broadband is an information service, the FCC is giving gatekeeper control to a handful of cable and Bell super-monopolies.”

Competition shrank. The number of ISPs in the US was estimated at 8,000 in 1999, 6,000 in late 2002, and about 2,000 today. As 75 percent of the competition sold out or went out of business, investment stagnated and consumer prices rose. This changed somewhat when the FCC gave ISPs full ownership of fiber builds.

But now, in 2010, Verizon has more or less stopped rolling out fiber. In recent earning releases, the focus has been on wireless (and the same is true with acquisitions, such as Alltel). Back in 2003, I wrote:

It’s too bad the FCC did not investigate any actual deployments, because the final irony of its new rules is that the RBOCs are not deploying and have not deployed fiber, and the FCC will not be able to get them to do so (and spend money on the equipment makers who lobbied so hard for this section of the ruling).
In a comment buried in footnote 809 [of the triennial review order], the FCC acknowledges, “Corning estimates that competitive LECs have deployed FTTH loops to 44,890 homes, that small incumbent LECs have deployed FTTH loops to 3,600 homes, that the BOCs have deployed FTTH loops to some 400 homes, and that municipalities have deployed FTTH loops to about 18,100 homes.”

It looks like 2010 will be like 2003 — the majority of fiber deployments this year will, once again, be projects from comeptitors and municipalities. If that’s what happens, will the FCC once again decide to give the ILECs whatever they want? I hope that this FCC is different from the FCC of 2003. I hope that this FCC is willing to make it easier for municipalities and competitors to deploy fiber. (I wonder whether there’s a regulatory capture playbook somewhere. Mining companies are threatening not to invest in Ghana if the government raises royalty rates from a paltry 3 percent. The monopolies here will threaten something similar.)

Reactions to the Decision

The ILECs’ fans, such as FCC Commissioner Robert McDowell, felt that everything was fine. McDowell got a prominent place in that right wing ragsheet The Washington Post to say that the FCC needs to not regulate the internet.

The people I agree with thought otherwise. Susan Crawford, who I think of as a defender of the free internet (previously at ICANN), wrote in the ragsheet that tries to be centrist, The New York Times, that the FCC must take back the power to regulate the internet.

I believe that the FCC needs the help of Congress if it chooses to take back its power to regulate — and that somebody (the FCC or Congress) has to refute the flawed decision in 2002 that created this mess in the first place.

I worry, however, that we’re entering a period of uncertainty that would be as disastrous for competition now as it was in 2003.

Nevertheless, there is a real opportunity to modernize laws and to recognize the internet for what it really is. Internet lawyer Eric Cecil wrote recently, “There is no longer any such thing as telecom, cable or broadcast except in regulatory silos gamed by business-driven technology models whose resulting incentives are to prevent and stall evolutionary change while nations like China make fools of our incessant fighting over who subsidizes which buggy whip.”

The phone and cable companies are not standing still. Comcast just disabled VCRs in order to force customers to buy its DVR service.

But those trying to reign in the monpolies aren’t resting either. The House recently passed a law aimed at preventing copper monopolies from unloading massive amounts of debt as they sell off copper assets that they no longer care about — that were built with taxpayer funds and subsidized the ILECs’ new businesses, the cellular and fiber lines of business that represent the Bells’ future.

In the long run, the monopolies’ businesses rely too much on the complexity of current regulation. If we can simplify that regulation, we can stimulate competition and make the country that invented the internet one of its leaders, as it was in the past, and as it is not now.

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