FCC Seeks Third Way for Internet Regulation

While most branches of the Obama adminstration are seeking to describe their policies as bipartisan, the FCC today chose to describe its new internet policy as a Third Way.

The Third Way is a phrase made popular by Tony Blair and Bill Clinton. It describes an attempt to navigate a path between socialism and the free market. Given the extent to which the Obama administration’s opponents attack so many things it proposes as “socialism”, it is courageous of the FCC to use this term. (To be fair, the FCC says it’s seeking a middle road between re-regulation of a utility and the unfettered free market.)

The FCC does not want to regulate the internet if the internet is defined as the websites and services that we use when we connect to the internet. The FCC wants to regulate the price that users pay to connect to the internet and to be able to police monopoly power at the access level. To this end, the FCC refuses to abandon the great mistake of 2002 in which the FCC first decided that the internet was comprised of both a telecommunications component and an information service.

The problem with this splitting of the internet atom is that the internet consists of interdependent services.

Take VoIP. You can use it to make a phone call. When you do so, which part is the telecommunications component? You can use VoIP by clicking on a customer service button on a website. When you do so, is VoIP now purely an information service? In either case, an ISP might affect your ability to use VoIP service by blocking ports (or using more complex procedures as Comcast did).

When is VoIP an information service and when is it a telecommunications component? If the ISP blocks VoIP with hardware, is it telecommunications, but if it routes traffic through a third party website to block VoIP, is that an information service that the FCC cannot regulate?

Commentators are cautiously optimistic today, just a few days after a major net backlash. The strength of the backlash against the FCC’s apparent attempt to abandon Obama campaign promises with regard to net neutrality made the FCC of Monday (Obama Abandons Internet Promise) seem very different from the FCC of today (Obama Abandons . . . maybe not so much . . .).

The FCC has more fears than ambitions

In his statement, Genachowski says the FCC will:

  • Recognize the transmission component of broadband access service—and only this component—
    as a telecommunications service;
  • Apply only a handful of provisions of Title II (Sections 201, 202, 208, 222, 254, and 255) that,
    prior to the Comcast decision, were widely believed to be within the Commission’s purview for
  • Simultaneously renounce—that is, forbear from—application of the many sections of the
    Communications Act that are unnecessary and inappropriate for broadband access service; and
  • Put in place up-front forbearance and meaningful boundaries to guard against regulatory

The goal of the FCC at this time is to make policy that won’t be overturned by the DC circuit court, and to make policy that won’t upset the monopolies. The FCC statement specifically says that the FCC will not create any new unbundling obligations for the large companies, and Genchowski specifically says that he wants to prevent “regulatory overreach.”

Commentators such as Yankee Group’s Carl Howe want the FCC to ensure that there’s a free and fair market. “Last time I looked, The U.S. was ranked anywhere from 19th to 21st in the world in terms of Internet speeds and costs,” Howe writes (h/t Benoit Felten). That needs to change.

The meaning of Title II in this case

Genachowski refers to six specific provisions of Title II that he wants to apply to the internet.

They are:

Section 201: fees must be “just and reasonable” — this has not harmed the large phone companies at all, but that may be because the law is not usually applied to large phone companies.

Section 202: nondiscriminiation.

Section 208: a complaint procedure that is expensive and rarely used.

Section 222: privacy rules designed to regulate large telephone companies.

Section 254: USF. The FCC is going to face considerable opposition if it seeks to apply USF fees to broadband. One way to gain support for this would be to lower the rates from 15 percent to about 1.5 percent. A broader revenue base should enable lower FCC fees.

A second problem is that this rule, like all of the others the FCC is considering, would impose a heavy compliance burden on small businesses. Many ISPs and WISPs are literally mom and pop operations. They have a lawyer they can call but none on staff. They have a bookkeeping function but not an accounting function. They can handle questions about costs but have trouble with questions about depreciation.

Section 255: Access for those with disabilities. The FCC is concerned about this issue and will hold a hearing on it (.pdf) on May 13, 2010. Vint Cerf was part of a round 1 stimulus proposal seeking $70 million for broadband for the deaf and hard of hearing (personally, I think broadband for those lacking sight would be a more impressive achievement).

Conclusion: questions remain

1) Is the FCC serious about supporting competition? As David Isenberg wrote, “we’ll see.” The FCC just lost a major legal battle to NBC-Comcast. Will it be willing to fight such a battle again?

2) Will the burden of complying with new rules fall on small businesses but not on large businesses? Madison River paid the fine, but Comcast-NBC sued the FCC and won. In this way (and many others) FCC regulations restrict only what small companies can do.

2a) Will broadband providers have to justify their prices every year or only if the FCC audits them? Will the FCC ever investigate deceptive advertising or falsified charges? Would it investigate small companies only or would it actually investigate Verizon’s phantom data fee or its fee for not using long distance service?

3) How will the USF apply to broadband. There will be no cash for broadband without a tax on broadband. Implementing it in a fair way will be difficult.

4) What does the FCC intend to do about people with disabilities? What about the enforcement of non-discriminiation rules?

All of these questions explain what David Isenberg and others mean when they say, “we’ll see.”

One Comment

  1. […] a “third way” between reregulation of the phone companies and deregulation. My take is here. Harold Feld’s pro-competition commentary is […]