Plan to Roll Back Internet Regulations a Boon for Business and Innovation

Libertarians, rejoice—a U.S. regulator took the bold step of deciding that his office simply doesn't have the jurisdiction to control major parts of the internet. Last Wednesday, the free market-friendly Federal Communications Commission (FCC) Chairman Ajit Pai unveiled his plan to roll back the FCC's controversial 2015 Open internet Order (OIO), which granted the telecommunication regulator expansive discretionary authority over how internet Service Providers (ISPs) can operate and compete.

Pai's plan is a real win for those who believe businesses should not need government permission before innovating. But don't expect the so-called "net neutrality" hardliners to accept this proposal without a major fight. Their reactions last week were predictably apoplectic.

Sen. Edward Markey (D-Massachusetts) set the tone on Wednesday, promising a "tsunami of resistance" against Pai's deregulatory move. Sen. Al Franken (D-Minnesota) clutched his pearls and warned that rescinding the OIO would "destroy the internet as we know it." A writer at Gizmodo scoffed that Pai's position was one "only the strongest free-market libertarians" could support (is that supposed to be an insult?). The political group Free Press, a dogged OIO supporter, bemoaned that if Pai succeeds, "the internet as we know it will be gone for good."

But hysterical critics have a hard time answering exactly how the internet was able to become the engine of innovation that it is today without the expansive FCC controls only granted through the OIO in 2015.

Radical Regulation

The 2015 Open Interent Order broke from years of established federal policy by reclassifying ISPs as "common carriers" for FCC purposes. In legal terms, the OIO applied Title II of the 1934 Communication Act to ISPs. This meant that web-service providers such as RCN and Time Warner were to be treated less like part of a competitive and cutting-edge industry and more like an arm of the Ma Bell telephone monopoly of Norman Rockwell's America. Specifically, the change would prohibit certain kinds of content-delivery differentiation, placing the FCC in the position of picking winners and losers by being able to determine which service innovations are allowed and which are not.

For providers, the imposition of Title II regulations meant uncertainty, new fees and compliance costs, and a major new power center just waiting to be captured by commercial interests. For consumers, it meant less choice, higher prices, and a worrying channel for new government censorship of speech. For libertarians, it was merely more of the same: Yet another government regulator deciding that it should have more power to tell businesses and consumers what they can and cannot do.

It is hard to overstate just how radical of a departure the OIO was from the preceding years of light touch regulatory authority over internet activities. For years, U.S. internet policy was guided by a remarkably laissez faire approach encapsulated by the Clinton administration's Framework for Global Electronic Commerce. This extraordinary document instructs the federal government to "encourage industry self-regulation wherever appropriate" and "refrain from imposing new and unnecessary regulations" on commercial internet activities. And if that's not clear enough, Section 230 of the Telecommunications Act states that any "service or system that provides access to the internet" should be "unfettered from Federal or State regulation" like the OIO.

Accordingly, America today is home to the world's most successful and competitive technology companies, and consumers have access to a dazzling array of telecommunication services at affordable, competitive prices. (And thanks to Pai's new plan, we can continue to be.) But can you imagine what the internet would now look like if ISPs had been forced to ask the FCC for permission every time one wanted to roll out a new service over the years? We might not have much of an internet at all.

No Free internet

For a great example of how the OIO harms consumers and innovation, we can look to the absurd fits that so-called "net neutrality" partisans pitch over zero-rated services.

Zero-rated services allow users to access certain features of the internet for free or at steep discount; some high profile examples include Mobile Wikipedia and internet.org. For people living in conditions of extreme poverty, this kind of access can literally mean the difference between being able to connect with the broader world and being stuck in digital isolation. But zero-rating is also good for binge watching. Consider T-Mobile's popular "Binge On" service, which allows customers to stream content without counting against data usage caps. Consumers might see this as a welcome facilitator for their next Netflix fix, but OIO advocates see it as a "slippery slope" that undermines "net neutrality principles."

Because zero-rating may technically violate the prohibition against differentiating access, the FCC actually launched an investigation into zero-rated services in 2016 for potentially running afoul of the OIO. (Thankfully, one of Pai's first actions was to call off this insane witch hunt.) That's right: The FCC wanted to prevent companies from giving away free stuff because it "violated net neutrality." This is the ridiculous world of the OIO.

It is unfortunate that the FCC's heavy-handed and political power grab through the OIO has been conflated with the nebulous and universally positive-sounding abstraction of "net neutrality." Industry supporters of the OIO often deploy high-sounding (but largely incomprehensible) rhetoric about "treating all data equally" and "protecting our open internet" without delving much into the specifics of how they want to get there—namely, by super-charging the FCC with an expansive and arbitrary permission-based regime for internet services. Instead, net-neutrality ideologues prefer to focus on the doomsday scenarios that they imply would occur without the radical new OIO rules, conjuring images of a tiered internet and bundled-access packages reminiscent of the cable television industry.

Yet two decades without the OIO has wrought nothing like these imagined apocalypses. The best actual "scandal" that OIO advocates can dredge up is MetroPCS's 2010 decision to offer budget 4G LTE service using unconventional network construction. For most people, this is hardly a reasonable pretext to hand major new powers to a regulator. Especially a regulator like the FCC.

FCC's Empire Expansion

America's telecom regulator is notorious for developing clever rationalizations for new authorities each time that it finds its influence waning. In the case of the OIO, the contours are especially sharp: as the influence of radio, telephones, and cable continued to slump, the FCC was eager to find some new rationalization for why it should regulate the internet.

Perhaps this is why—as my colleague and FCC-watcher Brent Skorup points out—the FCC included a major loophole in the OIO that allows ISPs to still prioritize their own services. According to Skorup, it appears that the FCC wanted to broadly control these services rather than being limited to merely adjudicate competitive concerns.

It is also odd that "net neutrality" advocates rarely, if ever, discuss alternatives to the OIO that could achieve their intended goals. Denmark, for example, is frequently singled out for praise of its stellar telecommunication coverage and service. Yet, as Roslyn Layton and Joseph Kane recently pointed out in a report for the Mercatus Center, Denmark achieved this not by rolling out new top-down net neutrality rules, but rather by eliminating their telecom regulator all together.

In the U.S., perhaps a more general purpose regulator, like the Federal Trade Commission (FTC), would be a more appropriate body to investigate and deal with violations of net neutrality principles, rather than endowing the famously labyrinthine FCC with a broad grant of power to manipulate the market as it sees fit.

It is exceedingly rare to find a regulator with enough honesty and humility to admit when his or her office is simply not needed. FCC Chairman Ajit Pai should be applauded for his move to deregulate by small government advocates, competition-minded businesses, and consumers alike—but it's just a first step. Expect a lot of wailing and grinding of teeth from the OIO hardliners before the FCC moves to vote on Pai's proposal. The stakes are high, but the benefits from rolling back these asinine regulations are even higher.