Discussion: (0 comments)
There are no comments available.
A public policy blog from AEI
The Federal Communications Commission (FCC) recently closed the public comment period on its proposal to return the internet to its original legal classification as a “Title I information service,” following the commission’s surprise 2015 redefinition of both wired and wireless broadband as “Title II telecommunications services.” The return of the statutorily mandated and spectacularly successful information service designation is a good idea.
Imposing of Title II telephone rules on the internet was unnecessary, ill-advised, and risky. There was no reason to abandon a successful policy. The burden fell on the commission to demonstrate the necessity for a radical change of course. It did not. The Open Internet Order botched key technical considerations, mostly ignored economic analysis, and mangled the little economics it attempted. The order was also illegal. It evaded straightforward statutory language, usurped authority, abused administrative procedure, and may impinge on constitutional protections.
We left the legal analysis to many other able commenters. We did, however, weigh in on several technical, economic, and policy matters informed by our research over the past two decades.
The unparalleled success of ‘information services’
At the time of the 2015 order, the facts demonstrating the health of the US internet industry were unequivocal. The longstanding, bipartisan Title I information service policy had resulted in:
At the time the Title II Order was debated and issued, the United States had just 4 percent of the world’s population, yet the US enjoyed 10 percent of the world’s internet users, 25 percent of its broadband investment, and 32 percent of its consumer internet traffic. Compared with most advanced nations — Japan, Germany, and France, for example — the US generated two to three times more consumer internet traffic per user.
Other indicators from across the internet ecosystem showed dynamism and explosive growth in content, devices, network services, apps, and ecommerce. As we wrote at the time:
Consumers and firms now upload 100 hours of video to YouTube every minute, and YouTube streams more than 6 billion hours of video per month. In the first quarter of this year, Netflix streamed 6.5 billion hours of video over the internet, most of it in the US. HBO, CBS, sports leagues, and dozens of small firms are launching their own streaming franchises on the web. Apple and Google are competing fiercely in mobile operating systems, consumer video, and cloud apps and services.
Facebook now boasts nearly 1.35 billion monthly active users. And start-ups now routinely go from zero to hundreds of millions of users in a matter of a few years. So high are the valuations of many young Web firms — Uber, WhatsApp, Snapchat, Dropbox, etc. — that some (not me) worry that we’re in the midst of another Silicon Valley bubble. Amazon.com sold $85 billion worth of merchandise, digital content, and cloud services in the last 12 months. UPS, after misjudging the impact of online shopping last winter, is adding 100,000 additional delivery workers this holiday season to meet off-the-charts demand. Does it appear that consumers are having trouble getting “access to a website?” Are network firms limiting “which online stores you can shop at, or which streaming services you can use?”
We also emphasized (and celebrated) the financial success of the supposedly vulnerable “edge” companies and criticized the lack of expertise the FCC was employing in its decision-making process:
Seventy-three private firms, according to The Wall Street Journal, are now members of “the billion-dollar startup club.” Fifty of these start-ups are American, and a number of them have recently achieved valuations of $10, $20, even $40 billion.
The total value of the 50 US club members is $223.9 billion and does not include the 10 club members that went public or were acquired in 2014. Many US public technology firms are, likewise, booming. The market values of just seven tech leaders – Apple, Google, Microsoft, Facebook, Oracle, Intel, and Amazon – total around $2.25 trillion. Apple alone is twice as valuable as any firm in the world, including Exxon Mobil and Google.
Yet against this backdrop of mind-boggling success by firms at the “edge” of the network, the Federal Communications Commission is poised to regulate the internet for the first time. Its central rationale is to protect these vulnerable “edge” firms, but it’s not clear they need anyone’s help. The regulations are so sprawling and intrusive that not only will they discourage investment in network infrastructure, they will also boomerang on the “edge” firms themselves. In fact, on Friday, Google wrote to the FCC asking the commission to drop a bizarre provision, known as broadband subscriber access service (BSAS), that could force Google to pay ISPs around the world for each bit it sends a consumer. Who knows how many odd provisions like this we will find? Who can say what all the unintended consequences will be?
The all-out boom in content, apps, devices, and internet traffic suggests the bipartisan policy of light-touch regulation, adopted during the Clinton administration, is working. The net is free, open, and prosperous. In the face of such success, the burden is on the FCC to show why a dramatic reversal of policy is needed. Yet the FCC offers only vague theories and stories of hypothetical harm.
The notion that Brian Roberts or Randall Stephenson wants to block a Tumblr blogger or a grandmother on Etsy from selling her hand knitted scarves on the Web is preposterous. Yet Tumblr and Etsy have worked activists into a frenzy, and the FCC is relying on them as expert witnesses. (You can judge the quality of their expertise for yourself.)
What the FCC does not do is weigh these myths against the very real costs of its proposed “fix”– regulation of the internet under Title II of the Communications Act of 1934.
Imposing a sweeping new regulatory policy affecting a large, sprawling, and dynamic part of the economy should require rock-solid findings that market failures are serious and widespread and that the proposed policy can meaningfully boost the health of the industry and consumer welfare. The commission made no such finding of market failure and offered no cost–benefit analysis of its new policy.
The commission attempted a bait and switch. It used a prevailing narrative that the US had fallen behind in broadband deployment, speed, and usage to justify an unrelated policy to ban paid priority and other behaviors that might limit access to content or harm “edge” companies. Never mind that the policy did not logically follow from the narrative. The data showing that US internet users consume and generate far more traffic than anyone else (saving South Korea) helped disprove both the bait and the switch. Extremely high per capita and per user traffic demonstrates (and bolsters other evidence) that high-capacity networks were widely deployed and widely used. The high traffic figures also showed a healthy market for content flowing freely over those networks, contradicting the notion that ISPs were systematically blocking or throttling traffic, or even had a strong incentive to do so.
We face huge and complex policy issues in the digital world — cybersecurity, privacy, and the build-out of a vast new 5G wireless network, for example. Putting the Title II episode behind us will help encourage investment to expand access and allow us to focus energy on these other difficult matters.
There are no comments available.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2017 American Enterprise Institute