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Regulating Internet Service Providers as Common Carriers Will Not Satisfy Net Neutrality Advocates

Robert E. Litan

Net neutrality – the notion that all internet traffic, regardless of its source, must be treated the same by Internet Service Providers (ISPs) — looks like the telecommunications equivalent of the Hollywood’sTerminator, it just keeps coming back.

In January, the Federal Court of Appeals for the District of Columbia struck down the Federal Communications Commission’s net neutrality rules on the grounds that the Commission could not impose the specific anti-discrimination requirements embodied in those rules, which prohibited telecomm carriers and content providers from negotiating rates for speedier delivery, because the Commission had previously declined to classify ISPs as common carriers. According to the Court, the inability to negotiate these rates was de facto common carriage.

In April, the FCC’s new Chairman, Thomas Wheeler, responded to the Court’s ruling with a blog post on the agency’s website giving up the effort to prohibit ISPs from charging content providers for faster delivery, but proposing that the Commission reserve the right to stop “unreasonable” pricing of priority delivery.

Wheeler probably added the backstop price regulation clause in an effort to mollify those who wanted a full-throated reinstatement of the earlier net neutrality rule, but with a different legal justification (that ISPs explicitly be subject to common carriage regulation) that Wheeler either doesn’t support or believe the courts will sustain. If that was his intention, it hasn’t worked. His fellow Democratic Commissioner, Jessica Rosenworcel, has urged a one-month delay of the vote on the proposal, which is scheduled for May 15. Meanwhile, the two Republican FCC Commissioners are opposed to the revival of any net neutrality proposal, which means that unless Wheeler can convince the other two Democrats on the Commission of the merits of his proposal, there will be no new neutrality rules to replace those that the D.C. Circuit invalidated.

Wheeler’s critics who urge reclassification of internet access as a common carrier function, regulated under Title II of the Communications Act, may be happy about the tariff filings, regulatory proceedings and the interconnection obligations that such a designation would bring. But they also may sorely disappointed in other ways.

For one thing, such a step could invite yet another round of litigation, or at least pressures for legislative changes in Title II, from the ISPs (and possibly others) largely on the grounds that there are multiple providers of internet access and thus competition in that activity, which distinguishes this function from the old telephony monopoly once held by the “old” AT&T (pre-breakup) and which was a true common carrier.

But even if the FCC somehow convinced the courts that multiple ISPs should be regulated as common carriers, or if Congress wouldn’t reverse the FCC, and thus subject ISPs to overall price regulation and broad anti-discrimination rules, Title II would not guarantee what many supporters of net neutrality apparently want: a prohibition of paid prioritization. There are several reasons why.

First, Title II does not require that all customers be treated the same. By its express terms, the title prohibits only “unjust and unreasonable” discrimination. It is well established that Title II carriers may offer different pricing, different service quality, and different service quality guarantees to different customers so long as the terms offered are “generally available to similarly situated customers.”

For example, telecom carriers now offer special access services to business customers that include (1) service level guarantees, (2) expedited and prioritized service installation and/or (3) expedited and prioritized repair.  These offerings are individually negotiated with the customer, along with the other terms on which the service is made available. Regulating the carriers under Title II should not affect these arrangements.

Nor does Title II require uniform pricing. For example, the following types of price distinctions have been permitted for years, and is not at all clear, or even likely, that Title II reclassification would compel a change in any of these practices:

  • Volume discounts — discounts that are available only to customers who commit to purchase services in larger volumes.
  • Term discounts – discounts available only to customers who commit to purchase services for specified terms, with longer term commitments commanding bigger discounts.
  • Multiple service discounts – discounts available only to customers who purchase multiple services.
  • Competitive necessity discounts – discounts needed to respond to competition may be offered on a selective basis.

In short, Title II regulation would not (without new legislation) deliver the claimed nirvana of the same price for any speed that net neutrality advocates seem to want. Putting aside whether legislative change to prohibit paid prioritization under Title II would be desirable (I personally do not believe it would be), it is not realistically going to happen any time soon given the current makeup of Congress.

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