Be Careful What You Wish For: Broadband Regulation Could Aid Incumbents

Advocates of network neutrality, frustrated by a court decision limiting the Federal Communications Commission’s regulatory authority, are pushing for a simple solution: The FCC should “reclassify” broadband, now treated as lightly regulated “information services,” as much more strictly supervised “telecommunications services.” But if the FCC were to do this,  it could very well have the perverse effect of strengthening the dominance of incumbent carriers, especially AT&T and Verizon Communications.

Of course, there’s  the question of whether the FCC could actually get reclassification past the inevitable lawsuits. The traditional voice offerings of AT&T and Verizon are still regulated as telecommunications–or Title II–services. Cable broadband, however, has never been treated as a telecommunications service and it is far from clear that the FCC has any authority to do so. But let’s assume, for the sake of argument, that  such a move would pass legal muster. What might be the consequences?

Title II requires operators to act as common carriers, transmitting all traffic without  discrimination. This sounds simple and highly desirable in principle, but it practice it involves reams of regulations that keep the large and prosperous community of lawyers specializing in FCC matters very busy.  Michael Powell  grappled with these issues as FCC chairman from 2001 to 2005, a period of deregulation and enormous growth of broadband. In a recent interview with Cecelia Kang of The Washington Post, he said: “I hate the idea of Title II for broadband. I think we would really regret it because for a regulator versed in what it means, it means thousands and thousands of pages that would fall into this space and we would spend our lifetime trying to clean it up. And the real worry is that we will enter another prolonged period of litigation.”

Much as big companies hate–or profess to hate–regulation, they often prosper under it. Consider the history of the regional Bell operating companies (originally seven but reduced through mergers to Verizon, AT&T, and Qwest) and competitive upstart phone and broadband companies following passage of the 1996 Telecommunications Act. A major purpose of the act was to create a competitive market for local phone service. Unfortunately for the competitors, the Bells had a huge role in writing the language of Title II so they started with the deck stacked in their favor. And in the regulatory and court battles that ensured, they were able to use their superior understanding of the law and regulations and their vast legal and lobbying resources to slaughter the competitive local exchange carriers. By the time that technology posed a serious threat to the carriers’ traditional landline phone business, it was the incumbents, not the upstarts who were positioned to capitalize on it.

One argument made by proponents of reclassification is that the FCC could exclude broadband providers from the most rigorous requirements of Title II, a process called “forbearence,” that would keep stringent net neutrality rules as a stick in the closet. Powell dashes some cold water on this idea too: “Forbearance is a nonstarter. First of all, the commission can’t wave a wand and forbear. You have to go through analysis for every rule. Every phone company in America will file 1,000 forbearance petitions. We have Title II rules that go down to what badge you wear in a phone company.”

That’s why reclassification is a boomerang of an idea. Title II regulation is a rat’s nest of rules filled with the ghosts of long-dead technologies. Those with the deepest pockets, the most lawyers, and the DNA developed from living under these rules for many decades are going to be able to flip them to their advantage and we are all likely to be worse off.

I do think something needs to be done to clean up the regulatory messes of telephone, broadband, and cable services. The 1996 law was a clunker when it was written and the technological issues it was intended to address, such as competitive access to the  landline public switched telephone network, now seem like historical irrelevancies while contemporary issues, such as net neutrality, go unaddressed. But only Congress can fix the law. The prospect for doing this anytime soon are not very good,  but let’s not make matters worse in the meantime.

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