The Recent FCC Ruling Will Not Kill the Internet – A Policy Brief by SIEPR’s Gregory Rosston

The recent rule changes will not kill the internet. Nor would not changing them (or getting struck down by a court challenge) kill the internet. We have had 20 years of broadband service. Access providers have invested a lot to increase speeds substantially under a variety of regulations. Edge providers have also invested dramatically over the past 20 years. Both sides are likely to continue to invest.

In short, the FCC’s regulatory classification of ISPs is probably not nearly as big a deal as people think it is.
(“Net Neutrality: Changing Regulations Won’t Kill the Internet,” SIEPR Policy Brief by Gregory Rosston, January 2018)

Last month, the Federal Communications Commission (FCC) voted to repeal the net neutrality rules it adopted in 2015 by approving FCC Chairman Ajit Pai’s Proposal to Restore Internet Freedom. This decision changed the regulatory framework governing internet service providers from a common carrier service classification (under Title II of the Communications Act) to an information service (regulated under Title I).

Net neutrality advocates state that Chairman Pai’s rescinding of Title II protections for broadband will harm innovation, consumers, and the economy. See “FCC’s Rushed, Technically Flawed Decision Will Harm the Economy” by Stanford professor Barbara van Schewick and “How the FCC's Net Neutrality Plan Breaks With 50 Years of History” by Columbia law professor Tim Wu.

Current congressional and legal actions to counter the FCC’s latest net neutrality vote are summed up in this C|net article: “Net neutrality allies are ready to fight. But can it be saved?”

Stanford’s Gregory Rosston provides his insights to the net neutrality debate in a policy brief he recently prepared for the Stanford Institute for Economic Policy Research (SIEPR): Net Neutrality: Changing Regulations Won’t Kill the Internet. Professor Rosston served as Deputy Chief Economist of the Federal Communications Commission, working on the implementation of the Telecommunications Act of 1996. Additionally, he has written extensively on the application of economics to telecommunications issues, as well as numerous articles on competition in local telecommunications and implementation of the Telecommunications Act of 1996. Professor Rosston is the Gordon Cain Senior Fellow at the SIEPR and Director of the Public Policy program at Stanford University; he is also a Professor of Economics by courtesy.

Below are a few excerpts from Net Neutrality: Changing Regulations Won’t Kill the Internet.

The phrase “net neutrality” sounds like something everyone should support and makes a great bumper sticker. But to fully understand the implications of net neutrality requires understanding what the bumper sticker means.

Access to Local ISPs
Understanding how content providers can connect to their customers through local ISPs is important for both legal and economic analysis of restrictions.

Content providers can send their content to local ISPs through content distribution networks (“CDNs”). These third-party companies negotiate deals with the local ISPs so that their customers don’t have to. Each local ISP negotiates deals with many different third-party CDNs so content companies have choices for CDN service.

In 2013, when Netflix traffic slowed on several ISPs, the debate was not about blocking but about who should pay to increase the capacity of traffic into the ISPs from the third-party CDNs Netflix was using. Ultimately, Netflix decided to enter into direct access connections with some of the ISPs.

Legal Issues
Congress provides several mechanisms for FCC regulation through the 1934 and the 1996 Telecommunications Acts. The two most important in the current context are in Title II that applies to “common carriers” and Title I that applies to “information service” providers — hence, “Title II” and “Title I” regulation. One key issue in the dispute is whether ISPs are common carriers subject to Title II regulation or information service providers subject to Title I regulation. The FCC, with oversight from the courts, makes this call.

While regulation differs from antitrust in many ways, antitrust provides a useful analogy. Antitrust law distinguishes between practices that are per se illegal (price fixing most prominently) because there are limited or no social welfare benefits and most other actions that have some efficiency justifications and therefore undergo a rule of reason analysis to assess welfare trade-offs. Title II regulation is more similar to a per se bar on actions whereas Title I regulation tends to be more akin to the rule of reason approach.

Read the full policy brief on Stanford Institute for Economic Policy Research (SIEPR): Net Neutrality: Changing Regulations Won’t Kill the Internet.

In the below video, Professor Rosston discusses the implications of the FCC’s recent decision and explains some of the arguments for and against net neutrality.

Read more of Professor Rosston’s work on the network neutrality:

• “An Antitrust Analysis of the Case for Wireless Net Neutrality” with Michael Topper (Information, Economics and Policy, Vol. 22 No. 1, March 2010 pp 103-119)
  • Also available, the TAP article summary.
• “Local Broadband Access: Primum Non Nocere or Primum Processi? A Property Rights Approach” with Bruce M. Owen in Net Neutrality or Net Neutering: Should Broadband Internet Services be Regulated (Thomas M. Lenard and Randolph J. May, editors, Springer: New York, 2006)