Some Thoughts on Net Neutrality

There are some points that I feel are lost in the larger discussion of net neutrality that we’re seeing on our newsfeeds and timelines. These include Federal Communications Chairman Ajit Pai’s stance on the role of the FCC in governance, the actual effect of Title II classification on Internet Service Provider investment, and the rather narrow scope of the definition of net neutrality. Check out this article before reading for a quick primer if needed.

Ajit Pai has conveniently changed his position regarding federal preemption.

He seems to have completely reversed his stance on federal preemption of state laws.

In 2015, the FCC preempted North Carolina and Tennessee laws to allow municipal electrical systems to provide broadband service outside of their service areas. In response, Pai wrote a dissenting memo¹ claiming that it was unlawful for the FCC to interfere with state sovereignty in this way. Pai uses court cases and previous precedent to explain why the Commission has no power to engage in rulemaking. The following are quotes from the dissention.

Furthermore, [this decision] is unlawful. Supreme Court precedent makes it evident that the FCC simply does not have the power to do what it claims to be doing. In taking this step, the FCC usurps fundamental aspects of state sovereignty…I do not believe this agency has the power to preempt.

He then suggests that federal meddling would interfere with the right of the states to determine such policy for themselves.

Through preemption, the Commission is attempting to provide municipalities in Tennessee and North Carolina with authority that their state governments have not given them. Such action would interfere with “State’s arrangements for conducting their own governments” because it would be inconsistent with the fundamental principle that a State has “absolute discretion” to determine the “number, nature, and duration” of the powers it wishes to entrust to its municipalities.

After walking through a set of cases and ruling, he uncategorically concludes the following.

Section 706 does not give the Commission the authority to preempt state restrictions on municipal broadband…

…What is clear, however, is that the FCC does not have the legal authority to override the decisions made by Tennessee and North Carolina.

Interestingly enough, this a section from the plan that Pai unveiled this past Tuesday²:

We conclude that regulation of broadband Internet access service should be governed principally by a uniform set of federal regulations, rather than by a patchwork of separate state and local requirements. Our order today establishes a calibrated federal regulatory regime based on the pro-competitive, deregulatory goals of the 1996 Act. Allowing state and local governments to adopt their own separate state and local requirements, which could impose far greater burdens than the federal regulatory regime, could significantly disrupt the balance we strike here. Federal courts have uniformly held that an affirmative federal policy of deregulation is entitled to the same preemptive effect as a federal policy of regulation.

Now that he’s leading the Republican majority on the FCC, he is quick to speak for as much of the country as he can. After previously scathingly suggesting that it was wrong for “three unelected officials in Washington, D.C.” to “purport to rewrite Tennessee state law on a party-line vote”, it seems like that’s exactly what Pai is doing given the opportunity.

Title II has not shown any indication of stifling investment or innovation.

Ajit Pai continually claims that having been classified under Title II (as “common carriers” and not internet services) has hurt the investment and innovation of internet service providers. The Free Press released a report³ suggesting that the ISPs have themselves denied that is true through their conversations with their investors and their actual financial data.

Here are some examples from the Free Press report⁴:

• In December 2016, the Comcast CFO was asked whether undoing the Title II reclassification would be beneficial for the company. He responded⁵:

I think in terms of what actually happens — I’ve been asked this — it’s the fear of what Title II could have meant, more than what it actually did mean. And, as you know, we very much believe in the principles behind what policy was trying to get at, but the overhang of where it could go in the future was something that I think had a chilling effect. Hopefully that chilling effect is gone; both from how investors look at the space and businesses look at the space.

• Comcast capital expenditures have jumped increased to over $9.1 billion in 2016, up from $8.5 billion and $7.4 billion in 2015 and 2014. despite claiming that FCC’s treatment of broadband providers “harms investment and innovation.”
• Capital investments at publicly traded ISPs were 5 percent higher during the two-year period following the FCC’s Open Internet vote than during the two-year period before it. Capital investments were higher at 16 of 24 publicly-traded ISPs during the two-year period following the vote.

Looking into the SEC filings, it is apparent than any declines or increases in growth or investment have been predicted and correctly explained by the companies as results of projects, M&A, service area changes, etc. None of them reference Title II as the reason for any trend, positive or negative.

So either the ISPs are either downplaying the effect of Title II to their investors or exaggerating its effect to the government.. Regardless, Ajit Pai should be careful about making statements saying the pre-Open Internet Order policies were abandoned “solely because of hypothetical harms and hysterical prophecies of doom_”_, when it seems like that’s exactly what he’s doing here.

We need to reexamine what we expect from a neutral Internet.

I do caution against is taking the same inflammatory rhetoric up in arms against the plan. Some of the tactics that the opposition used in July (and will probably use again) tend towards fear-mongering and portray a scenario that is highly unlikely given certain conditions that ISPs operate under. To some degree, net neutrality has already been compromised, and it hasn’t been the end of the world.

In February 2014, Netflix paid an undisclosed amount of money to Comcast for the right to place its own servers in Comcast facilities. Netflix was effectively paying for the right to have its traffic receive priority treatment on Comcast’s network, which had the potential to hurt other providers and competing streaming and content delivery services. It then made similar deals with AT&T and Verizon.⁶

Netflix speed on different ISP providers, deal with Comcast made in February 2014.

If we take some liberty with the spirit of net neutrality, it seems that online content shouldn’t be “favored, blocked, or slowed down by where it’s coming from.” In that case, Google has been favoring its own content on Google search for a long time already. A Wall Street Journal study suggested that ads for Google and its affiliate companies appeared in the most prominent spot in 91% of 25,000 recent searches. It further found that the top two ads were both for Google-affiliated products 43% of the time. All searches for laptops surfaced the Chromebook, 98% of those for watches surfaced the Android smartwatch, and those for smoke detectors surfaced Nest’s smart thermostat.⁷ The Wall Street Journal added that almost all these ads were pulled after it shared the story with Google.

This exposes a conflict of interest that we’ve come to accept — that these internet service companies like Google and Facebook that sell advertisements are also competing with those that they sell the advertisements to. And while they may deny engaging in any sort of favoritism, this doesn’t change the fact that they are legally able to. The difference between this behavior and that of an ISP routing Internet traffic more quickly to partner sites is then purely semantic.

My take is that it is somewhat misleading to come down hard on solely the ISPs without taking a holistic view of the entire playing field as it stands. The governing rules must be above all consistent and fair, and this will require us to redefine how we see a free Internet — even if this means infringing upon existing precedents or behaviors we have allowed thus far. The Internet has grown and evolved faster than the rules that it is accountable to. A lesson here is that as far as emerging technologies such as machine learning or autonomous vehicles are concerned, it’s never too soon to start thinking about policy and governance.

[1] Full text of the dissenting memo can be found at https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-25A5.pdf

[2] Full FCC plan to overturn the Open Internet Order can be found at http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db1122/DOC-347927A1.pdf, with the selected section on page 109.

[3] Full text of the Free Speech report It’s Working: How the Internet Access and Online Video Markets are Thriving in the Title II Era, https://www.freepress.net/sites/default/files/resources/internet-access-and-online-video-markets-are-thriving-in-title-II-era.pdf

[4] These specific examples from the Free Speech report are called out here n https://arstechnica.com/information-technology/2017/05/title-ii-hasnt-hurt-network-investment-according-to-the-isps-themselves/

[5] Full transcript of the call at Comcast Corp at UBS Global Media and Communications can be found https://consumermediallc.files.wordpress.com/2016/12/comcasttranscript.pdf

[6] This example, along with more detail about how an eventual rollout of deregulation might look can be found at https://www.aeaweb.org/research/will-an-internet-fast-lane-ruin-the-web

[7] WSJ study and additional details found at https://www.wsj.com/articles/google-uses-its-search-engine-to-hawk-its-products-1484827203