FCC Is Manufacturing a Broadband Access Crisis
Heavy Lifting Analyst Notes Stan Hubbard, Director, Communications & Research, MEF 5/11/2010
Genachowski's decision, part of the administration's "net neutrality" push, has all the characteristics of a government-manufactured crisis looking for a consumer broadband access problem – one that the Federal Trade Commission , the dissenting FCC Commissioners McDowell and Baker, Internet "Grandfather" David Farber, and other communications research experts feel simply does not exist in any systemic way. (See FCC Chair Proposes 'Third Way', FCC Declares War on Broadband .)
The FCC Chairman's reclassification of broadband Internet access brushes aside the regulatory framework of the past eight years, in which operators have invested billions of dollars in their access networks under four separate rulings that have classified all forms of Internet access as an information service. Genachowski's decision has potentially far-reaching negative implications for the industry during a new era in which government bureaucrats have demonstrated an unwavering commitment to exerting greater control over large sectors of the economy.
The FCC's traditional position has been that Internet access/cable modem services should not be classified as telecom services, because consumers always use high-speed access in connection with the information-processing capabilities provided by Internet access. This definition – first articulated in the FCC's cable modem service ruling in 2002 – evolved out of the Commission's history of distinguishing between basic services (e.g., regulated voice services) and enhanced services (e.g., unregulated computer-processing services offered over transmission lines), dating back to the "Computer II" rules of 1976. As noted in the US Supreme Court's ruling in the FCC's favor in the 2005 case FCC v. Brand X Internet Services, the wire that is part of the cable modem broadband Internet access service is used "to access the World Wide Web, newsgroups, and so forth, rather than transparently to transmit and receive ordinary-language messages without computer processing or storage of the message."
To hear from Chairman Genachowski and Commissioner Copps – who also supports reclassification of broadband access under the Title II phone service framework – you would think that broadband users were under serious threat if the Commission did not take reclassification action following the recent US Appeals Court ruling against it in the Comcast vs. FCC case.
Copps referred to the practice of treating broadband access under the more lightly regulated Title I framework as a "travesty" that has "caused consumers, small businesses, and the country enormous competitive disadvantage." Cobbs went on to suggest that the fallout from the Court's ruling against the FCC was the equivalent of a "near death experience." For his part, Genachowski claims that doing nothing in the wake of the Appeals Court ruling "can leave consumers unprotected and competition unpromoted, which itself would ultimately lead to reduced investment and innovation."
The warnings from Genachowski and Copps might sound convincing to some observers, but probably not to many of us with industry experience. The preponderance of evidence suggests that the minimal regulatory environment that emerged following the FCC's 2002 order most certainly has helped promote innovation, investment, competition, and broadband availability, as intended. The FCC's own recently published National Broadband Plan indicates that the number of Americans with broadband at home exploded from 8 million in 2000 to nearly 200 million in 2009. The authors of that plan concluded that "Today's broadband ecosystem is vibrant and healthy in many ways." Indeed, Americans have never enjoyed greater freedom in using their broadband access lines to conduct business out of their homes or obtain news, entertainment, education, and other information tailored to their specific interests.
Where is the evidence to support Copps's assertion that consumers and small businesses have been harmed by the FCC's traditional light-touch approach to broadband Internet access?
In April 2010, David Farber and 20 other scholars submitted a paper to the FCC titled, "Net Neutrality Regulation: The Economic Evidence." This paper reminded the FCC that an extensive report in 2007 by the Federal Trade Commission's Internet Access Task Force stated that the FTC was "unaware of any significant market failure or demonstrated consumer harm from conduct by broadband providers." According to the authors, "it remains the case there is no evidence, empirical, theoretical, or otherwise, to contradict this finding. If anything, the market for broadband services has continued to exhibit rapid innovation and increasing competition."
The academic researchers noted that during 10 years of experience, there have been only two recorded incidents of actual misbehavior by broadband ISPs: the Madison River Communications and Comcast Corp. (Nasdaq: CMCSA, CMCSK) cases. Both of these were remedied without the net neutrality rules proposed by the FCC and hardly qualify as empirical evidence of a problem.
Genachowski's FCC now faces the impossible task of compiling enough evidence of broadband access failures to rewrite history dating back to the 1990s in which the FCC has found that broadband markets are competitive. One would think we might all be better served by letting the extraordinary history of broadband innovation speak for itself, and having the FCC generally restrain its actions to the creation of guiding principles, rather than investment-stifling rules with questionable legal foundation.
— Stan Hubbard, Senior Analyst, Heavy Reading