Opinion: President Obama’s problematic Net neutrality declaration

Evidently, President Obama thought Federal Communications Commission Chairman Tom Wheeler needed more than just a nudge.

Obama issued a new Net neutrality policy statement Monday, replacing his previous generic comments in support of the open Internet with specific steps he’d like the FCC to take to preserve the status quo. In particular, he called on the commission to reclassify broadband service as a utility subject to regulation under Title II of the Communications Act, then use that authority to ban Internet service providers from prioritizing data for a fee, blocking legal sites or manipulating how quickly content flows to and from its customers.

It was an unusually high-level effort to sway an independent agency, all five of whose members Obama appointed (although two were effectively chosen by Republicans). And it produced the predictable result: Advocates of the most stringent approach to Net neutrality said Obama was saving the Internet; service providers and others who are not so enthusiastic about government regulation said the president was breaking it.

But Obama seems to have underestimated how hard it will be to fit Title II to the task of protecting Net neutrality. And like many Net neutrality advocates, he also seems to ignore that restricting what ISPs can do with edge providers may also limit innovation and competition.

Just to be clear, Net neutrality is a vital principle, and the FCC is right to try to develop enforceable rules to protect it. The question isn’t whether the Net should be open, or whether service providers should be barred from picking winners and losers. The question is how do you impose something new on the Net that protects the status quo, rather than changing it?

Title II was designed to regulate communications pipelines that are both essential and largely immune to competition. That description is a pretty good fit for wireline broadband service to homes, which is typically provided by only one or two companies per community -- the local cable operator and the local phone company.

Much of Title II was not written with the Internet in mind, however. Instead, the goal was to stop local phone monopolies from gouging customers, engaging in price discrimination or withholding service from people in high-cost areas. When Congress amended it in 1996, it added provisions to force monopolies to open their networks to competitors that would offer rival communications services. The result is a slew of regulatory powers, most of which shouldn’t be applied to broadband providers.

Recognizing as much, Obama said the FCC should waive Title II’s “rate regulation and other provisions less relevant to broadband services” at the same time it applies Title II to broadband. The FCC can’t just do that, however; it has to go through a rule-making process to show that such an action is justified. In fact, some critics of applying Title II argue that the FCC will have a hard time making a case for waiving rate regulation, among other rules, because there’s so little competition in the market for wireline broadband access.

The ability to forebear is no small issue because, as Obama conceded Monday, imposing an extensive new regulatory scheme on Internet service providers that includes price controls could drive off their investors. And without investors, ISPs can’t raise the capital needed to keep expanding the capacity of their networks. That would be incredibly counterproductive, given that the best way to guard against ISPs picking winners and losers is to make sure there’s abundant bandwidth on the last mile. Prioritization never comes up if there’s no congestion.

Then there’s the question of how far the FCC could go under Title II. The law doesn’t prohibit telecommunications services from discriminating on their networks -- it prohibits them from discriminating unreasonably. Historically, that’s been interpreted not as a ban on tiered service, but as a requirement that tiers be made available to all at the same price. Some analysts argue that an ISP could establish fast lanes under Title II as long as it allowed any content or service provider to buy its way in.

But let’s assume that the FCC could impose an absolute ban on paid prioritization, as some contend. That would certainly be a welcome shield against Time Warner Cable teaming with, say, Hulu to deliver a video experience superior to anything a start-up Web video outlet might produce. (Granted, Hulu can do so already without any help on the last mile. But still.) Yet it’s not hard to imagine how a ban on paid prioritization might also block good things.

For example, AT&T points to its service for businesses that lets the customer decide which incoming data streams get priority. If an ISP could offer families the ability to give Internet video streams higher priority than online game feeds, software updates and email, wouldn’t that be a good thing?

Rima Qureshi, Ericsson’s chief strategy officer, notes that prioritization could conceivably be a tool for innovation too -- for example, by application developers whose services require latency-free delivery. “Maybe we haven’t imagined the capabilities or what such a network can do,” Qureshi said in a recent interview.

Finally, Obama’s plan would make Net neutrality rules “fully applicable” to mobile networks. Clearly, mobile data users need to be protected too from ISPs acting badly. But again, how are consumers harmed when mobile ISPs create new business models around data not to extract more revenue from content and service providers, but to compete against other mobile carriers?

One example is T-Mobile, which is exempting online music services from its data charges on a non-exclusive basis (in other words, all music services are offered under the same terms). Another example is Virgin Mobile’s offer of cheap data plans that provide access to only a handful of social networks. These are options, not take-it-or-leave-it offers. Shouldn’t they be on the table for consumers, even though they give favorable treatment to some kinds of online service?

Granted, it’s easy to think of variations on these themes that could actually be harmful to innovation and consumer choice. For example, if a mobile network waived data charges for Hulu streams but not for Netflix, that could tilt the competitive scales. That’s why some regulation would still be needed to stop anti-competitive behavior. Proponents of Title II argue that there’s no way to set such rules effectively unless broadband providers are reclassified as common carriers. But Title II has its own problems that policymakers can’t ignore.

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