Commentary

Net Neutrality and Reclassification Make American Broadband Consumers the Real Losers

By Douglas Holtz-Eakin and Will Rinehart | November 17, 2014 | 10:51am EST

President Obama sent shockwaves through the network neutrality debate this past week by announcing his support of broadband reclassification (so-called “Title II regulation”). The move is equally startling and disappointing: presidents rarely offer such specific guidance and President Obama’s proposal isn’t likely to work as he intends it. Instead, the result would be regulatory chaos, years of legal wrangling, and a lost generation of consumer benefits from innovation and investment by Internet companies.

In its simplest form, network neutrality is the idea that all data should be treated equally and free when it passes over the Internet. While a superficially appealing notion, enshrining this idea into regulation is difficult and dangerous. For starters, networks must be constantly managed to ensure service. At any point in time, the cumulative burden of Netflix streams, LinkedIn invitations, Facebook posts, web surfing, Tweets, email, movie downloads, phone calls, and other content may threaten the ability of an Internet Service Provider to handle the volume.  This is why Internet engineers, beginning in the 1980s, built into the very core of the Internet the kind of differentiated treatment of data that many now decry.

More importantly, Congress never intended for the Federal Communications Commission (FCC) to have the kind of power that the President is pushing. At least eight different attempts by Congress to implement network neutrality rules have failed to pass. Unfazed, the FCC has tried on their own to push the rules. Both times that the rules were challenged in court, the FCC lost, and the reasoning was the same. The agency just doesn’t have the authority.

In the most recent court case that the FCC lost, the court seemed to suggest there was a path to net neutrality through reclassification. This proposal would take broadband services from their current and lightly regulated classification under Title I of the Communications Act and force them into Title II. Title II was invented to regulate telephone service; something that does only one thing — transmit voice signals — and was easy to regulate in 1934 because there was one long distance company and a single company handled local service in every town. It is packed with price regulations and mandates that simply do not make sense for a panoply of Internet-based services and multitudes of providers. Instead of proposing new legislation to be openly debated in Congress or rethinking the current law (as, for example, the Republicans have done with their #CommActUpdate project), the President and other advocates want to try to shoehorn the dynamic Internet into an octegenarian legal regime.

Tellingly, neither the FCC Chairman nor the Democrat Commissioners are sold on the idea of reclassification. Title II does not ban price differentiation, but in fact requires it. Thus, a primary goal of net neutrality won’t be achieved with reclassification. The ensuing legal morass will tie up the courts for at least a decade, adding regulatory uncertainty into broadband and forcing investors to think twice about investments.  AT&T has already announced a “pause” in its fiber investment plans and Google decided not to have a telephone service for their Fiber offerings due to the problems with Title II.

The real losers will be American broadband consumers.  There is the real possibility that nearly every Internet company could come under Title II regulations because of the law’s language. These are the same companies who have outpaced the anemic growth of the remainder of the economy in the past decade.  From 2004 to 2009, nearly 15 percent of all economic growth came from innovations in the Internet space.  Estimates place this sector to be about 5 percent of GDP, making it larger than agriculture, transportation, and the house rental sectors combined.  More onerous regulation means higher costs, which will be passed to families. Economically irrational regulation means less innovation and investment, to the detriment of consumers everywhere.  And poor regulation threatens the Internet economy that supports about 2.6 million jobs, which could be subject to new regulations if the President has his way.

The President and others like him who push for reclassification are making a dramatic policy error.  However well intentioned, it will harm jobs and consumers in a dynamic part of the economy. The Internet is open and free because it has not been regulated. Instead of spending our time fighting to put the Internet into an old legal box, we should be looking toward the future and ensuring it can continue to thrive.

The road to the future does not run through reclassification.

Douglas Holtz-Eakin is the President of the American Action Forum (AAF) and Will Rinehart is the Director of Technology and Innovation Policy at AAF.

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