FCC Commissioner: Reclassifying Internet as Utility Will Increase Costs to Consumers

Rudy Takala | February 26, 2015 | 10:04am EST
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FCC Commissioner Michael O'Rielly (FCC)

(CNSNews.com) -- Federal Communications Commissioner (FCC) Michael O’Rielly warned that reclassifying the Internet as a Title II utility would increase the cost of regulatory compliance, so many Americans would end up paying more for their Internet service.

“There are numerous small ISPs [Internet service providers] that will be caught in a Title II trap,” O’Rielly said Tuesday in remarks to the Wireless Internet Service Providers of America (WISPA) conference in St. Louis.

“Such regulation will create unnecessary burdens and costs for all small providers, including your companies, small cable providers, municipal broadband providers and others.”

The FCC is set to vote today on reclassifying the Internet as a Title II utility under the Communications Act of 1934, which would greatly expand federal control over broadband providers.

According to WISPA, 17 broadband providers provide access to 93 percent of Internet retail subscribers, while 3,000 small providers serve the remaining 7 percent. O’Rielly said that the FCC’s net neutrality plan was going to hurt those smaller providers.

“Notably, the FCC fact sheet regarding the net neutrality plan does not mention any accommodations for small providers,” O’Rielly said.

In a letter to FCC Chairman Tom Wheeler earlier this month, WISPA pointed out that fees and costs associated with the reclassification would squeeze many poorer Americans out of the market.

“Additional regulatory compliance costs would chill new broadband deployments as small broadband providers necessarily... slow expansion efforts and potential subscribers are priced out of the ability to pay,” the letter stated.

Compliance costs do not include payments to the Universal Service Fund (USF) required of telecommunication services. The FCC created the fund in 1997 in compliance with the Telecommunications Act of 1996 to subsidize access to telecommunication services.

Currently, Americans are paying fees of approximately 16 percent on their telephone bills to maintain the USF. For a user paying $45 per month for Internet service, that could translate into an increased cost of $7.25 on each bill under new net neutrality rules.

One former FCC commissioner observed last year that the introduction of USF fees to Internet service could amount to “perhaps the largest, one-time tax increase on the Internet” to date.

As a result, more Americans could have physical access to the Internet, but be unable to pay for it. “Fundamentally, [the USF fee] deters broadband adoption and use," O'Rielly has said.

"I know that there is a near unanimous view in Congress that state or local taxes on Internet access would directly deter the ability of consumers to obtain and utilize the Internet. If that is an accepted premise, as it should be, the same concept should apply to the net neutrality debate and its certainty to increase consumer bills.”

Moreover, O’Rielly said, net neutrality was a solution in search of a problem.

“Net neutrality rules have been premised on the incentives and ability of ISPs to engage in harmful conduct, not actual harms,” he said.

“I don’t believe we should be regulating based on hypothetical problems. But even if one accepted that premise, the argument breaks down completely when it comes to small providers,” he said.

“Companies trying to grow their businesses and add consumers [are] motivated to provide the best possible service, not block or degrade their customers’ connections. That’s especially true for small providers that face competition from established companies,” he added.

“Even if they wanted to engage in this practice, which is not the case, [small providers] lack the market power to do so.”

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