Regulatory Reform

Regulating Like Its 1934: The FCC’s Decision to Reclassify the Internet as a Public Utility

Why should the Internet—a “modern technology”—be subject to regulations originally drafted in the mid-1930s?

The Federal Communications Commission’s recent vote was less an adoption of “Net Neutrality” regulations and more a carte blanche redefining of Internet services. In redefining the Internet as a “public utility,” the FCC exposes Internet and broadband service providers to regulatory schemes crafted when rotary phones and switchboards were the norm.

We can only guess what the actual regulations will say for the next couple weeks, since FCC Chairman Tom Wheeler crafted them behind closed doors and has yet to release them. While we wait for the precise regulations, it is not difficult to guess the long-term impact Title 2 reclassification will have on Internet and broadband consumers.

The proposed reclassification will create a one-size-fits-all approach for consumers, pigeonholing them all into identical contracts, service plans and rates. To paraphrase President Obama’s statements when he was promoting the Affordable Care Act, “If you have an Internet service plan, you won’t be able to keep it.”

There are three ways in which the proposed reclassification hurts the consumer.

  • It Increases cost;
  • It Decreases innovation; and
  • It Stifles economic development

If the Internet becomes a public utility, the federal government will collect additional fees from providers, including the Universal Service Fund fee, drastically increasing the price that consumers pay for Internet and broadband access. When you include additional state and local fees resulting from reclassification, consumers could see Internet and broadband fees rise as high as $130 per form of Internet or broadband.

Consumers with multiple forms of broadband—say an Internet connection at home and a broadband enabled “smart phone”—would likely feel the impact of those fees twice, once for each Internet connection. Instead of $130 in additional fees, consumers would experience a $260 increase. With this significant increase in fees, it is not a stretch to suggest consumers would eliminate at least one form of Internet or broadband access to save money.

This, of course, says nothing for increases in compliance costs, as Title 2 will substantially increase the number of regulations to which Internet and broadband providers are subject. Reclassification will subject “every element of network engineering [to] the scrutiny of federal and state regulators.”

As consumers and capital exit the Internet and broadband markets, companies will reduce their overall investment into infrastructure. As companies reduce their overall investments into infrastructure, the growth of technology will slow. This means fewer future options for consumers and reduced infrastructure spending to support existing consumer demand.

As Internet and broadband companies divert resources away from infrastructure and technology development toward compliance costs, they will reduce workforces. Some economists, for example, estimate Title 2 reclassification will “adversely affect” about 1 million American jobs.

Whether the FCC has the authority to reclassify the Internet absent Congressional approval is entirely another question. In a January 2014 case, the U.S. District Court for the District of Columbia questioned the FCC’s attempts to implement net neutrality regulations. In a similar vein, FCC Chairman Wheeler opposed regulating broadband Internet in the same manner of the landline phone system as late as last winter.

During a speech last year, Chairman Wheeler identified the appropriate solution. According to the Wall Street Journal, he stated, “the government retain[s] the ability to intervene if companies are abusing their market power.”

In other words, existing rules, regulations, and regulatory agency oversight are sufficient to protect consumers from any service provider abuse. If a service provider crosses a boundary, harming the market or a class of consumers, the federal government can correct this harm.

When companies abuse their market power, whether to the detriment of the market as a whole or a class of consumers, the Federal Trade Commission’s jurisdiction is triggered. The FTC has the authority to enforce consumer protection laws and prevent anti-competitive monopolies. The FTC has, in fact, filed several suits on behalf of consumers it thinks are harmed by broadband companies.

The Internet—a modern technology—should not be subject to regulations first crafted when rotary phones and switchboards were society’s norm. The FCC’s attempts to reclassify the Internet as a public utility represent significant threats to consumer and Internet freedom. If successful, the cost of Internet access will increase, while the rate of innovation will significantly slow.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and …

+ Regulatory Reform In Depth