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GUEST BLOG: Genachowski Approaches the Rubicon

By Randolph J. May*

A few days ago, after attending the NARUC Convention, I wrote this blog piece, “Genachowski at NARUC.” Based on the fact that Chairman Genachowski at NARUC emphasized an FCC mission focusing on catalyzing private investment, creating jobs, and competing globally - and did not even mention net neutrality regulation - I stated my hope that he had abandoned his campaign for Internet regulation.

My optimism may have been misplaced. Based on comments made in an interview with The Hill’s Sara Jerome, it looks like Genachowski may be intent on trying to force the FCC to promulgate new net neutrality mandates. In my blog, I stated:

“It is safe to say, even more so after this month’s election, that if Genachowski continues to pursue net neutrality regulation, without further congressional authorization, he will jeopardize his ability to accomplish those important pro-growth goals that he emphasized at NARUC.”

Put another way, Genachowski is approaching the Rubicon. It would be a big mistake to cross it.

If he tries to ram net neutrality regulation through the Commission, without further congressional sanction, when a significant majority of even this lame-duck Congress oppose this course, including some 70 Democrats, he will be taking a step that jeopardizes his ability to lead the Commission in ways that actually would help spur the private investment and job creation he professes to want.

Readers of this space are familiar with the reasons why I contend it would be unwise for Genachowski to continue to pursue the “solution in search of a problem” which is Internet regulation. Here are some of the salient points:

•There are many economic studies predicting that the imposition of net neutrality regulation will deter investment in Internet infrastructure. For example, a recent study by Stratecast, a division of Frost and Sullivan, forecasts that adoption of net neutrality regulation will impose in the first year “a seven billion dollar a year overhead on the economy with a commensurate job impact of up to 70,000 jobs. It is certainly true that no prediction of this kind is likely to be precisely right. But that misses the point. Even assuming that the prediction is off by 50%, do we want the government to impose new regulations at this time of 9.6% unemployment and sluggish private investment which will, according to most economists, deter jobs and investment?

•According to a recent poll by Peter Hart, the Democratic pollster, 75% of Americans think the Internet is working well. This is fully consistent with the conclusion of most economists that there is no present market failure or evidence of consumer harm in the broadband Internet marketplace. Obviously, if the Internet already were not characterized by openness, 75% of Americans would not respond the Internet is “working well”.

•In the absence of market failure and consumer harm, one can only conclude the ongoing net neutrality campaign is being kept alive by the notion that the net neutrality campaign promise made by President Obama to Free Press and other pro-regulatory groups must be fulfilled. First, the FCC, as an independent regulatory agency, should not be in the business of fulfilling campaign promises. But if the agency were in that business, and in any event, an enterprising reporter should ask President Obama to explain to the American people how new Internet regulation is going to spur the jobs and private investment the president claims to want.

•In the interview with The Hill, Genachowski said net neutrality is needed so the country can improve its broadband deployment efforts. There is no dispute that 95% of U.S. households have access to broadband. To the extent that targeted government support is necessary to help reach the remaining unserved households, through direct subsidies or otherwise, such support may be appropriate. But it is wrong to suggest deployment of broadband infrastructure will be encouraged by net neutrality regulation. As shown above, the opposite is true.

•As I pointed out in my “Genachowski at NARUC” blog, the session in which I participated at NARUC on net neutrality fairly quickly devolved into a discussion of what could be done to increase broadband adoption. The current adoption rate of over 65% is quite remarkable, considering the short span during which broadband has been ubiquitously available, and it serves no purpose to denigrate this progress. Nevertheless, the country surely benefits in various economic and social ways as adoption moves up the demand curve, and there are some steps the government properly may take to help in this regard, such as providing broadband vouchers to low-income persons. But anyone who thinks seriously about take-up rates for a moment will agree that implementing net neutrality regulations will not increase adoption rates. Another question for an enterprising reporter to ask President Obama: “Do you believe that consumers are not taking up broadband service because they believe the Internet is not ‘open.’” The answer is obviously “no”.

•In The Hill interview, Genachowski said: “I am glad I am not doing law full time anymore because of issues like this.” He should be glad, because if the Commission adopts his proposal to classify Internet service providers as common carriers, and, at the same time, attempts to forbear from applying certain common carrier requirements, this will be a risky, problematical legal route. In adopting the common carrier regulatory classification, the Commission would be reversing a determination that it took all the way to the Supreme Court in 2005 in the Brand X case. In the few years since, nothing has changed in the way that Internet access is delivered functionally by the ISPs. A close reading of Brand X will show that the Commission’s position before the Court, and the Court’s affirmance, turned on the acceptance of the assertion that, as a techno-functional matter, broadband Internet access fit the definition of “information services” contained in the Communications Act, and not the definition of “telecommunications services.” As a former Chair of the ABA’s Section of Administrative Law and Regulatory Practice, I understand - and I have written extensively about - Chevron deference and the discretion it affords the Commission to change its mind if it offers a reasoned explanation for doing so. (NOTE: My views here are my own, certainly not the ABA’s or anyone else’s.) Indeed, in Brand X, the Commission received Chevron deference for its determination that broadband Internet access services are unregulated information services. But the Commission would have to attempt techno-functional somersaults to try to rationalize why it now considers the same services it recently considered to be unregulated information services to be regulated common carrier services - all the while in the face of more Internet service provider competition than existed in 2005. Moreover, in the face of its heretofore overly restrictive interpretations of the agency’s forbearance authority, it also may be problematic whether the Commission can sustain any exercise of forbearance authority in this case. At best, the Commission would be embarking on a course in which years of litigation would be assured, while investment and innovation would be chilled awaiting the outcome.

In light of the above, it ought to be clear that Genachowski should abandon any plans to force net neutrality regulation through a deeply divided commission. If he truly believes that new Internet regulation is needed, despite what are likely to be adverse impacts on his professed jobs and private investment goals, he should work with Congress to craft legislation explicitly authorizing such regulation on an appropriately circumscribed basis. It is clear that a very significant majority of this Congress, and an even more substantial majority of the next one, oppose the FCC going forward without such an authorization.

When the bill drafted by Commerce Committee Chairman Henry Waxman surfaced back in late September, I said in a statement that it contained positive elements, and that, while further changes were in order to guard against excessive regulation, it provided a basis for continuing to pursue discussions concerning legislation that would provide the FCC with circumscribed authority over broadband Internet services. One of the positive elements of the Waxman draft was that wireless services, the fastest growing and most competitive segment of the broadband Internet market, were not to be saddled with net neutrality regulation. Surely, with the widely-acknowledged spectrum constraints confronting wireless providers, and the almost universally accepted need for wireless providers to engage in delicate network management practices in a dynamic environment, it would be a mistake of significant proportions for the FCC to impose net neutrality mandates on wireless providers when not contemplated by the Waxman draft.

If the reports are true that Chairman Genachowski is preparing to move forward without congressional authorization, he is approaching his Rubicon. He should carefully consider the reasons why he should not cross it.

*Randolph J. May is President of the Free State Foundation, a free market-oriented think tank located in Rockville, Maryland. He is the editor of the new book, New Directions in Communications Policy.