Antitrust Provides a More Reasonable Framework for Net Neutrality Regulation
by
Joshua D. Wright *
[Below is the Introduction and Summary to this latest FSF Perspectives. A PDF version of the complete Perspectives, with footnotes, is here.]
Introduction and Summary
In 2015, the FCC departed from almost 20 years of precedent and reclassified the framework for regulating the Internet under Title II of the Telecommunications Act. This departure, done at the behest of President Obama, meant that Internet access is regulated as a "telecommunications service" under Title II rather than as an "information service" regulated under Title I. The effect of the 2015 Order is to classify Internet service providers (ISPs) as common carriers, regulating them like a public utility.
After classifying Internet service providers as common carriers, the FCC found it necessary to forbear from enforcing "30 statutory provisions" and rendered "over 700 codified rules inapplicable." Further, the FCC adopted no-blocking, no-throttling, and no-paid prioritization rules, as well as a general Internet conduct standard and "enhancements" to the transparency rule. In 2016, the D.C. Circuit affirmed the validity of the Title II classification in a divided decision.
In April 2017, the FCC issued a Notice of Proposed Rulemaking (NPRM) to end the Title II regulatory approach, and return to the lighter-touch Title I approach, which would again regulate Internet access as an "information service." The explicit rationale was to "reverse the decline in infrastructure investment, innovation, and options for consumers put into motion by the FCC in 2015." The NPRM proposes to eliminate the Internet conduct standard, and seeks comment on blocking, throttling, and paid prioritization. Finally, the NPRM proposes to return jurisdiction to the FTC to police ISPs, thereby shifting the regulatory approach from an aggressive ex ante regime to a more reasonable ex post framework.
One primary point of contention has been whether the 2017 NPRM will increase capital expenditures in the Internet ecosystem. Prior to the 2017 NPRM, the FCC claimed ISPs continued to invest at the same or even higher rates despite the imposition of a heavy-handed regulatory scheme. However, data indicate that between 2014 (the year before the 2015 Order) and 2016 (the year after) capital expenditures by broadband ISPs decreased by $3.6 billion, or 5.6%.
Another point of contention in the net neutrality debate concerns the reversion to the FTC of jurisdiction to police claims that ISPs unfairly or unreasonably discriminate against content providers and thereby harm competition. While there is no apparent dispute that the FTC's authority to prohibit deceptive practices can be deployed to reach broadband providers, there appears to be greater confusion about the appropriate role of antitrust and its domain in broadband markets. Some even go so far as to claim relying upon antitrust law amounts to no regulation at all. A useful comparison of antitrust law to alternative regulatory schemes, such as Title II, requires first an accurate description of what the former entails. A careful comparison makes clear that claims that antitrust amounts to "doing nothing" are a combination of overzealous advocacy and deception. But the more interesting issue is which regulatory framework - each with its own strengths and weaknesses - best protects competition and consumers.
Antitrust law has developed a sophisticated "rule of reason" framework to determine whether vertical agreements are procompetitive or anticompetitive. The rule of reason approach examines vertical agreements on a case-by-case basis by weighing costs and benefits and recognizing possible losses from enforcement errors that go in either direction. Despite the 2015 Order ban on vertical agreements by Internet service providers, rule of reason analysis would not similarly result in a total ban on vertical agreements because economics literature clearly indicates that while vertical agreements are capable of harming competition in the manner contemplated by net neutrality proponents, more often than not they are beneficial to consumers. Furthermore, with few exceptions, the literature does not support the view that these practices are used for anticompetitive reasons. In short, the vertical agreements at the heart of the net neutrality debate are generally procompetitive.
Economic analysis predicted the 2015 Open Internet Order ban on vertical agreements would likely harm consumers and depress investment. Now, empirical evidence is consistent with those predictions. Reclassifying Internet service providers under Title I would restore incentives to invest in broadband markets. A less obvious benefit is that it replaces the 2015 Order's categorical ban on contract arrangements that benefit consumers - including paid prioritization and other vertical arrangements - with antitrust jurisprudence's rule of reason. A close look at the antitrust approach shows not only that it can reach the harms envisioned by net neutrality proponents, but also that it is superior to alternatives that would condemn vertical arrangements in broadband markets without proof of harm to competition.
* Joshua D. Wright is a University Professor and Executive Director of the Global Antitrust Institute, Scalia Law School at George Mason University,
a former Member of the Federal Trade Commission,
and a Member of the Free State Foundation's Board of Academic Advisors. The valuable research assistance of Jay Kaplan and Thomas Rucker is gratefully acknowledged.
Read the complete
Perspectives, with footnotes,
here.
* * *
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