The
transcript
should be read in its entirety for a full appreciation of the panelists' comments. In the meantime, immediately below are selected excerpts of the presentations which provide an indication of the their perspectives.
The event also featured
Thomas Johnson
, the FCC's General Counsel, defending the lawfulness of the
Restoring Internet Freedom
order, and
Andrew Smith
, the FTC's Director of the Bureau of Consumer Protection. If you would like to watch the YouTube video of "All About Net Neutrality" event, it is
here
.
This panel discussion with
Seth Cooper
and
Theodore Bolema
begins at 36:40 on the video.
Theodore Bolema
[P]aid prioritization is one of the three conducts on the Internet that are given these bright-line bans by the
Title II Order
… I argue that market solutions are better for Internet consumers than any of the bans.
Now, in the
Title II Order
, the 2015 Federal Communications Commission spins a theory that if paid prioritization was allowed on the Internet, that would lead to fast lanes for traffic where senders pay for priority and then some slow lanes for everyone else… And then it goes on to theorize that allowing these fast lanes would mean that that creates a perverse incentive for Internet service providers to really give lousy service on the slow lanes in order to force everybody over to the fast lanes where they have to pay for the priority… That’s not a completely implausible theory, but there are some problems with it, not the least of which that there really isn’t much evidence that this kind of paid prioritization ever did lead to any anti-competitive problems. Whether it even happened in the first place is debatable. But if it did, there is really not any evidence that it led to any anti-competitive problems.
Even more fundamentally, paid prioritization really is all over the place in the economy. In fact, I can say with some confidence that everyone in the room has encountered a paid prioritization arrangement somewhere like in the last week or so, and also that you’re better off for having encountered it… For example, suppose you send a package for delivery, whether it’s through the post office or through Federal Express or one of the private carriers… You can choose. You can choose regular delivery, or you can choose priority delivery that will get your package there faster. So if that’s what you value, you can pay a little extra and get that faster delivery… But if you don’t choose to do so, I’m not aware of any systematic problems of mail carriers slowing down deliveries of their regular delivery service in order to force people to pay extra to get their priority service… Even going beyond that, these charges for faster delivery are a revenue source for the mail carriers. If they can make more revenues there, then there is some competition in the market. Most likely, what that’s going to mean is that, for those of us who might send our packages through the regular delivery process, the carriers have recovered some of their costs already from the priority service. So they can charge less to more price-sensitive customers for the regular delivery service.
All of this really took me back to something I encountered in the 1990s when I was a staff attorney at the Antitrust Division in the Department of Justice. And back then, we spent way too much time worrying about priority placement in retail stores like slotting allowances at grocery stores or at bookstores… Often, there is a paid prioritization arrangement going on there. Some of the retailers are paying to be on the end of the aisle where you walk right by and you see their products and others are not… According to the
Title II Order
’s theory, what’s likely to happen if that were allowed to continue is that, eventually, the grocery stores or booksellers would place the products that weren’t paying for paid prioritization in places where customers would never find them and eventually force their manufacturers to pay for priority placement. Does that happen in practice?... We’ve been alert to this issue for more than 20 years now. And I’m not aware of any examples of that happening. But even more to the point, as customers, we get benefits from this sort of priority arrangement. Presumably, the reason why some sellers want to have priority placement is to call a consumer’s attention to their product. They think we’ll want to buy their product if we notice it… So as long as the grocery store market is fairly competitive, if retailers are charging for paid prioritization for some products and they’ve taken this extra revenue, then, through competition, they are going to be forced to lower their margins on the products that aren’t paying for paid prioritization. So we’re getting lower prices on the other products as a result of that… Yet another benefit [of paid prioritization] is that this is really a great way of launching some new products. If you’re launching a new product that you want to get into a grocery store, you can pay a lot for TV and radio advertisements and all kinds of advertisements. Or you can pay a whole lot less and get priority placement inside of grocery stores. Rather than this being a scheme that will result in the biggest and best-established sellers coming out ahead on it, it may well, in fact, often work out just the other way around.
There is a federal agency that’s very good at evaluating these kinds of competition problems: The Federal Trade Commission… That’s the top agency in the world at looking at these sorts of things, as well as consumer protection issues. Now, the Federal Communications Commission has a lot of great people there too, a lot of outstanding economists...[B]ut they just don’t have the institutional structure in place that the Federal Trade Commission has right now. And the Federal Trade Commission has been at this a lot longer… [FSF President Randolph May] wrote a paper about a year ago in which he pointed out that, as a result of the
Title II Order
, we actually had a time where we had less consumer protection because the Federal Trade Commission had been precluded from its competition/consumer protection functions and the FCC was too new at this to be effective. So I think we are in much better hands now with the pre-2015 arrangement being restored, and the Federal Trade Commission being the lead agency on these sorts of issues.
Seth Cooper
In our book,
A Reader on Net Neutrality and Restoring Internet Freedom
, we address many aspects of these topics. One aspect, of course, is that overlooked question; the central legal question upon which the
Restoring Internet Freedom Order
will stand or fall at the D.C. Circuit. And that’s the statutory definition issue. The FCC's reclassification of broadband services as a Title I service, of course, has significant pedigree, as FCC General Counsel Tom Johnson just conveyed to us. Significantly, going forward, the FCC's determination will receive
Chevron
deference by the D.C. Circuit Court if it follows the
U.S. Telecom vs. FCC
decision… So, in other words, the court would not overturn the
Restoring Internet Freedom Order
's reclassification decision unless it were shown to be unreasonable and impermissible. I think that’s highly unlikely… I say there is no way it gets overturned under
Chevron
.
Now, an important result of the Title I reclassification of broadband is that it bolsters the case for federal preemption of state and local laws that conflict with federal broadband policy… So a handful of states have passed laws or issued executive orders that effectively seek to reimpose the repealed
Title II Order
at the state level. The
Restoring Internet Freedom Order
comes out and says, “Look, these are jurisdictionally interstate services.”… Broadband networks and the traffic do not conform neatly to state geographic borders. If a state tries to get involved in that, they are dealing with interstate commerce. It’s going to have spillover effects on those services in other states… The
Restoring Internet Freedom Order
taps into agency and court precedents that regard information services as jurisdictionally interstate, as interstate commerce. And the
Restoring Internet Freedom Order
taps into important court precedent that accords preemptive force to federal agency policies favoring market competition and deregulation… It’s very important: What we have here with
Restoring Internet Freedom Order
is not an abandonment of the field on broadband policy. The FCC did not create a vacuum for states to fill in however they wish. What they did is they established an affirmative federal policy favoring free market competition. So market competition is the policy. And they set up a deregulatory framework with FCC transparency rules and FTC enforcement on a case‑by‑case basis.
A few states have purportedly used their procurement powers in such a way that it effectively reimposes some of the
Title II Order
-like restrictions within their states… And as I discuss in the book, this, I believe, runs not only afoul of the general policy that I just discussed, but it runs afoul of the Supreme Court’s market participant doctrine. And under that doctrine, state and local governments do, importantly, receive immunity from federal preemption when they are using their procurement powers of buying and selling… That immunity comes when they are acting like another participant in the market. But what we’ve seen in a couple of cases here, with the case of Vermont or Montana, is they’ve exercised their procurement powers in such a way as to effectively constitute lawmaking… The doctrine is sensitive to that leveraging of procurement powers. And it does not confer immunity when that takes place.
Speaking of the [
Title II Order
] rules that were repealed, in our book I tackled the FCC’s general conduct standard or what it called its “unreasonable interference and unreasonable disadvantage standard.” So, in addition to the bright-line rules that it set up against throttling, blocking, and no-paid prioritization, the FCC adopted what Chairman Wheeler then called a "catch‑all.” It was a backstop. And that standard runs into a serious problem of “constitutional vagueness.”… Under the due process clause of the Fifth Amendment, laws cannot be vague. They have to provide sufficient precision and guidance to let providers and people know what kind of conduct is prohibited and what’s allowed. It also has to provide sufficient guidance and precision to prevent the agency from engaging in arbitrary or discriminatory enforcement… So [under the repealed
Title II Order
] you actually have a strange situation of a standard set out ostensibly to prohibit discriminatory conduct that leaves itself quite open to discriminatory enforcement. And it’s a “totality of the circumstances” kind of standard where the FCC set out five very vague factors for what amounted to unreasonable… It got a little bit worse when the FCC acknowledged that there could be additional factors that they’ve not named that will be part of the consideration and the analysis. And it got just a little bit worse still when the FCC also gave itself the authority to shift the burden of proof effectively onto the service providers… Fortunately, in repealing the
Title II Order
, we got rid of that kind of vagueness.
A PDF of the complete panel transcript is
here
.
