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With his new proposal, FCC chair Ajit Pai seeks to end net neutrality debate

The issue of net neutrality has resurfaced in the U.S., thanks to President Donald J. Trump’s administration’s new Federal Communications Commission (FCC) chairman, Ajit Pai.

Pai recently unveiled his plan to scrap net neutrality rules, despite widespread opposition, as reported by NBC News.

With Republicans holding a 3-2 majority on the FCC board, the plan is likely to be approved when voting takes place on December 14.

What is net neutrality?

It may sound like something Switzerland did in World War II, but net neutrality is actually a shorthand term for regulation designed to keep the internet as open and free as possible. It’s there to make sure your experience on the web is not dependent on your internet service provider, or ISP.

Publicknowledge.org, an organization advocating for net neutrality (whose funders, which include a mix of massive corporations like AT&T, Facebook, and Google, as well as smaller orgs like American Hospital Association and Writers Guild of America, can be found here), defines it this way:

Net neutrality is the principle that individuals should be free to access all content and applications equally, regardless of the source, without Internet Service Providers discriminating against specific online services or websites. In other words, it is the principle that the company that connects you to the internet does not get to control what you do on the internet.

The idea is to ensure that service providers – Comcast, Verizon, AT&T, and others – won’t be able to function as information gatekeepers, tailoring what you do and don’t see, and can and can’t access, to their own interests. Instead, under net neutrality rules adopted in early 2015, service providers are required to provide equal access to all content and services.

A brief history of net neutrality in the U.S.

Under President Obama, the Democrat-majority FCC went through a series of moves to implement net neutrality. In December 2010, the FCC enacted its Open Internet Order 2010, which established three basic rules “grounded in broadly accepted Internet norms”:

  • transparency, in which fixed and mobile broadband providers were required to “disclose the network management practices, performance characteristics, and terms and conditions of their broadband services”;
  • no blocking, which is what it sounds like; service providers were not allowed to block lawful content or any applications that “compete with their voice or video telephony services”;
  • no unreasonable discrimination, meaning fixed broadband providers could not choose to slow down or speed up any lawful traffic online.

After the D.C. Court of Appeals ruled the Order invalid in 2014 because the FCC had previously classified the service providers “in a manner that exempts them from treatment as common carriers,” the Commission reclassified them as telecommunications services under Title II of the Communications Act of 1934 and voted 3-2 along party lines (The Washington Post) to implement a new net neutrality plan establishing three “Bright Line Rules”:

  • No blocking;
  • No throttling, or slowing down lawful traffic;
  • No paid prioritization, or “fast lanes.”

After surviving a difficult legal challenge from service providers in June of 2015, the new rules went into effect. However, after being elected president, Donald Trump appointed a new FCC chair, Ajit Pai, who believes the “heavy-handed, utility-style regulation of internet service providers (ISPs)” has stifled innovation and competition, and is the reason that “broadband investment has fallen for two years in a row.”

His two fellow Republican commissioners, Michael O’Rielly and Brendan Carr, agree, according to the Los Angeles Times. After Pai released his plan, Carr publicly endorsed it, and O’Rielly, who has said he wants to review it before deciding, voted against the 2015 implementation.

Why is the FCC chair trying to kill what seems to be a popular regulation?

Pai’s plan to repeal current net neutrality rules involves three components, according to an FCC statement: reclassifying ISPs as “information services,” deregulating mobile broadband services and transferring policing responsibility to the Federal Trade Commission (FTC), meaning it’s the FTC, and not the FCC, that would be responsible for ensuring ISPs don’t engage in anti-competitive practices.

In his proposal, he explains the rationale behind these moves:

  • Regulating ISPs as public utilities will – and already has, according to the figures he presents – stifle industry investment and innovation;
  • Classifying ISPs under Title II is “a solution in search of a problem” – in other words, the evidence does not back up the assertion that stricter regulation was needed to ensure an open internet;
  • The Federal Trade Commission (FTC) has the power to prosecute consumer protection and antitrust violations, particularly given the pledges ISPs have made to engage in net neutrality practices;
  • Small ISPs, which tend to serve rural areas, are harmed under the current regulation, through legal costs incurred to ensure compliance, and because the “‘black cloud’ of common carriage regulations” makes it harder to attract investors.

As evidence for the claim that public utility-style regulation stifles investment and innovation, Pai observes in the Los Angeles Times that “among our nation’s 12 largest internet service providers, domestic broadband capital expenditures decreased by 5.6 percent, or $3.6 billion, between 2014 and 2016 … the first time that such investment declined outside of a recession in the internet era.”

Although Pai points out in his new plan that “trends in the data” don’t necessarily establish causation, he still concludes that “the stark trend reversal that has developed in recent years suggest that changes to the regulatory environment created by the Title II Order have stifled investment.”

Pai also cites telephone service as a telling precedent, observing that within the communications industry, “it is apparent that the most-regulated sectors, such as basic telephone service, have experienced the least innovation, whereas those sectors that have been traditionally free to innovate, such as internet service, have greatly evolved.”

As evidence for his “solution in search of a problem” claim, Pai cites “the paucity of evidence” that “ISPs engage in conduct that harms internet openness,” and argues that “other legal regimes — particularly antitrust law and the FTC’s authority under Section 5 of the FTC Act to prohibit unfair and deceptive practices — provide protection for consumers.”

The ISPs’ recent pledges to uphold net neutrality principles constitute legally binding agreements that, if violated, could be prosecuted by the FTC under consumer protection or antitrust law, Pai suggests, arguing that “the case-by-case nature of antitrust allows for the regulatory humility needed when dealing with the dynamic internet.” Another benefit of transferring policing responsibility back to the FTC is that “the same long-practiced and well-understood laws apply to all internet actors,” including edge providers such as Facebook and Google.

As evidence for his claim that small ISPs, and the rural communities they serve, are harmed by the current net neutrality rules, in the Los Angeles Times Pai cites negative feedback the FCC received from “nearly two dozen of them.”

What do ordinary Americans think of Pai’s plan to roll back net neutrality rules?

In standard federal practice, Pai’s proposal also called for public comments “on whether to keep, modify, or eliminate” the Bright Line Rules of 2015. The Washington Post reports that around 800,000 of the 22 million comments submitted contain generic text critical of net neutrality, raising doubts about the integrity and accuracy of public feedback.

New York Attorney General Eric Schneidermann has been investigating for potential fraud (Medium) after many people complained that they hadn’t written the comments attributed to them. The FCC, however, has “declined to cooperate with [Schneidermann’s] investigation … rebuffing requests for logs and other records associated with the comments.”

Schneidermann said he’d made at least nine requests for records since June, and all have gone unanswered. In a statement on November 22, the day after Schneidermann published an open letter to Pai, the FCC denied Schneidermann’s account, reports ABC Newsarguing it was motivated by politics: “This so-called investigation is nothing more than a transparent attempt by a partisan supporter of the Obama Administration’s heavy-handed internet regulations to gain publicity for himself.”

The FCC also said that most of the suspicious activity came from comments supporting net neutrality, “including 7.5 million copies of another form message it said came from a fake email generator and 400,000 comments … from one address in Russia.”

Another 1.3 million comments came from addresses in France, Russia, and Germany, according to the National Legal and Policy Center, a conservative political nonprofit that “promotes ethics in public life through research, investigation, education and legal action.”

Elsewhere, Reddit, the “front page of the internet,” was “awash with red in protest over net neutrality,” according to CNET’s Claire Reilly, “as dozens of subreddits lit up the social network, all linking to the same thing: the pro-net neutrality website called Battle for the Net.”

And as Ars Technica’s Timothy B. Lee reports, protests against Pai’s plan to scrap net neutrality will be held on December 7 in front of Verizon stores nationwide – chosen because Verizon has led the fight against net neutrality.

How are internet giants like Facebook and Google reacting?

Facebook, Google, and Netflix, along with thousands of small businesses around the country, have all come out publicly against Pai’s plan.

In an emailed statement to Business Insider, a Facebook spokesperson said: “We are disappointed that the proposal announced today by the FCC fails to maintain strong net neutrality protections that will ensure the internet remains open for everyone.”

A Google spokesperson said: “The FCC’s net neutrality rules are working well for consumers and we’re disappointed in the proposal announced [on Tuesday].”

Netflix, in a tweet, said, “We oppose the FCC’s proposal to roll back these core protections.”

A Reddit spokesperson said, “We will continue to advocate for and work constructively to maintain a free and open internet.”

The Internet Association, which represents Amazon, Dropbox, Microsoft, and Uber, among others, released a statement saying: “Chairman Pai’s proposal, if implemented, represents the end of net neutrality as we know it and defies the will of millions of Americans who support the 2015 Open Internet Order. This proposal undoes nearly two decades of bipartisan agreement on baseline net neutrality principles that protect Americans’ ability to access the entire internet.”

Some of the ISPs – most notably Comcast and Verizon – have pledged to uphold net neutrality principles regardless of the outcome. But past conduct indicates otherwise, according to Lifehacker’s Thorin Klosowski, who compiled a list of “the tricks broadband companies have pulled” since 2003.

 

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Talk (18)

Timothy Bond

"Yeah, that's basically the point of t..."

Gareth Lewis

"They could get funds from businesses ..."

Eric Fershtman

"These are fantastic questions. I've s..."

Timothy Bond

"So, p.10 is the argument that Interne..."

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With his new proposal, FCC chair Ajit Pai seeks to end net neutrality debate

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  1. Other

    I wonder if we can get more detail on the position of ISPs / Pai about how specifically the Title II classification is harmful, particularly if telecoms say they will abide by principles of Net Neutrality anyway. “Regulatory overreach” or “heavy-handedness” isn’t very specific and doesn’t make it clear to me what problem this is intended to solve.

    1. Rewrite

      Hi Timothy,

      Thanks for the comment. As mentioned in the article, Commissioner Pai believes the “telecommunications” classification is the reason that “broadband investment has fallen for two years in a row.” His other argument, which he made in that NPR interview referenced above, was that the internet worked just well for 20 years without the regulation, so why build rules around what he thinks is a nonexistent issue? Would love your help refining the article, if you think it’s not clear.

      Also, I’ve reached out to Commissioner Pai’s office for comment. If I hear back, I’ll update the article.

      1. Rewrite

        I wouldn’t say that’s unclear per se, but I think it needs further detail.

        By way of comparison, the section on Facebook/Google links to a Lifehacker article detailing specifically what might go badly for them/consumers on a post-net-neutrality Internet.

        The position of Pai/ISPs on the other hand is that Title II regulations decreased investment, and per the “Restoring Internet Freedom” FCC Fact Sheet and the subsequent “Myth vs. Fact: Setting the Record Straight on Chairman Pai’s Restoring Internet Freedom Order”, that the regulations stifled innovation and burden small ISPs, but it doesn’t explain WHY or HOW Title II regulations do that.

        Is investment reduced merely because the companies don’t have the ability to charge extra for things that would make them want to invest more? (The docs also assert this won’t happen, so presumably that’s not the meaning.) What about the rules burdens small ISPs? Is there some high cost associated with complying with them? Unlike the throttling/blocking concerns, I don’t understand the mechanics here, and I don’t know if his assertions are accurate at all.

        It’s also worth noting that the position that the Internet worked just well without the regulations is a little odd given the FCC also enforced a form of Net Neutrality rules from 2010 through 2014, just not under Title II (which eventually led to those rules being struck down in Verizon Communications Inc. v. Federal Communications Commission).

        TLDR: the negative effects of repealing Title II are clear and supported, the negative effects of leaving it in place could use the same level of detail/evidence if possible.

        Also, full disclosure, I work at Google (although not in any kind of PR or lobbying capacity and all of the above is my own personal understanding written on my own time).

        1. Rewrite

          Appreciate the effort being put into this discussion. Don’t have the time to update the article at the moment, but Pai’s press secretary pointed me to pgs. 10 and 91 of the fact sheet for more detailed explanation of why he believes classifying ISPs as telecommunications under Title II are not justified. I’d actually start at pg. 81, if you’re interested in the full argument.

          Here’s a link to the document: http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db1122/DOC-347927A1.pdf

          1. Rewrite

            So, p.10 is the argument that Internet access is necessarily an information service rather than a telecommunications service. I would say that’s something of an aside to the question I’m asking since it’s a question about legal frameworks and such, although it’s worth discussing in the overall context of this article certainly.

            Regarding p.81-91, it seems to distill down to this:

            1. The FTC can’t regulate common carriers, so getting rid of Title II would put them back in charge of ISPs.
            2. Since Title II only applies to ISPs and not edge providers, it’s an un-level playing field where one set of companies is more regulated than another.
            3. The FTC’s authority to “prohibit unfair and deceptive acts or practices” could prevent net neutrality violations. They could also be considered antitrust violations, and, where companies make voluntary promises to uphold net neutrality, the FTC could enforce their promises.
            4. Case-by-case enforcement by the FTC would “allow new innovative business arrangements to emerge” and “miminiz[e] the costs of overregulation”.

            And then on p.91 it returns to questions of legal specifics.

            So, the above arguments have the same problem I was getting at with the original question, in that they are fairly non-specific. If the FTC would be able to bring enforcement action against all of the net neutrality violations people have pointed out, then what’s the difference between the FCC regulating them under Title II and the FTC regulating them under antitrust and consumer protection laws? How is it unfair to ISPs if they’re regulated by the FCC and edge providers are regulated by the FTC if both are similarly strong regulators? What types of “innovative business arrangements” are permissible under FTC rules but not under Title II? What’s the cost of “overregulation” and how does it result from Title II and not from FTC rules?

            My overall concern here is that without more specific answers to these types questions, we’re basically just relaying Pai’s opinion, uncritically, but in a form that suggests it’s more of a factual statement. Or at the very least, I’m not sure how a reader would evaluate any of his assertions without more clear explanations – I know I can’t.

            1. Rewrite

              These are fantastic questions. I’ve sent them to Pai’s office, and will update accordingly when I receive a response. In the meantime, I’ve updated the article to provide more depth on Pai’s rationale, and the arguments presented in the proposal to support them. Also reaching out to ISPs to ask why get rid of these net neutrality regulations if they’re planning to abide by them anyway.

      2. Rewrite

        Addressing the ‘broadband investment has fallen for two years in a row’ portion, Business Insider has a recent article looking into the data the Pai is referring to, which doesn’t show a decrease but a relatively flat trend. http://www.businessinsider.com/fccs-claim-that-broadband-investment-has-dropped-is-flawed-2017-11 There’s also a report out by the Free Press looking into the this claim. https://www.freepress.net/sites/default/files/resources/internet-access-and-online-video-markets-are-thriving-in-title-II-era.pdf and http://www.businessinsider.com/broadband-investment-up-after-new-net-neutrality-rules-2017-5

        Other than that, I have yet to be able to find any specific claim from an ISP that the 2015 regulation actually prevented them from expanding their networks. Verizon even mentions on its website that they’re in the works of researching to get the next infrastructure ready (see link below). But I think it is definitely worth mentioning that, according to their earnings reports for 2015 and 2016 Comcast, Verizon, Charter, and TMobile have spent more on infrastructure investment.

        In 2014, Comcast spent $6.1B on infrastructure http://www.cmcsa.com/releasedetail.cfm?ReleaseID=897872, in 2015 they spent $7B http://www.cmcsa.com/releasedetail.cfm?ReleaseID=897872 and in 2016, they spent $7.6B http://www.cmcsa.com/releasedetail.cfm?ReleaseID=1009218

        Verizon’s infrastructure spending has remained about the same since 2015, but they’ve spent 26% more on wireless-improvements. http://www.verizon.com/about/news/verizon-reports-high-quality-customer-additions-4q-caps-year-position-drive-continued http://www.verizon.com/about/news/verizon-caps-transformational-year-strong-balanced-4q-results http://www.verizon.com/about/news/verizon-grows-its-strong-customer-base-profitably-4q

        Charter’s went from $1.3B to $3.4B http://ir.charter.com/phoenix.zhtml?c=112298&p=irol-newsArticle&ID=2219119 in 2016

        T-Mobile’s went from $3.2B to $3.8B from 2015 to 2016 http://investor.t-mobile.com/Cache/1001215619.PDF?O=PDF&T=&Y=&D=&FID=1001215619&iid=4091145

        1. Rewrite

          that’s assuming I was reading the correct numbers, of course…I’m still kind of new to reading earnings reports. 🙂

          1. Rewrite

            I got it from a different set of links, but I concur with your numbers for Comcast:

            2016 – $7.596 billion
            2015 – $7.040 billion
            2014 – $6.156 billion

            From http://www.cmcsa.com/secfiling.cfm?filingID=1193125-17-30512, which also says:

            “An increase in capital expenditures of 7.9% to $7.6 billion primarily due to:

            – an increased investment in line extensions, primarily for the expansion of our business services
            – an increased investment in scalable infrastructure to increase network capacity
            – the continued deployment of wireless gateways
            – the continued deployment of our X1 platform, which is now available in all of the markets in which we operate, and our cloud DVR technology, which is now available in substantially all of our markets”

            I haven’t checked through the other ones. Might be interesting to do so, time permitting. If the freepress numbers check out, 80% of the investment is just AT&T, Verizon, Comcast, Charter/TWC/BHN, and T-Mobile. Add in Sprint and CenturyLink and you’ve got 90%. Add Frontier and Windstream and it’s 95%.

        2. Rewrite

          The claim that investment trended down under Title II rules for two years in a row is based on data that the FCC Fact Sheet(http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db1122/DOC-347927A1.pdf) cites from https://www.ustelecom.org/broadband-industry/broadband-industry-stats/investment (actual PDF at https://www.ustelecom.org/sites/default/files/documents/Broadband%20Investment%20Trending%20Down%20in%202016.pdf). This is from USTelecom, a trade association representing various telecom/broadband companies (full list at https://www.ustelecom.org/who-we-are/ustelecom-members).

          Specifically, the FCC doc says “broadband investment has fallen for two years in a row—the first time that that’s happened outside a
          recession in the Internet era” which, based on the doc, apparently means 2006 – present, and claims capital expenditures are as follows:

          2014 – $78.4 bilion
          2015 – $77.9 billion
          2016 – $76.0 billion

          The freepress report you cite says those numbers are selective and uses the Census Bureau’s Annual Capital Expenditures Survey to come up with the following (from tables 4a and 4b at https://www.census.gov/data/tables/2015/econ/aces/2015-aces-summary.html, summing the categories “Wired telecommunications carriers, cable and other program distribution, broadband internet services providers”, “Wireless telecommunications carriers (except satellite)”, and “Telecommunications resellers, satellite, and other telecommunications”:

          2014 – $86.631 billion
          2015 – $87.184 billion

          The same report also has several quotes from industry execs that (the report asserts) show they’re saying to their investors that Title II doesn’t hurt investment, but I would want to chase down authoritative transcripts in context before I would necessarily assert that.

          As an aside, the investment numbers can’t really prove one way or the other whether Title II hurts investment, because there could be other factors, i.e. it’s just correlation not causation, which is part of the reason why I’m hoping (Pai, ISPs, etc.) will explain the *mechanics* of how it would hurt investment, since those are still fuzzy to me and I don’t want to entirely discount them based on vagueness, even if I am skeptical.

          1. Rewrite

            They could get funds from businesses that rely more heavily on the infrastructure, right? Although if the ISPs aren’t planning to give anyone preferential treatment then I don’t see how that would happen.

            1. Rewrite

              Yeah, that’s basically the point of the question – Pai seems united with the ISPs in their claim that they won’t charge anybody extra for anything, but also that they need Title II gone to be able to expand, so either there’s some third thing I’m missing or those are inconsistent claims.

  2. Rewrite

    I second that. Thanks Eric, a very useful and informative contribution.

  3. Other

    Thanks for this balanced and extremely valuable explainer. Remarkably neutral given the issues at stake.

  4. Rewrite

    When talking about Netflix and Google, it may be worth mentioning what percentage of bandwidth in the US is used by Netflix and YouTube (I believe it was around 50% two years ago, but not sure the best place to find updated numbers). Might also be interesting to discuss who will realistically be impacted by this (whether it’s just video streaming services) and if the possibility of legal content being blocked completely is realistic.

    1. Rewrite

      That is a great idea – the most recent numbers I’ve found are from a couple of years ago, too. Looks like about 70% among Netflix/Youtube/Hulu/Amazon: https://www.recode.net/2015/12/7/11621218/streaming-video-now-accounts-for-70-percent-of-broadband-usage

      Will keep rooting around for updated numbers.

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