“The Darkest Day of the Year”: The FCC and Internet Regulation

COMMENTARY Government Regulation

“The Darkest Day of the Year”: The FCC and Internet Regulation

Apr 8, 2011 3 min read

Former Senior Research Fellow in Regulatory Policy

James Gattuso handled regulatory and telecommunications issues for The Heritage Foundation.

On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter’s night for Internet freedom.

FCC Commissioner Robert McDowell

On Dec. 21, literally the darkest day of the year, the Federal Communications Commission voted to adopt so-called “net neutrality” rules regulating broadband Internet providers. At issue is whether the Internet, arguably the greatest tool invented by man since the sharpened stone, will be controlled by government regulators or by private enterprise and consumers in a competitive marketplace.

Specifically, “net neutrality” refers to the principle that owners of broadband networks, such as Verizon and Comcast, should treat all traffic on their networks equally. This has long been an operational principle on the Web, although in practice there have always been exceptions, and the principle has never been enshrined in any law or regulation.

In 2005, the FCC took the first steps toward formalizing the net neutrality principle, adopting a set of four “guidelines”. These guidelines declared that consumers are “entitled” to run applications, connect to devices, and access content of their choice on the Web and enjoy a choice of broadband providers. While these guidelines were ostensibly non-binding, the commission relied upon them in an action against Comcast in 2008, when—in an effort to stop “bandwidth hogs” from interfering with Internet use by less intensive users—the Internet service provider slowed download rate for users of certain peer-to-peer software.

After the new, Obama-appointed FCC chairman, Julius Genachowski, took over the chairmanship last year, the commission quickly moved to expand the guidelines. They adopted a proposal to enlarge their scope and make them explicitly binding.

In taking these steps toward neutrality regulation, however, the FCC faced an inconvenient obstacle: Nothing in any statute gives the FCC authority to regulate the Internet. To get past this jurisdictional gap, the FCC relied on an odd legal theory known as “ancillary jurisdiction.” Under this doctrine, the FCC may regulate in areas where it has not expressly been granted power so long as such regulation is “reasonably ancillary” to areas where is does have authority. In other words, as in a game of horseshoes, close is good enough for FCC jurisdiction.

In April 2010, however, a federal appeals court flatly rejected this argument, finding that the FCC does not have “untrammeled freedom to regulate activities over which the statute fails to confer.”

Smarting from this loss, regulation advocates moved to get the congressional approval that the courts said they needed. Most notably, Rep. Henry Waxman (D–Calif.) floated a proposal to allow the FCC to stop “unreasonable” discrimination. This failed to get support, however, as has every other proposal to grant the FCC regulatory power over the Internet.

So it was back to square one for regulators, with the Dec. 21 proposal being a second effort to move forward with rules despite the absence of congressional approval. Like the Waxman plan, it forbids “unreasonable” discrimination, leaving the exact practices to be banned to case-by-case decision-making.

Interestingly, many hard-core regulation supporters – such as Senator Al Franken -- are disappointed with the plan because it doesn’t ban discrimination outright. That would be dangerous, as there are many reasons that differentiation among different types of content could make economic sense or even be critical to managing a network. With increasing demands on the Internet, certain types of prioritization common in other industries—such as selling premium or discount access to content providers—could benefit users. More immediately, growing use of the Web is making active management of that traffic (such as controlling bandwidth-hogging) critical.

While the FCC plan would not bar all discrimination, it would vest vast discretion in the FCC to determine what is allowed and what is not. What, after all, is “unreasonable” discrimination? The rules provide little help, providing only circular and vague guidance such as: “Reasonable network management shall not constitute unreasonable discrimination.” As a result, critical decisions as to what is permitted will be left to the subjective judgment of five FCC members.

The overall result would be bad news not just for Web surfers but also for the economy as a whole. Investment in broadband today is one of the few bright spots of the economy, with providers expected to invest some $30 billion per year in private capital into their networks annually for the next five years, creating hundreds of thousands of jobs. It’s also bad news for free speech --- as FCC regulators are inevitably drawn into debates as to what web content is treated in what way.

At the same time, it is still unclear how the FCC will manufacture the necessary legal authority to do any of this. The legal justification given for the new rule differs little from that rejected by the courts last spring.

But, even before the courts act, Congress may step in. Already, members such as Rep. Marsha Blackburn (R-Ky.) and Sen. Kay Bailey Hutchinson (R-Texas) has launched efforts to stop the rule, either by directly disapproving it under fast-track procedures established by the Congressional Review Act, or by withholding the funds necessary for the FCC to enforce it.

The FCC’s net neutrality vote in many ways represents exactly the sort of regulatory overreach and disregard for legal norms that voters rejected so forcefully last November. Now, legislators’ response to the new rules will be an early challenge for the new Congress, testing whether government’s growth will be stemmed, or whether business as usual will continue. As light slowly returns to the skies, Americans will be watching closely for the answer.

James Gattuso is a senior fellow at The Heritage Foundation.

First appeared in Bloomberg