FYI: To read the actual text of the just-released FCC Open Internet Order approved December 21st — click here.

Given the document is 194 pages (126 pages for the order and 68 pages in Commissioners’ statements), this Order is no “light touch.”

There will certainly be a lot here to digest… and to cause indigestion…

 

In our acronym-driven society, the FCC in its News Release on its Open Internet Order, does fairness and broadband providers a great disservice in creating a new definition for broadband service as “Broadband Internet Access Service” — or the acronym “BIAS.”

Given that the FCC has not proven its allegation with facts or analysis that broadband providers operate in a non-neutral or discriminatory way after eight years of looking for it, it is particularly unfair, discriminatory, and prejudicial for the adjudicative FCC to literally define the service that it is alleging to be non-neutral as “BIAS.”

With all the other potential permutations of words to define broadband service in a new way in order to impose net neutrality rules, it is an unfortunate and unlikely coincidental acronym.

Would it not raise the question that a judge was not impartial, if the judge created a term to classify a group of defendants that had the acronym “GUILTY?” or SCOFFLAW?

Does it not raise the question that the FCC is not an impartial arbiter of net neutrality disputes, if the FCC effectively re-classified broadband service as inherently “BIAS”-ed?

Does it not create the appearance that the FCC has made up its mind in pre-judging that a broadband provider’s service offering is “BIAS”-ed and inherently guilty-until-proven-innocent of alleged violations of net neutrality and openness?

 

The FCC’s 3-2 vote on its Open Internet order produces several big takeaways, despite there being no actual order to review.

Take-aways:

First, the controversy over net neutrality isn’t going away; it is on path to get more controversial.

The FCC signaled this was only the beginning of a broader FCC net neutrality rule making process.

  • FCC: The ~100 page discussion of the order reportedly indicates the FCC intends to tighten, extend and expand the actual ~2 pages of rules significantly over time.
    • Specifically, the FCC could consider extending more wireline net neutrality restrictions to wireless in two years, a position strongly opposed by the wireless industry and the facts.
  • Congress has indicated it could actively try and thwart implementation of the FCC’s order via a congressional resolution of disapproval, appropriations limits, and oversight.
    • See surprisingly strong warnings from: incoming House Speaker John Boehner; Senate Minority Leader Mitch McConnell; House Commerce Chairmen Upton and Walden; and Senate Commerce Ranking Member Hutchinson.
      • Note that the procedures of the Congressional Review Act create a relatively easy path for the full House and Senate to each have an up-or-down vote on these rules (subject to a Presidential veto), in the coming months.
  • Courts: Given that FCC rules are very often challenged in court, and given that at least one entity has publicly signaled it does “not support the final rule,” USTelecom, this FCC Open Internet order is very likely to be challenged in court; and there could even be a request for a stay.

Second, this FCC Open Internet order is unlikely to survive legal challenge.

  • The DC Court of Appeals rejected similar FCC legal justifications last year in overturning the FCC in the Comcast vs. FCC decision.
  • Moreover, the compelling dissents of FCC Commissioners McDowell and Baker provide the courts a detailed legal roadmap of all the order’s many serious legal vulnerabilities.
    • (For example, the FCC’s reliance on Section 706 for authority relies on logic that is at war with itself, i.e. it assumes the FCC’s previous interpretations of 706 were wrong and that the language says the opposite of what it plainly says.)

Third, this decision opens up more FCC regulatory cans of worms.

  • The FCC’s Open Internet order and its justification for sweeping legal authority, suggest that the FCC intends to extend its interventionist net neutrality thinking to: re-visiting special access, refereeing backbone peering contracts for the first time, turbocharging the all-vid set-top box proceeding for over-the-top providers, “opening” up the new ~500 MHz of wireless spectrum, and intervening in cloud computing competition via paid prioritization restrictions.

Fourth, net neutrality will continue to be a controversial political issue.

The political forces behind the synthetic creation of the net neutrality as a political issue, continue to generously fund FreePress and Public Knowledge. Both criticized the FCC’s Open Internet order for not going far enough. They want more regulation and they are not going away.

  • John Fund, the WSJ columnist, in “The Net Neutrality Coup,” exposes how several foundations have funded the synthetic manufacture of net neutrality as a political issue.

Fifth, the FCC Order is an industrial policy picking market winners and losers.

  • When the actual order language comes out, I suspect it to be replete with corporate welfare goodies for Silicon Valley interests.
  • Commission Baker spotlighted that the order favored online companies over consumers in that it allowed usage based pricing for consumers, but prohibited it for online companies.
    • This means Silicon Valley companies could enjoy mandated implicit distribution subsidies potentially worth billions of dollars over time.
  • What many don’t appreciate is that the fight over no paid prioritization is old-fashioned protectionism — effectively protecting Silicon Valley cloud computing providers from broadband competition.
    • At core, the FCC has tilted the playing field to favor Open Internet Coalition “edge” members like Skype, Google, Amazon, IAC, Netflix etc.

Sixth, in this order the FCC is effectively declaring “open season” on the Internet around the world.

  • As Commissioner McDowell appropriately warned, the U.N. is already angling to use the uproar over Wikileaks to make a run at having the U.N. regulate the Internet globally.
  • This FCC Open Internet order adds fuel to that fire.

Moreover, the fact that the FCC is taking the lead in intervening in the Internet for the first time will provide political cover for every repressive regime to crack down on its populace’s freedom, by just defining “openness” and “reasonableness” in their own self-serving way.

  • The FCC’s disrespect for the Constitution, the law and due process is a terrible example for the rest of the world to emulate.

In sum, this unnecessary and unwarranted FCC Open Internet order is, and will continue to be, a big deal for a long time.

  • It also can be expected to badly distort market decisions and outcomes until the courts and/or Congress effectively rein it in.

 

FOR IMMEDIATE RELEASE

December, 21 2010

 

Contact: Scott Cleland

703-217-2407

 

FCC Unilaterally Trying to Change the Internet from Competition-Driven to Regulation-Driven

 

WASHINGTON – Scott Cleland, Chairman of Netcompetition.org, released the following statement regarding the FCC’s December 21st Open Internet order.

  • “The FCC’s new unilateral ‘de-competition’ policy threatens to break what works on the Internet. This unauthorized and unwarranted policy U-turn predictably will create exceptional, unnecessary uncertainty.”

 

  • “The FCC is unilaterally trying to change the Internet from being competition-driven to being regulation-driven, without proving market failure or a problem exists, with no fact-based justification for unprecedented Internet intervention, or with no clear statutory authority or support from Congress.”

 

  • “At its most basic level the Internet is a voluntary consensus standard for communicating and transmitting information. The real danger here is that by imposing unnecessary and coercive rules on a voluntary consensus-based system, the FCC itself blocks, degrades and impairs the Internet’s proven method to evolve, improve and keep pace with exploding demands. At core, the Internet’s voluntary consensus approach is why it works and works so well. The real folly and regulatory hubris here is trying to force change on the voluntary Internet without the permission or consent of Internet consensus, Congress or the Courts.”


  • “The crux of the FCC’s legal problem with this order will be the extent to which the FCC endeavors to make up an entirely new definition for a part of the Internet that is in direct contradiction to the law, precedent and Congressional policy. Only Congress has the constitutional authority to legislate and decide which industries are regulated.”

NetCompetition.org is a pro-competition e-forum representing broadband interests. See www.netcompetition.org.

###

If David Hatch’s National Journal “exclusive” report is accurate, that the FCC’s proposed Open Internet order is being changed to become much more regulatory in: “addressing concerns about wireless carriers, limiting Internet toll lanes, and adding protections for a new online pricing model” — the FCC would be hurtling itself headlong down the very slippery slope of highly-destructive FCC Internet price regulation and micro-management.

The huge folly of this trajectory is that its hard enough trying to write an enforcement solution to a non-existent problem, it is mind-numbingly difficult to imagine that the FCC can economically price regulate and micro-manage the international Internet ecosystem.

If this is the direction the FCC is headed, it is the ultimate in regulatory hubris. Not only does the FCC have no legitimate justification, rationale, authority, or consensus to micro-manage the Internet with unprecedented price regulation, the FCC has no proven regulatory competence, business expertise, or analysis on how to achieve this equivalent of doing brain surgery in mittens on a roller coaster in the dark.

What is being discussed behind “closed” doors to ostensibly “open” the Internet by trying to referee and economically pre-determine outcomes for thousands of international Internet networks which link a couple hundred million Americans to tens of billions of websites and applications — is orders of magnitude more complex than what the FCC attempted and failed miserably at in the 1990’s in implementing the 1996 Telecom Act.

At a relatively much easier task, the FCC failed spectacularly in trying to micro-manage the CLEC and fiber backbone bubble that ultimately burst into widespread bankruptcies.

  • The FCC failed then because it hubristically imagined it could centrally plan and manage the Nation’s communications networks better than their owners and operators.
  • The FCC failed trying to centrally manage an inherently centralized technology of the national public switched telephone network.
  • This Internet task would be orders of magnitude more difficult because it is much more de-centralized, competitive, complex, and international than what they attempted and failed at before.
    • The number of variables that the FCC would have to put into and guess at in an FCC Internet price regulation econometric model is mind-boggling.

In sum, there is zero evidence that the FCC has learned from its past disasters in trying to micro-manage market outcomes by regulatory fiat, or that the FCC has any competence to tackle this sisyphus-ean task.

  • Make no mistake, the outright bans of currently legal economic competitive behavior and innovative business models that the FCC is apparently considering, are among the most severe, distorting and destructive type of price regulation there is.

The Internet is not broken, but FCC Internet price regulation and micro-management would break it.