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The Federal Communications Commission (FCC) has embarked on what can only be described
as a “by any means necessary” effort to pigeonhole the Internet and broadband networks into
the regulatory regime of a bygone era. The ramifications of this crusade for the digital
economy will be profound, as it raises the likelihood of delayed or foregone investment,
discouraged innovation at both the core and edge of networks, and the increasing politicization
and bureaucratization of high-technology policy.
Luckily, there are constructive alternatives to such a destructive regulatory path. As explained
below, the better alternative would be based on: (1) a new legislative framework centered on a
Federal Trade Commission-like (FTC) enforcement model of ex post adjudication grounded in
antitrust law; (2) increased industry self-regulation, technical collaboration, and alternative
dispute resolution mechanisms; and (3) greater reliance on community policing and expert
third-party oversight.
Adam Thierer is President of The Progress & Freedom Foundation. Mike Wendy is Vice President of Press and
External Affairs at PFF. The views expressed in this report are their own, and are not necessarily the views of
the PFF board, fellows or staff.
1
See Berin Szoka & Adam Thierer, The Progress & Freedom Foundation, Net Neutrality, Slippery Slopes & High-
Tech Mutually Assured Destruction, PROGRESS SNAPSHOT 5.11, Oct. 2009, www.pff.org/issues-
pubs/ps/2009/pdf/ps5.11-net-neutrality-MAD-policy.pdf.
2
Comcast Corp. v. FCC, No. 08-1291 (D.C. Cir. 2010),
http://pacer.cadc.uscourts.gov/common/opinions/201004/08-1291-1238302.pdf.
FCC’s “ancillary jurisdiction” under Title I of the Communications Act was insufficient to allow
the FCC to regulate Comcast’s actions.3
Chairman Genachowski has now concocted an alternative regulatory blueprint that he
describes as a “Third Way.”4 He claims that, simply by reclassifying the transmission
component of broadband services under Title II of the Communications Act and adopting “a
restrained approach” to regulating it, America can have the best of both worlds: innovation and
investment, as well as (government-ensured) “openness.”
In reality, however, Genachowski’s “Third Way” is really nothing more than the old way the
agency did business for decades—and with disastrous results. The history of communications
under strict Title II regulation was not a pretty one: Stagnant markets, limited consumer
choices, and lackluster innovation were the hallmarks of the old regulatory era. In attempting
to protect consumers, federal and state regulations perversely harmed them by preserving
barriers to entry that thwarted robust (or even minimal) competition and innovation.
The Telecommunications Act of 1996 marked an important turning point in this miserable
history, as Congress finally acknowledged that facilities-based competition was possible and
preferable to the regulated monopoly era of the past. The purpose of the measure, as the first
six words of the Act made clear, was “To promote competition and reduce regulation.”5
Unfortunately, however, lawmakers were reluctant to completely cut ties with the past
regulatory regime, and open access rules were included in the Telecom Act that forced
incumbent telecommunications companies—but, importantly, not cable operators—to
unbundle and share with their rivals certain elements of their networks.6
Thankfully, between 2002 and 2004, the FCC gradually came back to the pro-deregulatory
intent of the Act and wisely began dismantling this “forced access” regime for incumbent-
provided broadband services. In doing so, it finally signaled to markets that the true era of all-
out facilities-based investment and competition was to begin. For wireline and cable
companies in particular, the gloves came off, unleashing a torrent of investment and growth
that continues to this day. Thus, it is frequently forgotten that America’s experiment with
facilities-based competition in the broadband world is really less than a decade old. Before
then, regulatory paralysis generally ruled the day; but since 2005, broadband providers have
been able to invest with greater confidence that they could recoup the cost of their significant
investments. This, in turn, has spurned heretofore unseen levels of digital innovation—at both
the core and edge of digital networks.
3
Barbara Esbin, The Progress & Freedom Foundation Blog, The Nobles Must Follow the Law, April 6, 2010,
http://blog.pff.org/archives/2010/04/the_nobles_must_follow_the_law.html.
4
Julius Genachowski, Federal Communications Commission, The Third Way: A Narrowly Tailored Broadband
Framework, May 6, 2010, www.broadband.gov/the-third-way-narrowly-tailored-broadband-framework-
chairman-julius-genachowski.html.
5
Telecommunications Act of 1996, Public Law 104-104, 104th Congress.
6
See generally Adam Thierer & Clyde Wayne Crews, WHAT’S YOURS IS MINE: OPEN ACCESS AND THE RISE OF
INFRASTRUCTURE SOCIALISM (2003).
Progress on Point 17.9 Page 3
7
Scott Cleland, The Harms of a Potential New FCC De-Competition Policy, PRECURSOR BLOG, April 5, 2010,
http://precursorblog.com/content/press-release-new-fcc-de-competition-policy-netcompetitions-fcc-nprm-
reply-comments.
8
Craig Moffett, Bernstein Research, U.S. Cable: Pulling the Plug... Regulatory Uncertainty Clouds Terminal
Growth Rates, May 10, 2010, at 3.
9
47 U.S.C. § 201.
10
47 U.S.C. § 202.
11
Federal Communications Commission, In the Matter of Preserving the Open Internet, Broadband Industry
Practices, Notice of Proposed Rulemaking, Notice of Proposed Rulemaking, GN Docket No. 09-191, 07-52 (rel.
Oct. 22, 2009) (“Open Internet NPRM”), at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-09-
93A1.pdf.
Page 4 Progress on Point 17.9
legal challenge, since the FCC would be unilaterally, without specific congressional authority,
upending the regulatory standard (and its underlying investment assumptions) that the cable
industry has operated under ever since it got into the broadband business.
Along these lines, reclassification efforts would likely end up with the imposition of common
carrier status on other entities that are not operating as common carriers today.12
Consequently, the question of “Who gets the regulatory tar and feathers?” will now be asked
about a broader array of actors, well beyond the “usual suspects.” What about wireless
providers of broadband? Or Broadband over Powerline (BPL) offerings (where they still exist)?
And do online service providers—search and application providers such as Google, Yahoo,
Microsoft, Apple, etc.— get brought into the ambit of regulation, too? For isn’t anything
connected to the network actually the network itself? And, if this is so, would it be so
implausible, given the nature of regulatory creep, to see these neutrality / reclassification rules
expanded to cover “port neutrality,” “search neutrality,” “device neutrality,” or “software code
neutrality,” among other proscriptions to keep the Internet “open” and “free”? And then there
are the services yet to be developed.
This is hardly a conjectural concern. Witness the fact that Rep. Cliff Stearns (R-FL) recently
introduced legislation calling for “neutral network neutrality” rules such that the FCC would be
required to enforce regulation “on a nondiscriminatory basis between and among broadband
network providers, service providers, application providers, and content providers.”13 And
despite Chairman Genachowski’s promise that “we’re not going to regulate the Internet,”14 the
reality is that, during his brief tenure, the FCC has been engaged in multiple efforts to extend
the reach of its regulatory tentacles to cover the Internet and online activity.15 The slippery
slope and regulatory creep thus becomes a very legitimate concern going forward.16 It could
become, as the title of a recent CNN Money column put it, “Armageddon, Brought to You by the
FCC.”17
12
Barbara Esbin, The Progress & Freedom Foundation, The Comcast Decision, the FCC's Third Way and the Next
Communications Act, PFF BLOG, May 7, 2010,
http://blog.pff.org/archives/2010/05/the_comcast_decision_the_fccs_third_way_and_the_ne.html; Barbara
Esbin, The Progress & Freedom Foundation, R.I.P. Ancillary Jurisdiction; Hello Common Carriage, PFF BLOG, Jan.
15, 2010, http://blog.pff.org/archives/2010/01/rip_ancillary_jurisdiction_hello_common_carriage.html.
13
Internet Investment, Innovation, and Competition Preservation Act of 2010,
http://stearnsforms.house.gov/UploadedFiles/Net_Neutrality_Bill.pdf.
14
Quoted in Amy Schatz, FCC Chairman on What It Means to Regulate the Internet, WALL STREET JOURNAL, Feb. 9,
2010, http://blogs.wsj.com/digits/2010/02/09/fcc-chairman-on-what-it-means-to-regulate-the-internet.
15
Berin Szoka & Adam Thierer, The Progress & Freedom Foundation, FCC’s Genachowski Promises He’s Not Out
to Regulate Net, New Media, PFF BLOG, Feb. 10, 2010,
http://blog.pff.org/archives/2010/02/fccs_genachowski_promises_hes_not_out_to_regulate.html.
16
Berin Szoka & Adam Thierer, The Progress & Freedom Foundation, Net Neutrality, Slippery Slopes & High-Tech
Mutually Assured Destruction, PROGRESS SNAPSHOT 5.11, Oct. 2009, www.pff.org/issues-pubs/ps/2009/ps5.11-
net-neutrality-MAD-policy.html.
17
David Goldman, Armageddon, Brought to You By the FCC, CNN MONEY, March 13, 2010,
http://money.cnn.com/2010/05/13/technology/net_neutrality/index.htm.
Progress on Point 17.9 Page 5
18
Brad Reed, What You Need to Know about the FCC’s Broadband Plan, NETWORK WORLD, May 7, 2010,
www.networkworld.com/news/2010/050710-fcc-broadband-plan.html.
19
Craig Moffett, Bernstein Research, Quick Take - U.S. Telecommunications, U.S. Cable & Satellite Broadcasting:
The FCC Goes Nuclear, May 5, 2010, at 1.
20
Id. at 2. Similarly, Anna-Maria Kovacs argues, “What is inevitable is a lengthy period of uncertainty, first about
the precise shape of the order, then about its fate in court, and then about the ways it will be implemented,
and then about the fate of the implementation orders in court…” Anna-Maria Kovacs, Regulatory Source
Associates, Telecom Regulatory Note, May 6, 2010.
21
Id. (emphasis original).
22
Early stock market reaction to the FCC’s new “Third Way” plan hasn’t been encouraging. “Since announcing
that the FCC will reclassify broadband as a Title II… service a week or so ago, Genachowski has placed a cloud
over cable stocks. Cablevision, Comcast, and Time Warner Cable are down anywhere from 6%-11% as the
government’s heavy hand of regulation moves closer to reality.” Bob Faulkner, The Cloud Hanging Over Cable
Stocks, MINYANVILLE, May 17, 2010, www.minyanville.com/businessmarkets/articles/cable-stocks-networks-fcc-
fcc-chairman/5/17/2010/id/28324?page=1.
23
Cable Companies: Bargains or FCC Targets? May 11, 2010, SEEKING ALPHA,
http://seekingalpha.com/article/204415-cable-companies-bargains-or-fcc-targets.
Page 6 Progress on Point 17.9
24
Net Neutrality Regulation: The Economic Evidence, April 12, 2010,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1587058.
25
Coleman Bazelon, The Brattle Group, The Employment and Economic Impacts of Network Neutrality
Regulation: An Empirical Analysis, April 23, 2010, at ii,
http://mobfut.3cdn.net/8f96484e2f356e7751_f4m6bxvvg.pdf.
26
Id.
27
Daniel L. Brenner, Creating Effective Broadband Network Regulation, 62 Federal Communications Law Journal
1, 45 (Jan. 2010), www.law.indiana.edu/fclj/pubs/v62/no1/8-BRENNER_FINAL.pdf.
28
47 U.S.C. § 151.
Progress on Point 17.9 Page 7
begun coalescing around the idea that the present “service-based” regulatory model—
exemplified by the Communications Act of 1934—cannot adapt to present day, let alone
evolving marketplace demands. Far from eschewing regulation entirely, though, there’s still a
role for regulators, albeit in a more limited manner, patterned to a large extent on notions of
competition theory and consumer harm instead of “title-based,” preemptive regulatory
meddling.
In 2005-06, The Progress & Freedom Foundation brought together over 50 scholars—a non-
partisan collection of lawyers, economists, engineers and other experts—with the ultimate aim
of crafting a new regulatory framework more appropriate for a frequently-changing
communications landscape. The resulting Digital Age Communications Act (DACA) project
proposed scraping the old regulatory “silos” (Title II for telecom, Title III for broadcast, Title VI
for cable) and replacing them all with a Federal Trade Commission-like “unfair competition”
standard. Under DACA, the FCC would retain some baseline regulatory authority to oversee the
marketplace, but this authority would be limited and based upon more settled principles of
competition law and economics—essentially, streamlined antitrust regulation. Serious
anticompetitive actions that lead to demonstrable consumer harm would still be policed and
punished under this model. But this would be done on a limited, case-by-case basis without
prejudging business models or practices or by imposing prophylactic regulatory regimes.
In essence, DACA stood for the proposition that an ex post approach to regulatory oversight
was preferable to ex ante forms of preemptive and prophylactic regulation by the FCC. Indeed,
the DACA model was based on a model we already have in place: antitrust laws and the
adjudicatory process administered by the Federal Trade Commission. The DACA experts,
therefore, advocated not that the FCC be abolished, but that an FTC-like enforcement model be
imported into the FCC.
To be clear, this is regulation. In fact, when the DACA working group released its initial
framework in June 2005, some critiqued the plan on the grounds that it did not do enough to
tie the hands of regulators. Others argued that there was no need to import a competition
policy regime into the FCC when the FTC and Department of Justice remain perfectly capable of
enforcing antitrust laws where anti-competitive conduct can be proven. While those concerns
are understandable, they’re also not very practical. Scrapping the FCC is untenable, especially
since the FCC still engages in some sector-specific forms of regulation (spectrum standards,
interconnection mandates, universal service administration, etc.) that Congress would likely
insist remain within the hands of a sector-specific regulator. Nonetheless, the DACA framework
would be vastly superior to the sort of heavy-handed regulatory approach currently on the
books, or the even stricter “Mother, may I?” approach that some Net Neutrality proponents
favor. DACA has the added advantage of not being as susceptible to the problems of regulatory
creep and regulatory capture.
29
Barbara Esbin, The Progress & Freedom Foundation, Ancillariness, the Definition Wars, and the Next
Communications Act, Progress on Point 17.8, May 2010, http://www.pff.org/issues-pubs/pops/2010/pop17.8-
next_communications_act.pdf; Tom Tauke, Prepared Remarks of Verizon EVP Tom Tauke New Democrat
Network Keynote, Verizon Policy Blog, March 24, 2010,
http://policyblog.verizon.com/BlogPost/714/RemarksVerizonEVPTomTaukeatNewDemocratNetwork.aspx.
Page 8 Progress on Point 17.9
Because DACA allows regulators to operate with a truly light touch, it would be the best model
for the FCC to adopt going forward to ensure that consumer welfare was served and beneficial
innovation was not thwarted by a cumbersome, preemptive regulatory regime at the FCC.
30
Statement of Robert McDowell, Open Internet NPRM, supra note 11 at 96.
31
Google and Verizon Joint Submission on the Open Internet, GN Docket No. 09-191; WC Docket No. 07-52, Jan.
14, 2010, www.scribd.com/doc/25258470/Google-and-Verizon-Joint-Submission-on-the-Open-Internet.
Progress on Point 17.9 Page 9
32
Richard Bennett, The Information Technology & Innovation Foundation, Designed for Change: End-to-End
Arguments, Internet Innovation, and the Net Neutrality Debate, Sept. 25, 2009, at 2, www.itif.org/files/2009-
designed-for-change.pdf.
33
nnsquad.org.
34
Id.
35
Brenner, supra note at 67.
Page 10 Progress on Point 17.9
inception, uncounted dedicated souls have worked to ensure that the Internet works,
period. Since the early days of state-run ARPANET, network management and Internet
governance initiatives have migrated further way from government regulation, not
closer to it. This evolution away from government intervention has been the most
important ingredient in the Internet’s success.36
That is the sensible path to continue along. Preemptive, prophylactic regulation of the Internet
and broadband networks, by contrast, will smother experimentation and entrepreneurialism
while stifling continuous technological improvements and investments.37
The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its
implications for public policy. Its mission is to educate policymakers, opinion leaders and the public about issues
associated with technological change, based on a philosophy of limited government, free markets and civil liberties.
Established in 1993, PFF is a private, non-profit, non-partisan research organization supported by tax-deductible
donations from corporations, foundations and individuals. The views expressed here are those of the authors, and do not
necessarily represent the views of PFF, its Board of Directors, officers or staff.
The Progress & Freedom Foundation 1444 Eye Street, NW Suite 500 Washington, DC 20005
202-289-8928 mail@pff.org @ProgressFreedom www.pff.org
36
Statement of Robert McDowell, Open Internet NPRM at 96.
37
As Bennett notes, “Steady improvement, punctuated by brief periods of radical disruption, is the normal state
of affairs in evolving technical systems and should not be feared. It is likely that the only principle of the
Internet that should survive indefinitely is the principle of constant change.” Bennett, supra note 32.