The government takes over the Internet

Phil Kerpen President, American Commitment
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Despite the protestations of Federal Communications Chairman Julius Genachowski that he has found a “third way” forward on regulating the Internet, the only place his path will lead is to a tightly-regulated, government-utility Internet.

Investment analyst Craig Moffett of Bernstein Research has referred to reclassifying Internet access as a Title II “telecommunications service” and regulating it like the old phone company as the “nuclear option” because it would devastate private investment by giving potential investors reason to fear a vibrant, innovative sector could be reduced to a public utility.

Chairman Genachowski promises that, while classifying the Internet as a regulated-utility phone system, he will also waive some of the requirements that would otherwise apply—a process known at the FCC as regulatory forbearance. But forbearance doesn’t solve the problems associated with reclassification, and in fact could exacerbate one of the central ones—uncertainty.

Indeed, the FCC considered the possibility of classifying Internet access as Title II and using forbearance to waive its most onerous provisions—as suggested by then-Senator Ted Stevens—back in 1998. The Commission, then chaired by Clinton-appointee William Kennard, wrote:

“Notwithstanding the possibility of forbearance, we are concerned that including information service providers within the “telecommunications carrier” classification would effectively impose a presumption in favor of Title II regulation of such providers. Such a presumption would be inconsistent with the deregulatory and procompetitive goals of the 1996 Act. In addition, uncertainty about whether the Commission would forbear from applying specific provisions could chill innovation.”

Back then, the FCC wisely opted for the hands-off approach, following the intent of the 1996 Telecom Act, of allowing the Internet to develop without heavy-handed government regulations. That policy has been an overwhelming success. The Internet has flourished into a remarkable engine of economic growth, innovation, competition, and free expression.

Such triumph argues in favor of continuing existing successful policies, but Chairman Genachowski would rather risk enormous uncertainty by setting down a legally dubious reclassify-and-forbear approach that would uproot precisely what has worked so well. Remarkably, he has the audacity to call this departure from 12 years of successful policy an attempt “to restore the broadly supported status quo consensus” that existed before the DC Circuit Court struck down the FCC’s proposed net neutrality regulations in Comcast v. FCC. But considering net neutrality rules had never been enforced in the past, it is really Genachowski, and not the court, that would deviate from the successful status quo.

Moreover, even if the FCC could perfectly navigate the lengthy and contentious process of forbearance on each of the many requirements of Title II, the international implications could still lead to the breakdown of the Internet as a global network. Indeed, that was another concern of the commission when it rejected the now-proposed reclassify-and-forbear approach back in 1998:

“Furthermore, although the Commission has authority to forbear from unnecessary regulation, foreign regulators may not have comparable deregulatory authority to avoid imposing the full range of telecommunications regulation on information services. If these countries were to adopt an approach that classified information services as telecommunications, without the ability to craft an appropriate regulatory framework, that approach could subject information service providers to market access restrictions or above-cost accounting rates. Such a result would inhibit growth of these procompetitive services, to the detriment of consumers in the United States and abroad.”

Such concerns about the international implications of a Title II approach are back, even inside Secretary Clinton’s State Department. Philip Verveer, assistant secretary of state and U.S. coordinator for international communications and information policy, recently responded to a question about the international implications of the reclassify-and-forbear approach by saying it:

“could be employed by regimes that don’t agree with our perspectives about essentially avoiding regulation of the Internet and trying to be sure not to do anything to damage its dynamism and its organic development. It could be employed as a pretext or as an excuse for undertaking public policy activities that we would disagree with pretty profoundly.”

So Chairman Genachowski’s supposedly moderate path forward will undermine private investment and risk disrupting the global nature of the Internet. That’s about as nuclear as it gets, and Congress needs to step in and stop him.