FCC Aborts Internet Innovation with Title II Approach

by Bailey Edelstein

In February 2015, rules were passed by the FCC to re-classify the Internet under Title II of the Communications Act of 1934, but some are wary this heavy regulatory approach will kill Internet innovation softly.

(Above) A router configured for combined broadband Internet access shows all green lights, indicating a successful  connection through an Internet Service Provider (ISP). Photo by Bailey Edelstein

The Federal Communication Commission (FCC) assumed a more active role in regulating how Internet Service Providers (ISPs) deliver data services to customers starting Feb. 26, 2015, when they passed a new set of rules guaranteeing the Internet would remain “net neutral” for future generations. To do this, they re-classified the Internet under Title II of the Communications Act of 1934, re-defining the technology as a “public utility.” This re-classification is riling up the big dogs like Comcast and Verizon for regulatory reasons, but is also raising concern for the lesser-known ISPs and garage “Net-trepreneurs” who were promised opportunity for competition and the potential for easier entry into the Silicon Valley marketplace.

Internet Service Providers will be treated like phone companies under Title II, which is part of regulatory legislation from the 1930s. Some worry this reclassification may hinder the Internet’s innovational growth and discourage competition among ISPs. Republican Federal Communications Commissioner, Ajit Pai, and the legal advisers at a telecommunications advocacy group called Tech Freedom are among those voicing concern about competition. Their opinions on the Title II route to net neutrality suggest bad news for American consumers who could see additional taxes and fees, a bleak future for small ISPs who are starting or growing their businesses, as well as slowed deployment of advancements in Internet technology and a decrease in affordable access.

“Media often conflate the issue of net neutrality with Title II. There is largely a bipartisan consensus on core net neutrality principles,” said Evan Swarztrauber, the Communications Coordinator at TechFreedoom, a technology policy think tank in DC that is fighting against the FCC’s Title II classification of the Internet.

The net neutrality principles prohibit ISPs from blocking access to sites, throttling or increasing Internet speeds and allowing paid prioritization, where content providers like Netflix and Google can pay for faster loading speeds for their web content. In an interview with Brian Dietz, the Vice President of External Communications and Media Strategy for the National Cable and Telecommunications Association (NCTA), he explains why this Title II regulatory approach went too far.

“[The Title II classification] is the kind of issue where it actually hurts the small companies a lot more than the big companies because the big companies tend to have a lot of lawyers already,” Dietz said. “Small companies don’t and this is where it tends to become problematic for them.”

The NCTA represents the cable operators who provide service to 90 percent of cable households nationwide, 200 special programs including ESPN and National Geographic Channel, and the equipment providers, who supply the cable-boxes, routers and wire fixings for Internet access. The NCTA advocates on behalf of the big guys like Comcast who serve more than 15 million broadband customers, as well as the little guys in rural areas that include the Midwest, Minnesota, Iowa and Alaska who could have as few as 200 customers.

“We’ve seen some phenomenally great projects come out over the Internet—I mean Google started in the garage, Netflix, all of these services that we now take for granted all started as very small companies and grew into the big ones they are now,” Dietz said. “The problem with Title II is that it makes it much more difficult for any company to get into the business.”

In 1989, Sir Tim Berners-Lee invented the World Wide Web which has served as a platform for unprecedented opportunities for innovation and communication. The FCC adopted the net neutrality principles using Title II with the goal of preserving Internet openness. Members of the telecommunications industry are upset that this New Age technology is being paralleled with the 100 year old invention of the telephone.

“[Back then], people really had to be worried that [the phone company] would abuse their power and do things that would harm consumers,” Dietz said.

Public Knowledge, a technology policy advocacy group that represents consumers, agrees with the FCC’s Title II approach to employing the principles of net neutrality. Vice President, Michael Weinberg, sees the Internet and telephone networks as compatible entities and applicable under the same legislative umbrella.

“[Our role is in] advocating to make sure that on the larger scale, the kind of protections we kind of assume we have in the telephone network right now, continue to exist on whatever network it is [we are using] in the future,” Weinberg said. “And certainly within the protections we think of as key to net neutrality, are key between us and our network providers.”

The ISP companies and the and organizations advocating on their behalf didn’t see a completely unregulated approach as the appropriate means of securing net neutrality. However, they hoped the rules would be implemented with similar light-touch regulations the Web has been under since its conception 26 years ago.

“There is never a case where more regulation makes business easier,” Dietz said. “We agree that some regulation is necessary and it’s good for consumers but there is a place where you can go too far. [The FCC] said they were going to do net neutrality and they went way beyond that.”

Joseph Montgomery, Owner-Operator of an small ISP company called “Wicked Broadband” based in Lawrence, KS agrees that a heavy regulatory Title II approach will pose obstacles for growth of small ISPs like his.

Joshua Montgomery, Owner/Operator of “Wicked Broadband,” a small ISP based in Lawrence, KS.
Photo courtesy of arstechnica.com.

“With the Title II stuff, yes it is big for consumers who are currently consuming their content from the cable conglomerates—which is most consumers,” Montgomery said. “But in terms of promoting competition, I don’t see that. All it is going to do is create headaches for smaller ISPs.

According to a report on “Competition Among U.S. Broadband Service Providers,” by the U.S. Department of Commerce, “Market competition can significantly affect consumer prices.” With cost of Internet service as one of the primary issues restricting more than one quarter or American homes from acquiring Internet access, they set out to analyze how many ISPs are available to consumers at different levels of download speeds. They found that most Americans have the choice between two.

“We [created an ISP start-up] as a community service. In terms of it making financial sense, building one of these makes no sense at all,” Montgomery said. “There are very few of us out there [in the United States] who have done it and in our case, we have pretty much given up the concept of growing and are now diversifying into other projects.”

In January 2015, the Executive Office of the President published a summary on “Community-Based Broadband Solutions: The Benefits of Competition and Choice for Community Development and High-speed Internet Access,” which explains the importance of increasing the number of options a consumer has when deciding which ISP to use for their home or business.

The summary states: “Basic economics suggests that increased competition leads to a better deal for consumers.”

Title II could increase regulations and heighten barriers to enter the already inflexible ISP marketplace which would mean fewer consumer choices for affordable Internet.

“If there’s more regulation involved it just becomes much more difficult for a new company to get into the marketplace,” Dietz said.

Number of choices American consumers have when it comes to choosing what ISP’s type of broadband to subscribe to: classified as “Fixed” (via ADSL fiber optic cable/ telephone wire) , “Mobile” (wireless access via mobile phone technology) and “Combined” (via modem and wireless router) to demonstrate how varied a consumer’s choice in broadband is and whether that connection is sufficient. Graphic by Bailey Edelstein.

In 2013 a Pew Internet Research Project indicated that 70% of Americans have high-speed broadband connections at home.If consumers are cornered into choosing from minimal options of ISPs and the available provider’s pricing options exceed that consumer’s budget, they will likely not pay for access and be sentenced to join the population of unwired America. The Executive Summary indicates that facilitating competition for ISPs could, in fact, diversify consumer choice instead of perpetuate America’s Digital Divide.

“If [you, the consumer are] in rural Iowa or rural wherever, you may not get that service for another couple years or may have to rely on something else because the cost of Title II and this additional regulation makes it too burdensome to [acquire those updated services],” Dietz said.

During the Feb. 26 hearing, Commissioner Pai warned how Title II would suffocate the technological and innovational growth that has largely been attained over the Internet’s 26-year life as a unique tool structured upon minimal government regulation.

“Literally nothing in this order will promote competition among ISPs. To the contrary, reclassifying broadband will drive competitors out of business,” Pai said. “President Obama’s plan to regulate the Internet is nothing more than a Kingsbury Commitment [a settlement of AT&T’s first anti-trust lawsuit] for the Digital Age.”

All of the ambiguity could make it harder for rural ISPs to stay afloat, setting up the White House goal for failure in reaching their goal of affordable access, and the ISP market could increase prices to compensate for costs of complying with new regulations among other things. Tech Freedom’s coalition supports small businesses like Montgomery’s and the sees future of the innovative Internet as inhibited by Title II regulations, further barring entry to the market.

“Established, large companies have armies of lawyers that can help them navigate complex regulations,” Swarztrauber said. “Startups have limited resources, and they should focus them on developing products and securing investments — not complying with excessive regulation.”

Montgomery said he will “just fold up and say ‘we’re done,’” if the paperwork and compliance to new regulations become too overbearing for Wicked Broadband. Possible aftershocks of Title II to existing and future ISPs could include: increases costs for building and improving ISP network technologies and additional fees for access to content providers like Google and Netflix as they take over most bandwidth usage.

“So all of those things have an end result on the consumer,” Dietz said. “You may not see it today or tomorrow, but a month from now, six months from now, a year from now, then you’ll start to see the effects of it.”

Additionally, Telecommunications services are taxed differently and consumers could be taxed by the states. Dietz said many states can opt to raise their taxes because the Internet would be classified as a telecommunications service, but Weinberg of Public Knowledge counters this taxation rumor.

“[Taxation] was an anti-net neutrality talking point that lingers. It’s easy to scare people with taxes,” Weinberg said. “Chairman Wheeler made it clear that there is no direct connection between Net Neutrality and Title II and taxation of anything. Furthermore, they made it clear that they were actually going to forbear [or refrain] from any part of title II that would have already increased the taxes.”

According to Dietz, the NCTA has welcomed Commerce Committee Chairman John Thune R-S.D., House Energy and Commerce Committee Chairman Fred Upton R-Mich. and Communications and Technology Subcommittee Chairman Greg Walden R-Ore. all of whom declared interest in establishing a bipartisan legislative approach to re-classifying the Internet in a way that remains faithful to the tenets of net neutrality.

“We have this dynamic, thriving, Internet that everyone loves and everyone wants more of and wants it to be faster and everyone wants more choices,” Dietz said. “The FCC just plopped this huge thing [Title II] on top of it which is really going to send chills through the market.”

Dietz also noted the NCTA’s support of Bill Nelson D-Fla. of the Senate Committee on Commerce, Science and Transportation and this alternative “Title X” legal approach to the Communications Act.

“[“Title X”] is the net neutrality position of the Communications Act,” Dietz said. “Not all the unnecessary baggage and regulation without all of the unnecessary baggage and regulation of these other titles that don’t really apply to the Internet.”

As the politics of the decade-old Internet neutrality debate continue, advocates on both sides lobby in support of their convictions on Capitol Hill. In the meantime, small ISPs like Wicked Broadband are not holding their breath waiting for the next trust-busting messiah to resurrect a competitive atmosphere in telecommunications world.

“The pace of that innovation that we have seen could be slowed down by [Title II].” Dietz said. “[The NCTA’s] question is: Why is that necessary? We don’t think it is.”