What Will Happen if the FCC Abandons Net Neutrality?

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Penn's Christopher Yoo and the University of Maryland's Jennifer Golbeck discuss the net neutrality debate.

Few issues in the technology world elicit such passionate — and at times angry — reactions as network neutrality, or the idea that internet traffic must be treated reasonably equally. Death threats, racist slurs, protests and millions of emails have descended on the Federal Communications Commission (FCC) as consumer groups, activists and tech companies mobilized the public to stop the agency from purportedly “destroying the internet as we know it.”

In the middle of this maelstrom is the new chairman of the FCC, Ajit Pai, who is an Indian-American and a Republican. On December 14, the commission will vote on an FCC proposal to revoke net neutrality and stop regulating internet service providers (ISPs) like landline phone companies — its two most critical and controversial changes. Passage of the proposed order is considered a done deal since the FCC has a Republican majority among its five members, although whether it can survive any future legal challenges is another matter.

“There is a lot of hysteria,” says Kevin Werbach, Wharton professor of legal studies and business ethics who has advised the FCC on broadband issues. He adds that the debate often is characterized by exaggerated claims, especially since the stakes are so high. “Net neutrality touches some very sensitive nerves on both sides of the debate. … It goes fundamentally to the heart of what the internet is and what its role is in our society.”

A similarly passionate outpouring occurred three years ago, when the FCC under President Obama proposed enacting net neutrality rules. They were voted into place in 2015 and later upheld in court — but after a fight from ISPs. Back then, Obama’s FCC Chairman, Tom Wheeler, faced enormous public pressure, too, says Gerald Faulhaber, Wharton professor emeritus of business economics and public policy and a former FCC chief economist. In addition to the FCC being flooded with comments about net neutrality, “he had people outside his house demonstrating and not letting him drive out of the driveway unless he agreed to do this. Apparently, this is happening to Ajit Pai, but much worse.”

Supporters often link net neutrality to free speech and unfettered, equal access to the internet. They also want stricter rules to curb the conduct of ISPs. “Removal of the net neutrality rules could entirely take down the internet as a free and open source of information,” said Jennifer Golbeck, a professor at the University of Maryland, on the Knowledge@Wharton show on SiriusXM channel 111. “It’s going to be more corporate control over the content we see … potentially not just favoring things that benefit [ISPs] financially but favoring them politically.”

But critics say that too much regulation dampens innovation and investments in the internet, which has thrived for decades without formal net neutrality rules. For example, net neutrality would tamp down on innovations such as T-Mobile’s “Binge On” service, which lets customers stream video from Netflix, YouTube, Hulu and other sites without counting it against their data buckets, said Christopher Yoo, professor of law, communication and computer and information science at the University of Pennsylvania, on the radio show. Moreover, the order brings back the FTC as the antitrust enforcer of ISP behavior, protecting consumer interests and banning deceptive business practices. (Listen to a podcast of the radio show featuring Yoo and Golbeck using the player above.)

“Net neutrality … goes fundamentally to the heart of what the internet is and what its role is in our society.”–Kevin Werbach

What Really Is Net Neutrality?

Complicating the net neutrality debate is the fact that most people do not fully understand the issue. One big misconception by the public is that “the 2015 [Obama-era] rules were some kind of government regulation of the internet … that the internet wasn’t regulated and suddenly in 2015, the government imposed these regulations,” Werbach says. “The nuance gets lost. It is not [about whether] the internet is neutral or not. Companies manage networks all the time, but there’s a cleaner difference between managing networks for legitimate purposes and deliberately discriminating in an excessive way.”

Tim Wu, a professor at Columbia University, first proposed the concept of and coined the phrase “network neutrality.” In his 2002 paper, he said net neutrality “would forbid broadband operators, absent a showing of harm, from restricting what users do with their internet connection, while giving the operator general freedom to manage bandwidth consumption and other matters of local concern.” Wu also calls it a non-discrimination rule, but it is not a total ban on network discrimination of traffic.

That means broadband providers like Comcast, AT&T and Verizon can treat internet traffic differently if it is necessary to maintain and protect their networks. Wu called this permissible ground for discrimination. What’s forbidden is discrimination that could distort entire markets and harm the consumer. Technically, this could mean discrimination based on IP addresses, domain names, cookie information, and other factors, according to his paper. Net neutrality aims to protect the legitimate needs of ISPs to manage their networks while preventing the abuse of this power.

For example, if an online game takes up a lot of bandwidth or capacity, the ISP could handle it two ways. It could block traffic from the site through its IP address. But this act would violate net neutrality because by blocking access to this online game, it benefits other gaming sites and distorts the market, ultimately harming consumers. The right way to do it is to focus on bandwidth usage instead, Wu wrote. Gamers who want a better experience would have to buy more bandwidth, or curtail their gaming. Here, the consumer has the choice of paying up or limiting playtime. This, he said, is “market choice” not one “dictated by the filtering policy” of the ISP.

Swing to the Left, Then Right

For decades, under both Democratic and Republican presidents, internet service was classified as an information service in the Communications Act of 1934 as amended in 1996. Such services offer a capability for “generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” Put simply, it encompasses enhanced services such as computer processing and applications.

In contrast, landline phone service is classified under Title II of the Act as a telecommunications service — the transmission “between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” It is a basic service that enables pure transmission capability.

As providers of information services, ISPs were much more lightly regulated than telecommunications services — such as the old Ma Bell. However, the FCC did adopt policies to preserve free internet access and usage and curb abuses. In 2004, FCC Chairman Michael Powell under President George W. Bush set out four principles of internet freedom: the freedom to access lawful content, use applications, attach personal devices to the network and obtain service plan information.

Complicating the net neutrality debate is the fact that most people do not fully understand the issue.

In 2010, under Obama’s first FCC chairman, Julius Genachowski, the agency’s Open Internet Order adopted anti-blocking and anti-discrimination rules after finding out that Comcast throttled BitTorrent, a bandwidth-intensive, peer-to-peer site where users shared files of TV shows, movies or other content. Faulhaber says Comcast made the mistake of “targeting a particular upstream company. That you can’t do. If you want to control traffic, you have to do it in a much less discriminatory way.”

But the 2010 order, which also required ISPs to disclose their network management practices, performance and commercial terms, was vacated by a federal court in 2014 after Verizon sued the FCC. The court said the FCC did not have the authority to act because ISPs are not regulated like common telephone carriers.

This ruling led to the 2015 order by Wheeler that reclassified ISPs like landline phone companies, giving the agency the power to regulate many things, including prices set by broadband providers, although this was set aside. The order also specified the no-blocking and no-discrimination of traffic, and banned paid prioritization, which would give faster internet lanes to companies that pay for it. And it crafted internet conduct standards that ISPs must follow. Last year, an appellate court upheld this order.

The current proposal by Pai rolls back Wheeler’s order, and more. It classifies ISPs back under information services. It allows paid prioritization. It also punts the policing of any ISP blocking and discriminatory behavior to the FTC to be investigated on a case-by-case basis. It dismantles Wheeler’s internet conduct standards because they are “vague and expansive.” But the proposed order does adopt transparency rules, requiring ISPs to disclose information about their practices to the FCC and the public.

Some Wharton experts think that both Wheeler and Pai swung a little too far — toward more regulation and less regulation, respectively. “I don’t think the FCC [under Wheeler] had to reclassify broadband [like plain old telephone service] in order to adopt effective net neutrality,” Werbach says. “But once they made that decision, I don’t think it’s a problematic decision by itself. It’s definitely not anything like a government takeover or pricing regulation of broadband as people argue.”

Faulhaber says that while he approves of what Pai did, “it goes a little further than I might have gone.” He would be fine with the FCC retaining the no-blocking and no-discrimination rules instead of shifting the policing responsibility to the FTC “in one fell swoop.” But Faulhaber argues that Pai was right to allow internet fast lanes. “Everybody in business offers multiple quality levels,” he says. “If you go to the post office, you can send mail by express mail. Why do we insist it has to be one plain vanilla thing?”

“Everybody in business offers multiple quality levels. If you go to the post office, you can send mail by express mail. Why do we insist it has to be one plain vanilla thing?”–Gerald Faulhaber

Faulhaber adds that the Wheeler order is an example of a policy directed more by populism than economics. In justifying the decision to put ISPs under Title II, a majority of FCC commissioners under Wheeler routinely cited the receipt of four million comments on net neutrality — a record back then — to support their stance instead of applying a cost-benefit analysis to gauge its economic impact, according to a paper Faulhaber co-authored called, “The Curious Absence of Economic Analysis at the Federal Communications Commission: An Agency in Search of a Mission,” published this year in the International Journal of Communication. Pai referenced the paper in an April 2017 speech at The Hudson Institute, where he also announced the creation of an Office of Economics and Data at the FCC.

For ISPs, the issue is not so much net neutrality as it is about Title II. “All of the major ISPs like Comcast and AT&T are on the record saying that they support the idea of net neutrality, but they just oppose the legal classification of broadband as a regulated telecommunications service,” Werbach says. “I wouldn’t expect to see any dramatic changes in the companies’ practices near term. They’re going to wait and see how this all plays out, and they’re also not going to do something that will provoke significant backlash and pressure for more regulation.”

Extreme or Just Right?

Taken as a whole, Pai’s proposed order is “extreme” and removes “pretty much any limitations on the conduct of broadband providers,” Werbach says. While he believes that ISPs will pay attention to market signals and avoid activities that cause a customer backlash without the benefit of a big financial boost, this attitude could eventually change. “Over time, if all the rules are eliminated and the FCC no longer has the authority to police bad behavior, we’ve seen time and time again that eventually there’s no limit to what companies will do that turns out to be ultimately harmful to consumers and harmful to innovation.”

“We have to expand capacity — who’s going to pay for that? Have Netflix pay for it? The network provider? Or both?”–Christopher Yoo

While Pai’s proposal requiring that ISPs disclose their network practices is a “good sign,” Werbach continues, “there’s a big difference between just putting something on your website saying here are the practices we use, and providing actual [real time] data on network traffic.” This was also an issue under Wheeler. “Frankly, even the Wheeler FCC rules don’t go far enough in terms of encouraging real transparency on what ISPs are doing.” For example, Netflix went to the FCC to complain that Comcast was slowing down its video streams, but engineers had a hard time pinning down the cause because much of the data is private.

During her radio show appearance, Golbeck noted that the danger of fast lanes is that smaller websites that cannot afford to pay the ISP could be left behind. Research shows that “even delays of less than a second in serving up content [will make people] bail from your site and go someplace else.” Conversely, she said, if ISPs speed up access to popular sites like Amazon and Netflix because they pay, “it inhibits the ability for other new startup sites to compete.”

Yoo countered that Netflix takes up a lot of bandwidth — its streams comprise more than a third of all internet traffic during primetime, when the network is congested, and it is growing. “The growth of Netflix is requiring us to build bigger networks. If you add YouTube,” both take up 55% to 60% of online traffic, he said. “We have to expand capacity — who’s going to pay for that? Have Netflix pay for it? The network provider? Or both?” Yoo said it seems logical for both to share the cost. If the FCC bans paid prioritization, then consumers will eventually shoulder the cost of expanding network capacity, not Netflix. ISPs will pass down the cost to users since Netflix cannot pay for fast lanes.

“I wouldn’t expect to see any dramatic changes in the companies’ practices near term. They’re going to wait and see how this all plays out.”–Kevin Werbach

However, Netflix is already paying for fast lanes. Years ago, when ISPs were slowing down video traffic because of bandwidth issues, Netflix struck deals with them that are tantamount to “pay for play, or paid prioritization,” Yoo pointed out. “They get faster service and they get charged a fee…. It increased performance for Netflix customers and it gave them better guarantees. All the way around, it was a better experience for consumers.” By banning all paid prioritization, he said, the FCC would create a “baby and the bathwater problem” — because it would throw out what’s good along with the bad.

Faulhaber is in favor of Pai’s proposed order overall. He points out that many of the fears voiced by net neutrality supporters are not applicable to the debate. For example, some people believe that without net neutrality, ISPs can charge consumers anything they want. “They can charge anybody anything they want now,” he says. Another fear is that ISPs would slow down certain traffic if paid prioritization is allowed. Again, these cases happen even setting aside the issue of paid prioritization. Here, Faulhaber favors looking at transgressions on a case-by-case basis.

Pai also was right to classify ISPs as information services again, not as common carriers, Faulhaber says. “The problem was Title II. It gives them the ability to regulate everything about ISPs. … That’s the scary thing about it,” he says. “The other scary thing is we’re just regulating ISPs now. [Minnesota Sen.] Al Franken wants to extend net neutrality to content providers” such as Google and Facebook, which together control 75% of the public’s access to online news and hold much of Americans’ personal data. “This is the entrée to regulate the entire internet,” he says.

In the end, the issue of net neutrality and Title II will have to be resolved by Congress. Absent such action, FCC orders could ping-pong depending on who is in the White House — which goes against the agency’s history as a largely non-political, bipartisan body. “Everyone agrees that Congress has the authority to step in here, and virtually everyone on both sides agrees that this would be better addressed with legislation,” Werbach says. Thus far, lawmakers have not prioritized doing so, and “it’s pretty unlikely we’re going to see Congress do anything.”

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