Chairman Pai’s plan to fix net neutrality is the right one
© Greg Nash

Federal Communications Commission Chairman Ajit Pai is moving rapidly to resolve the net neutrality mess bequeathed to him by his predecessor, a complicated task under the best of circumstances. In addition to its more obvious benefits, however, this effort offers an early opportunity for the FCC to showcase the chairman’s plan to institutionalize the role of economics in agency decision-making. The commission has never subjected any of the “net neutrality” options it has considered over the course of many years to a cost-benefit analysis. In its new notice of proposed rulemaking, the FCC proposes to correct that omission.

The headline of the FCC’s notice is, of course, the proposal to rescind the classification of Internet service providers as Title II common carriers, which has made them subject to public utility type regulation. This was the most radical part of the Open Internet Order passed by former Chairman Tom Wheeler's FCC in 2015.

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But there are other very important aspects of the proposal. The agency is also seeking comment on whether to retain a number of open internet or net neutrality “principles” contained in the 2015 order. These would still constitute a major regulatory action with potentially important economic effects. In effect, the commission is putting out for comment, and will conduct a cost-benefit analysis on, a variant of the vacated 2010 Open Internet Order, which included net neutrality principles, but not Title II regulation.

 

All of these options will presumably be compared to the “no Open Internet Order” baseline—the light-handed regime under which the Internet thrived for many years. This option is not literally “no regulation.” Net neutrality issues would still be policed by the antitrust agencies, which rely on a case-by-case approach to determine whether a particular practice is anticompetitive. If instances of blocking, paid prioritization or other practices were determined to be anticompetitive, they would be subject to prosecution under the antitrust laws.

At the most fundamental level, the agency has never seriously addressed the question of whether the antitrust laws are insufficient and additional regulation in this area is needed to address a significant problem or market failure. ISPs generally do not have an incentive to block content that consumers want and the instances of blocking that have occurred have been rare, minor, and quickly resolved in the absence of any FCC Internet rules. Indeed, Chairman Pai himself has said “net neutrality has always been a solution in search of a problem.”

The agency also never demonstrated that the net neutrality principles it did adopt were in consumers’ interests. Each has costs as well as potential benefits in the complicated Internet ecosystem. 

For example, prohibiting business practices such as paid prioritization is unlikely to yield net benefits since charging higher prices for more or better service is ubiquitous in the economy and is generally pro-competitive. Rules that make it difficult to introduce innovative pricing plans that might reduce prices to some or all consumers could hinder efforts to extend broadband penetration and close the “digital divide.” 

Provisions that limit the development of new business models often have costs in the form of increased risk, reduced expected returns and diminished incentives for investment and innovation in the broadband infrastructure and among edge providers as well. Neither the commission (nor others) have produced evidence to support the claim that net neutrality mandates increase investment and innovation at the edge of the network. 

It is encouraging that Chairman Pai is following through quickly on his pledge to conduct cost-benefit analysis and to be guided by the results. Such analysis is by no means a panacea and good economists can sometimes differ on the approach and results. It is, however, an important discipline that should improve decision-making on the whole range of FCC issues.

Thomas M. Lenard is a senior fellow and president emeritus at the Technology Policy Institute.


The views expressed by contributors are their own and are not the views of The Hill.