Discuss The Pros And Cons Of Net Neutrality |Social Science
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1. Question/focus and why it matters
2. Key findings with citations
3. Some kind of concrete example from your research to make it real for the audience
4. A review of key findings at the end
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On January 14, 2014, the federal Circuit Court of Appeals for the D.C. Circuit vacated FCC rules that mandated that Internet ser- vice providers treat traffic over their networks equally—so-called net neutrality.
n The court’s finding makes good sense: Differentiated ser- vice offerings are common in most industries, and are often needed for an efficient market. Competition keeps unjustified discrimination in check.
n The three years during which these rules were in effect show that, instead of being a tool to protect consumers, as claimed by supporters, neutrality rules have been invoked to impede competi- tion, limit pro-consumer pricing, and allow certain firms to game the system.
n The court did find that the FCC has general authority to adopt rules regarding broadband pro- viders. Congress should reverse this finding.
n The debate now moves to Congress, as well as back to the FCC. Policymakers should reject efforts by either to restore the harmful neutrality regulations.
Abstract On January 14, 2014, a federal court struck down Federal Communi- cations Commission (FCC) rules that regulate how Internet service providers (ISPs), such as Verizon and Comcast, handle the traffic pass- ing through their networks. Known as “network neutrality” rules, they generally require ISPs to treat all content equally. The court’s decision was good news for consumers: Contrary to claims by the rules’ sup- porters, they were not necessary to prevent abuse by the ISPs; at the same time, they limited pro-consumer pricing and new competition in the dynamic market for broadband service. Policymakers should reject efforts in Congress and the FCC to restore these harmful rules.
In a significant victory for american consumers, a federal appeals court struck down Federal Communications Commission (FCC) rules regulating broadband Internet service on January 14. The much-anticipated decision clears the way for more investment, more innovation, and lower costs for Internet users. but the political battle over these “network neutrality” rules—which limit differentiation and prioritization of Internet traffic—is far from over. Legislation to reinstate FCC controls will almost certainly be considered in Con- gress. and, encouraged by supportive language in the circuit court opinion, the FCC may take another shot at the issue itself.
Web users should wish these efforts no success. Net neutrality rules were a dangerously bad idea when adopted by the FCC in 2010, and the experience of the past three years has only made the dan- gers clearer.
This paper, in its entirety, can be found at http://report.heritage.org/bg2882 Produced by the Thomas A. Roe Institute for Economic Policy Studies The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org
Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.
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What Is Net Neutrality? The term “network neutrality” refers to the prin-
ciple that the owners of broadband networks (such as Verizon and Comcast) that serve end-users should treat all communications travelling over their net- works alike. The concept is based on long-standing practice but had never been enshrined in a govern- mental rule or regulation. In fact, in 2005, the FCC specifically declared that broadband Internet ser- vice was not a “telecommunications service,” and thus not subject to common-carrier rules that bar variations in rates and services. unlike traditional telephone companies and electric utilities, broad- band providers would be free to establish their own business models in the marketplace.1
This finding made sense. broadband service was, and is, dynamic and growing, with the line between a successful investment and a failure a thin one. Dif- ferentiated offerings, such as discounts and priority- service plans are common in such markets. and, the market for broadband is a competitive one, with two or more major players in almost every service area, limiting the prospect for market abuse.
Nevertheless, at the same time that the FCC declared that broadband was not a “telecommunica- tions service,” it adopted a set of “guidelines” artic- ulating neutrality principles. although the FCC’s principles were ostensibly non-binding, in 2008, the agency ordered Comcast to stop alleged violations. That effort was put to a stop in early 2010 by a fed- eral appeals court, which ruled that the FCC had not demonstrated that it had authority to regulate broadband communications.2
In December 2010, the FCC returned to the issue, adopting formal rules limiting how Internet service providers (ISPs) could handle Internet traf- fic, and broadening its claim of authority. These net neutrality—or, as the FCC called them, “open Inter- net”—rules banned consumer wireline (DSL3 and cable modem) broadband providers from “unrea-
sonably discriminat[ing] in transmitting lawful network traffic,” and “block[ing] lawful content, applications, services, or “non-harmful” devices.”
recognizing that wireless broadband service was especially dynamic and innovative, mobile service providers were subjected to slightly less burden- some rules. They were banned only from “block[ing] consumers from accessing lawful websites,” and
“applications that compete with the provider’s voice or video telephony services.”4
Lastly, all providers were required to disclose their network management practices to the public.
The rules did not bar all forms of differentiation. even the FCC recognized the limits of absolute neu- trality. With increasing demands on the Internet, some steps to manage traffic (such as controlling bandwidth-hogging users) are critical. More gener- ally, certain types of prioritization common in other industries—such as selling premium or discount access to certain web content providers—would also benefit users.
To address such beneficial differentiation, the FCC exempted “reasonable network management.” but exactly what was “reasonable” was left undefined. The rules offered only vague and circular guidance, such as: “reasonable network management shall not constitute unreasonable discrimination.” This, of course, vested vast discretion in the five FCC mem- bers, who would determine case-by-case which ISP actions were acceptable and which ones were not.5 as a result, the FCC’s ostensible softening of the rule by exempting “reasonable” management practices actu- ally increased the agency’s power once again.
The new rules were soon challenged in court by Verizon, claiming that the FCC lacked jurisdic- tion over broadband service. Last month’s decision was the result of that litigation. as was the case in 2010, the FCC’s rules were slapped down.6 Specifi- cally, the court found that the regulations imposed on the ISPs were, in effect, common-carrier regula-
1. James L. Gattuso, “Broadband Regulation: Will Congress Neuter the Net?” Heritage Foundation Backgrounder No. 1941, June 2, 2006, http://www.heritage.org/research/reports/2006/06/broadband-regulation-will-congress-neuter-the-net.
2. Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir., 2010).
3. DSL stands for digital subscriber line.
4. “Open Internet Order,” 25 F.C.C. Record 7866 (2010).
5. James L. Gattuso, “Net Neutrality: Time for Congress to Act,” Heritage Foundation Backgrounder No. 3183, March 7, 2011, http://www.heritage.org/research/reports/2011/03/net-neutrality-time-for-congress-to-act.
6. Verizon v. FCC, No. 11-1355 (slip op., D.C. Cir., Jan. 14, 2014), .http://www.scribd.com/doc/199616222/DC-Net-Neutrality-ruling (accessed February 3, 2014).
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tions. Since the FCC had previously ruled that the broadband service providers were not “telecommu- nication providers,” the FCC was barred by law from imposing common-carrier regulations on them.
End of the Internet? In the wake of the decision, there have been
many dire but ill-founded predictions as to what the effects will be. Craig aaron of the pro-regulation group Free Press argued that exclusive deals among providers “could become the norm, with aT&T exclusively bringing you Netflix, while Time Warner Cable is the sole source for youTube.” He sees priva- cy and choice heading toward the ash heap of histo- ry, saying “it won’t be long before your ISP requires you to connect via their list of approved devices and then uses those devices to literally watch you.” To the question “Is this the end of the Internet?” he answers “maybe.”7
Google does not engage in inappropriate discrimination for the same reason that Verizon and Comcast do not: competition. Blocking websites or impeding disfavored services would quickly send customers to another provider.
Michael Weinberg of the advocacy group Pub- lic Knowledge similarly cites a parade of horribles, including degraded service, higher costs, and less innovation, due to higher fees and restricted choices.8
advocates of regulation, however, have been mak- ing such Chicken Little-esqe predictions for years, and they never seem to come true.9 ISPs are more interested in gaining users than driving them away. There has, in fact, been only one recorded case where
an ISP clearly attempted to block Internet content for its own benefit.10 In the vast majority of cases, the imagined outrages of ISPs sabotaging rivals and extracting ruinous fees are just that, imagined.
Certainly, ISPs have the technical ability to block or impede certain services and websites. but they are hardly unique in that regard. Many firms, includ- ing Google—a longtime supporter of neutrality regu- lation—have similar abilities. Google, however, does not engage in inappropriate discrimination for the same reason that Verizon and Comcast do not: com- petition. blocking websites or impeding disfavored services would quickly send customers packing to another provider.
a look at the actual disputes that have arisen under net neutrality over the past three years sup- ports this conclusion. None of the instances where a violation of the rules was alleged involved a domi- nant provider abusing its market power. Nor did any involve additional fees; in fact, the most controver- sial practice involved a shift of fees away from con- sumers. On the other hand, the major controver- sies involved attempts to game the system, increase costs to consumers, and hinder competitive chal- lenges. The disputes included:
Gaming the System: Comcast v. Level 3 Fee. In November 2010, as the FCC was finalizing its now- void neutrality rules, a dispute broke out between Comcast and Internet “backbone”11 provider Level 3. as is common among such long-haul service pro- viders, the two had long operated under a “peering” arrangement by which the two networks intercon- nected to allow them to transport traffic from its origin to its destination. because the traffic load was about even in both directions, neither side paid a fee to the other.
This balance changed when Level 3 won a con- tract to carry content for Netflix, whose online video service was rapidly growing. at the time of the deal, Netflix accounted for 20 percent of all broad-
7. Craig Aaron, “Does This Ruling Mean The End of the Internet? Maybe,” The Daily Beast, January 15, 2014, http://www.thedailybeast.com/articles/2014/01/15/does-this-ruling-mean-the-end-of-the-internet-maybe.html (accessed February 4, 2014).
8. Susanna Kim, “Five Ways the Internet Will Change Without Net Neutrality,” ABC News, January 15, 2014, http://abcnews.go.com/Business/major-ways-internet-change-net-neutrality/story?id=21541399 (accessed February 6, 2014).
9. James Gattuso, “The Chicken Littles of Broadband,” The Heritage Foundation, The Foundry, October 5, 2009, http://blog.heritage.org/2009/10/05/the-chicken-littles-of-broadband/.
10. Declan McCullough, “Telco Agrees to Stop Blocking VOIP Calls,” CNET News, March 3, 2005, http://news.cnet.com/Telco-agrees-to-stop-blocking-VoIP-calls/2100-7352_3-5598633.html (accessed February 4, 2014).
11. A backbone provider offers long-haul, wholesale, data transport between service providers.
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band traffic during peak hours.12 That meant that the amount of traffic that Level 3 sent to Comcast to deliver would balloon to five times the amount going the other way.13
When Comcast asked to be paid for its additional interconnection service, pointing out that the traffic flows were now far from even, Level 3 balked. Com- cast’s fees, it argued, were a form of discrimination, unacceptable under neutrality principles. Neutrality restrictions, of course, were never meant to restrict firms in the highly competitive backbone Internet business, so Level 3—pointing to its Netflix busi- ness—simply redefined itself as a content provider for Netflix. Online petitions were soon circulating, asking the FCC to “Stop Comcast from blocking Net- flix.”14 Level 3 was expertly gaming the still-nascent rules. as randolph May of the Free State Founda- tion put it at the time:
Level 3, no stranger to Washington’s regulatory playing fields, has converted what heretofore has been an ordinary commercial negotiation over the fees, if any, applicable to peering arrange- ments between two interconnecting Internet providers into a complaint sounding in—sur- prise!—net neutrality.15
In the end, the two firms negotiated a compro- mise without FCC involvement. but the case shows how the blurry concept of neutrality can be gamed by players looking for a regulatory advantage in the marketplace.
No Lack of Competition: AT&T and Facetime. In 2012, apple upgraded its popular Facetime appli- cation to enable consumers to use it over mobile phone networks. Previously consumers could only use it when accessing the Internet via Wi-Fi con-
nections, and not through wireless telephone links. Despite apple’s move, aT&T continued to limit Face- time usage on its own, only allowing subscribers of its “Mobile Share” unlimited data use plan to use it on the wireless telephone network. The restriction was necessary, aT&T argued, to protect its subscrib- ers from congestion caused by a suddenly increased traffic load caused by the highly bandwidth inten- sive Facetime video service.
Critics immediately slammed the decision as ille- gal blocking of an application in violation of FCC neutrality rules.16 but if aT&T’s aim was to stifle Facetime, it chose an odd way to do it. The Face- time app was pre-loaded onto aT&T devices when sold, a step hardly designed to impede use.17 More- over, aT&T itself was selling no product in competi- tion to Facetime, leaving it little motive to block it. but aT&T and its customers did have a real interest in protecting users from congestion caused by the Facetime application.
Verizon, aT&T’s main competitor, made a dif- ferent decision, allowing unconditional Facetime use (and giving consumers a choice). Within a year, aT&T had dropped its restrictions as well, also with- out FCC interference.
Quashing New Competition: Google Fiber. Google, long one of the staunchest supporters of net neutrality rules, has itself been accused of violating those rules. The case involved Google Fiber, a broad- band ISP run by Google. under the terms of service issued by Google Fiber, subscribers were not to run
“servers” on Google Fiber connections. Google Fiber, the company explained, was intended as a consum- er service, not a business service. Still, a consumer in Kansas filed a complaint against Google with the FCC, citing the neutrality rules’ ban on blocking
“non-harmful devices.”
12. Cecilia Kang, “Level 3 Communications Calls Comcast Fees for Netflix Feeds Unfair,” The Washington Post, November 29, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/11/29/AR2010112907024.html (accessed February 4, 2014).
13. Marguerite Reardon, “Understanding the Level 3-Comcast spat (FAQ),” CNET News, November 30, 2010, http://news.cnet.com/8301-30686_3-20024197-266.html (accessed February 4, 2014).
14. Nancy Gohring, “FCC Looks Into Level 3, Comcast Content Dispute,” PC World, November 30, 2010, http://www.pcworld.com/article/212078/article.html (accessed February 4, 2014).
15. Randolph J. May, “The FCC’s Fatal Conceit,” The Free State Foundation Perspectives from FSF Scholars Vol. 5, No. 29 (December 5, 2010), http://www.freestatefoundation.org/images/The_FCC_s_Fatal_Conceit.pdf (accessed February 4, 2014).
16. Esther Shein, “AT&T Blocks Facetime, Net Neutrality Complaint Filed,” Information Week, September 21, 2012, http://www.informationweek.com/consumer/atandt-blocks-facetime-net-neutrality-complaint-filed/d/d-id/1106448 (accessed February 4, 2014).
17. Bob Quinn, “Enabling Facetime Over Our Mobil Broadband Network,” AT&T Public Policy Blog, August 22, 2012, http://www.attpublicpolicy.com/fcc/enabling-facetime-over-our-mobile-broadband-network/ (accessed February 2014).
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Google Fiber is a new entrant into the ISP mar- ketplace. It is a major initiative by Google, intended to challenge the major incumbent broadband provid- ers by creating a new competitor to their networks.
The complaint posed an obstacle to this pro-con- sumer effort. but rather than reduce unnecessary barriers to this welcome competition, the FCC’s interference would simply have added another bar- rier. and, given Google’s total lack of market power in this marketplace, there was no plausible benefit for consumers.
The federal appeals court decision will not end the long-running debate over net neutrality. To the contrary, it will likely signal a new round of activity
Google’s response to the FCC on the matter argued that the server ban was “reasonable network management,” exempt from regulation. The FCC took no further action.18 Google Fiber has since con- tinued to expand, challenging the leading ISPs in a small but growing number of cities.
Making the Consumer Pay: AT&T and Spon- sored Data. In January, just weeks before the FCC’s neutrality rule was overturned, aT&T unveiled an innovative pricing plan for wireless services known as “sponsored data.” The idea is simple—participat- ing content providers would pick up any data charg- es incurred by consumers when using their sites. by freeing potential users from the risk of exceeding their data caps and being hit with additional charg- es, the plan encourages them to spend more time on each site.
For instance, the eSPN sports network has been trying to build up its online offerings in a bid to cre-
ate an alternative to traditional cable TV systems in the delivery of sports programs.19 One major con- cern of eSPN strategists is that viewers may balk, not knowing whether watching their favorite teams online would put them over their data cap and end up costing them a fortune in excess use charges. under a sponsored data plan, that risk would be covered by eSPN, not the consumer. It would be like offer- ing 800 numbers for the web, with content providers paying the cost of connection, but getting more busi- ness in return.
but the idea set off alarm bells in the net neutral- ity community. When eSPN was reported to be con- sidering a similar deal with Verizon last year, pro- regulation groups immediately cried foul, with one posting a commentary titled: “This Is What a Net Neutrality Violation Looks Like.”20
They were wrong. Since it only applies to wireless service, the plan never ran afoul of net neutrality limits. even more important, the proposed system is good for consumers, who pay less for more, and for businesses on the web, who generate more traffic. Such arrangements are common and beneficial mar- ketplace tools—especially when new services and technologies are involved.
Net neutrality advocates still fret that the plan will disadvantage some firms. according to Free Press policy director Matt Wood:
Content and app providers that can’t pay this new toll to reach customers will be at a huge disadvan- tage, and may never get off the ground in the first place if they can’t afford aT&T’s sponsor fees. Let- ting the carriers charge more or less money to reach certain sites is discriminatory, and it’s not how the Internet is supposed to work.21
but there is no new toll here—websites are merely providing a discount for consumers.
18. For a discussion of the Google Fiber controversy, see Paul Venezia, “No, Google Fiber Doesn’t Violate Net Neutrality: Let’s Not Undermine the Net Neutrality Fight with Poor Interpretations,” Infoworld, August 5, 2013. http://www.infoworld.com/d/data-center/no-google-fiber-doesnt-violate-net-neutrality-223828 (accessed February 4, 2014).
19. Shalini Ramachandran, Amol Sharma and Matthew Futterman, “ESPN’s Internet Rollout Tests Television Cash Cow,” The Wall Street Journal, January 27, 2014, http://online.wsj.com/news/articles/SB10001424052702304603704579326781949947414?mg=reno64- wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304603704579326781949947414.html (accessed February 4, 2014).
20. Michael Weinberg, “FCC: This Is What a Net Neutrality Violation Looks Like,” Public Knowledge Policy Blog, May 10, 2013, http://www.publicknowledge.org/blog/fcc-what-net-neutrality-violation-looks (accessed February 4, 2014).
21. Free Press, “AT&T Sponsored Data Scheme Is a Lose–Lose for Customers and App Makers,” January 6, 2014, http://www.freepress.net/press-release/105490/att-sponsored-data-scheme-lose-lose-customers-and-app-makers (accessed February 4, 2014).
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Some content providers will be able to match them, others not. That is exactly how a marketplace, and the Internet, is supposed to work, and hardly justifies regulation.
Next Steps The federal appeals court decision will not end
the long-running debate over net neutrality. To the contrary, it will likely signal a new round of activ- ity. Proposals are already being introduced in Con- gress to restore the rules.22 Such legislation will face an uphill fight—in fact, in 2011, the House of repre- sentatives passed legislation to overturn the regula- tion. but eventual passage of the legislation cannot be ruled out.
The most likely neutrality battleground, howev- er, is—once again—the FCC. The court’s opinion, in fact, all but invited the FCC to take another shot at imposing net neutrality rules. Despite its rejection of the regulation as written, the court did find that the agency had general power to regulate broadband Internet service.23 Thus, although the specific rules did not pass muster, other forms of regulation could be upheld. No doubt with this in mind, Tom Wheel-
er, the FCC’s chairman, has already stated that the agency will “revisit” the neutrality issue.24
Opponents of FCC neutrality regulation could also take the initiative, with legislation to reverse the court’s ruling on broad regulatory powers. This would also be an uphill fight, but would close a poten- tially dangerous avenue for new regulation.
Conclusion Consumers should cheer the recent appeals court
decision voiding the FCC’s net neutrality rules. Despite the Chicken Little claims of its support- ers, broadband consumers were hurt, not helped by the agency’s restrictions. rather than guarding against market abuses by dominant firms, the rules have been invoked in attempts to hinder innovation, impede competition, and block consumer price pro- tections. Policymakers in Congress and at the FCC should not restore these unnecessary and harmful regulations.
—James L. Gattuso is Senior Research Fellow for Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
22. Marguerite Reardon, “New Senate, House Bills Would Restore Net Neutrality,” CNET, February 3, 2014, http://news.cnet.com/8301-13578_3-57618273-38/new-senate-house-bills-would-restore-net-neutrality/ (accessed February 5, 2014).
23. Specifically, the court ruled that section 706 of the 1996 Telecommunications Act gave the FCC the necessary powers. This section provides that if the FCC finds that “advanced services” are not being deployed in a “reasonable and timely” manner, the agency must take steps to remove barriers to investment and to promote competition. This conclusion was odd to say the least. Section 706 was adopted as a deregulatory tool to ensure that government rules do not hinder Internet growth. Now the language has been turned on its head, authorizing even more regulation. See James L. Gattuso, “Net Neutrality and the Courts: The FCC’s Shaky Legal Case for Internet Regulation,” Heritage Foundation Commentary, February 10, 2011, http://www.heritage.org/research/commentary/2011/02/net-neutrality-and-the-courts-the-fccs-shaky-legal-case-for-internet-regulation.
24. Bryce Baschuk, “FCC Chief Says Agency Will Revisit Open Internet Order,” Bloomberg BNA, January 23, 2014, http://www.bna.com/fcc-chief-says-n17179881531/ (accessed February 4, 2014).
