The FCC’s Open Internet order should be ripe for review and “fixing” given President Obama’s pledge in his SOTU speech last night:

  • To reduce barriers to growth and investment, I’ve ordered a review of government regulations. When we find rules that put an unnecessary burden on business, we will fix them.”

Clearly the FCC’s preemptive bans, restrictions and economic/price regulation of competitive broadband providers based on scant and weak evidence of any real problem to solve, obviously place “an unnecessary burden on business” and the Administration should “fix them.”

As I explained in my previous detailed post: “Why FCC’s Net Regs Need Administration/Congressional Regulatory Review,” the FCC’s Open Internet order violates the President’s pledge for regulations to:

  • Not be “outdated;”
  • Not be “Excessive, inconsistent and redundant;”
  • Strike the right balance;” and
  • Have benefits that outweigh costs.

In sum, in President Obama’s SOTU, he declared “our free enterprise system is what drives innovation.”

  • The FCC’s Open Internet order is in direct conflict with that philosophy statement in that the FCC posits that FCC’s Open Internet regulations are necessary to promote innovation… and also the FCC’s new goal found nowhere in law — to promote “innovation without permission,” which alarmingly implies that the FCC condones inventors disregarding the permission of users to use their private information and the permission of property owners to use their property.

 

Welcome to the FCC-centric Internet, where all those with Internet disputes and problems go for resolution and justice.

Today the Washington Post heralds the FCC’s New Internet Order in its article: “Net Neutrality Complaints Pile Up.”

  • Tellingly, after six years of the FCC handling only two formal net neutrality complaints, now that the FCC has unilaterally asserted sweeping authority to regulate the Internet in its Open Internet order, “net neutrality complaints pile up.”
  • What has changed?
    • After six years of near universal perfect behavior respecting the FCC’s broadband policy statement, has the industry decided to go rogue right when the FCC has installed itself as King over the Internet realm?
    • Or are opportunists coming out of the woodwork recognizing that the FCC’s rules assume broadband providers are guilty of whatever charge they trump up, until they prove themselves innocent to the FCC?

Make no mistake, the Internet is changing before our eyes.

The FCC’s Internet regulation has short-circuited all three of the core and long-proven Internet mechanisms for resolving disputes and problems: competition, negotiation, and collaboration.

  • And the FCC has replaced that phenomenally successful system with a discriminatory bureaucratic adversarial process geared to produce pre-determined outcomes against those who have been pre-classified by the FCC as inherently “BIAS-ed,” i.e. those who provide Broadband Internet Access Service (BIAS).

No longer will competition for consumers primarily drive the Internet, because the FCC has set up rules that put the interests of edge providers above consumers, in specifically protecting only edge providers from any usage-based market pricing, while acknowledging its fairness and appropriateness for consumers.

  • The new FCC-centric Internet puts faith in FCC regulated outcomes over competitive market outcomes.

No longer will commercial negotiations based on the facts of traffic and capacity be the primary glue enabling the Internet backbone to function, adapt and keep pace with exponential traffic growth, because the FCC has established rules that market-negotiated peering arrangements based on usage-based market pricing are presumed to be inherently discriminatory.

  • The new FCC-centric Internet encourages many to complain to the FCC first rather than first negotiate in good faith.

No longer will the IETF engineering collaboration be the primary mechanism for resolving engineering problems on the Internet, because the FCC has inserted itself as the ultimate arbiter of what Internet designs and innovations are to be declared as “open” and which will be banned as non-neutral.

  • The new FCC-centric Internet will now, on a case-by case basis, guide the engineering and innovation trajectory of the Internet, not the IETF.

In sum, watch and see how the locus of activity and focus of attention naturally gravitates away from the highly-functioning, self-executing Internet ecosystem of the past and towards the likely dysfunctional and illegal FCC-centric Internet of the future.

  • The result will no longer be an Internet driven by merit as determined by competition, negotiation and collaboration, but an Internet driven by a still undefined concept of “openness” that is highly-subjective and super-political.
  • Simply, whenever anyone cries “foul” on the Internet going forward, we must wait months to learn if three commissioners presume them guilty or if the accused has been able to prove themselves innocent.

Welcome to the FCC-centric Internet.

 

Verizon is highly likely to win its appeal of the FCC’s December Open Internet order, because the FCC’s order is likely to deeply and broadly offend the legal sensibilities of the Appeals Court, just like the FCC offended the DC Appeals Court’s sensibilities when it punished Comcast for violating a regulation that did not exist.

  • The Court responded to that FCC injustice last April by ruling in its Comcast vs. the FCC decision that the FCC had no authority to regulate broadband or the Internet.

To understand the most likely outcome here, it is critical to cut through the FCC’s claims, assertions, and arguments, and focus on the big picture context of what the FCC is actually doing in this Open Internet Order, i.e. what is the effect of the FCC’s decision and process on the rule of law. That is what matters most to the Court.

  • The FCC wants people to believe that this is just about ensuring that there is “a cop on the beat.
    • The court looks at the whole context, whether this particular cop, beat, and rules are authorized by the Constitution, Congress, and the rule of law, and whether this self-appointed cop has acted justifiably, justly, fairly and reasonably.
  • The DC Court of Appeals is highly likely to overturn the FCC’s Open Internet order because it will offend the court’s legal sensibilities in multiple dimensions, as this piece will outline below.

To begin, it is critical to remember and understand the context of the Comcast vs. the FCC decision that the DC Appeals Court overturned last April.

  • In that case, the FCC had formally sanctioned and fined Comcast for essentially not reading the FCC’s mind months in advance.
  • It was plain for the court to see from the arguments that the FCC was telling Comcast: “you should have known what we wanted you to do, even though we never told you what that was, and even though we never even knew it ourselves until we decided it after the fact.
  • It was not hard for the court to figure out from the arguments that at the time of the alleged Comcast infraction, the FCC itself did not have a clue of what it specifically thought was unreasonable or reasonable network management.
  • The court also was offended that a company was being punished for violating a rule that did not exist and behavior that was never officially ruled to be wrong by a duly authorized entity.
    • This punish-first-figure-out-why-later FCC approach was obviously found to be the antithesis of American constitutional rule of law.
  • The unanimity and strength of the Comcast vs. the FCC decision in limiting the FCC’s authority made it clear that the court had no interest in rewarding the FCC for trampling on the rule of law, with a new grant of unbounded authority and unchecked power from the Court so the FCC to continue to trample on the rule of law in the future.

Next it is critical to understand the big picture context of this particular FCC Open Internet order.

When all the legal arguments are filed with the Court, it will become abundantly clear what the FCC did and what it intends to do in the future.

First, the FCC essentially is asserting it has the unilateral power, legal authority and public obligation to:

  • Decide if the Internet is regulated or not;
  • Decide which Internet-related industries are regulated and which are not;
  • Create a completely new regulatory classification, Broadband Internet Access Service (BIAS), when the law already has only two mutually-exclusive classification options for the FCC to choose from;
  • Change the effective purpose of communications law from promoting competition to promoting openness (without ever bothering to define what the FCC means by “openness;”)
  • Change U.S. communications policy from free-market competition to FCC regulated-outcomes; and
  • Grant itself new punishment powers for violating whatever the new rules that the FCC deems are necessary at any point in time.

Expect the Court to be deeply offended by the FCC’s presumption of near unbounded sweeping powers to do what it alone decides is necessary, because the FCC is flouting the Constitution’s fundamental principle of separation of powers and effectively asserting that the FCC can assume Congress’ power to effectively legislate new law.

Second, the FCC is blatantly and broadly ignoring constitutional due process.

The legal arguments will make clear to the Court that the FCC has decided broadband providers are guilty until proven innocent.

  • The FCC makes no substantive case of a real existing problem for the FCC to solve.
    • It only asserts the potential of a problem requiring preemptive regulatory detention to prevent companies from doing what the FCC worries they might do.
  • The FCC order preemptively regulates ~2,000 broadband providers for what one has done wrong in 2005, and for what the FCC alleges a few others have done wrong or might do wrong in the future.
    • How is that fair to the ~2,000 companies who have done nothing wrong and are cooperating fully with the FCC?
  • The FCC states that broadband providers only have incentives to violate un-defined “openness,” but have no disincentives, like competitive pressures and antitrust law, to prevent violations of undefined “openness.”
  • In its adjudicative procedure the FCC makes abundantly clear that it views broadband providers as guilty-until-proven-innocent of violating undefined “openness.”
    • See rule 8.14(b)(5) p. 92 where statements “in a complaint are deemed to be admitted when not denied in the answer.”
    • Amazingly the FCC has set up an obviously unjust process that has turned the legal burden of proof upside down; where anyone can complain that an undefined “openness” violation has occurred by a broadband provider and that charge is assumed to be true unless the accused quickly can prove themselves innocent of the charge to the FCC, which by the way presumes them to be guilty.

Expect the court to be deeply offended by the FCC trampling on the cherished constitutional principle of due process by:

  • Assuming guilt and that violations will occur, despite a near universally perfect record of behavior indicating otherwise, and
  • Constructing an undue process where the accused must prove their innocence or be punished by the FCC.

Third, the FCC is making it obvious to the courts that facts don’t matter to the FCC — the ultimate in arbitrariness and capriciousness.

The arguments before the court will make clear that the FCC’s unilateral decision to reverse its longstanding policy of promoting competition to impose new preemptive restrictions and potential punishments on “openness” violators, was not based on objective analysis or facts.

  • The FCC predicates its whole order on an obviously weak and thin assertion of a substantive problem requiring preemptive restrictions of broadband providers’ freedoms.
  • Amazingly and irresponsibly, the FCC conducted no market power analysis, no assessment of the state of competition assessment, and no cost benefit analysis.
    • This obvious lack of real work and expert analysis that the FCC has done in other orders, strongly suggests to the Court that the facts are not on the FCC’s side.
  • The Court can plainly see that the FCC order is replete with unproven assertions and largely devoid of substantive objective analysis or presentation of facts.

Expect the Court to be deeply offended by the FCC essentially telling the court, its order is valid and justified “because the FCC says so.”

  • By offering such scant justification and proof in the order, the FCC is telling the court that it assumes the FCC deserves very wide deference and latitude from the Court to do whatever it wants to do.

In sum, before the detailed arguments are filed, how can we know that it is highly likely to be overturned by the DC Court of Appeals?

  • Read the order; the court will.
  • A close reading of the FCC’s Open Internet order exposes broad FCC contempt for many fundamental principles of the rule of law.

This order also will more deeply and broadly offend the Court than the FCC’s unjust punishment of Comcast did, because this order signals the FCC’s strong intention that it wants the power to do be able to do what it did to Comcast to every broadband provider in the future.

Simply, the Court is not going to reward the FCC for trampling on the rule of law in the FCC Open Internet order, with a broad new grant of unbounded authority and unchecked power from the Court, so that the FCC could continue to trample on the rule of law in the future.

 

To promote “America’s free market,” President Obama today ordered a government-wide review of regulations that “make our economy less competitive,” in order to take us “toward a 21st century regulatory system.”

Here is the case for why the FCC’s December Open Internet order deserves to be atop of the Administration’s regulations to review for abolition.

First, the FCC’s new Internet regulations violate the President’s goal of a “21st century regulatory system” by applying “outdated” 19th century common carrier regulatory thinking and approaches to the previously un-regulated, and flourishing 21st century Internet. (Para 68)

Second, the FCC rules violate the President’s goal of avoiding “excessive, inconsistent, and redundant regulation.”

  • They are clearly “excessive” in that they are a preemptive solution in search of a real problem to solve. The FCC’s one-page description of “the supposed problem” is shockingly thin and weak (see paras 35-37).
  • They are clearly “inconsistent” in that they claim to allow usage-based pricing (para 72) while at the same time creating a presumption that pay-for-priority usage pricing is unreasonable discrimination (para 76.)
  • They are also clearly “redundant” of antitrust laws.

Third, the FCC’s Open Internet regulations violate the President’s goal for regulations to “strike the right balance” to “protect our health, safety and environment, while promoting economic growth.”

  • The supreme irony here is that the FCC has largely ignored addressing the real problems on the Internet that affect safety, i.e. cyber-security and privacy, to myopically focus on economic regulation of competitive markets exhibiting virtually no evidence of the problems that the FCC alleges it is trying to solve.
  • Perversely, the FCC’s regulations will harm economic growth while doing nothing to legitimately protect the safety of consumers.

Fourth, the FCC’s Internet regulations violate the President’s goal that the costs of regulations should not outweigh the benefits. The FCC did not do a cost-benefit study, but asserted that the benefits outweigh the costs in paras 38-42.

  • The FCC substantially inflated the benefits by claiming large widespread and unproven risks to Internet “openness.”
  • The FCC substantially deflated the costs to industry by claiming they “are likely small,” despite enormous evidence in the record to the contrary, and by fantasizing that there is no evidence that economic regulation discourages investment, which is contrary to common sense and experience.

In addition, it will be very difficult for the FCC to defend its positive cost-benefit assertion when the FCC:

  • Conducted no market power analysis whatsoever (p. 12, Ft 49);
  • Conducted no assessment of the sufficiency of broadband competition; or
  • Offered no persuasive evidence of a market problem in need of a solution.

Finally and most importantly, the FCC’s Internet regulations violate the President’s goal that Federal regulations should not “make our economy less competitive.”

  • The evidence is overwhelming that the FCC’s unilateral abandonment of competition as the approach, mechanism and policy to benefit consumers, and promote growth, investment and innovation will “make our economy less competitive.”

The FCC Order’s opposition to competition and competition law and policy can’t help but undermine competition and America’s competitiveness.

Consider the evidence of how deeply FCC regulation now opposes competition:

A. Broadband Competition Policy Changed: In replacing the previous unanimous FCC broadband policy statement, the only part the FCC dropped entirely was the competition policy provision that said: “…consumers are entitled to competition among network providers, application and service providers, and content providers.

B. Order Changes Policy Purpose: The purpose of the FCC’s Open Internet rules (8.1, p.88) is “to preserve the Internet as an open platform…” replacing the purpose in law “to promote competition.

  • The order then unilaterally resets national communications policy priorities by demoting competition to the fourth of five new “open platform” sub-purposes: “enabling consumer choice, freedom of expression, end-user control, competition and the freedom to innovate without permission.

C. FCC Indicts Competition Policy: The main assertion the FCC uses to justify abandoning competition policy, is that “Broadband providers have the incentive and ability to limit Internet openness” (p. 11).

  • This shockingly one-sided FCC analysis completely ignores the obvious, that competition also creates disincentives to limiting Internet openness — like losing a customer, additional costs/liabilities, brand damage, etc.
  • The FCC’s de-competition policy bias is particularly obvious in that the FCC only imagines potential problems, while totally ignoring the actual benefits competition creates and the beneficial effect of a multi-year industry record of competition nearly universally protecting Internet openness — without FCC regulation.
  • In addition, the FCC in para 78 explicitly indicts the ability of competition and antitrust law to well-serve consumers: “We reject the argument that only “anti-competitive” discrimination yielding “substantial consumer harm” should be prohibited by our rules.

D. No Blocking Regulation Change: In establishing the no blocking rule (8.5, p. 88) for the first time, the FCC effectively concludes (without an evidentiary record) that competition cannot protect consumers from blocking despite the fact that competition has near universally prevented the blocking in the marketplace that the FCC fears.

  • With this rule, the FCC effectively has mandated that FCC regulators functionally replace competition as the arbiter of market outcomes.

E. FCC Indicts Pay for Priority: Concerning pay-for-priority, the FCC openly rejects economics, market forces and competition as a system to allocate scarce resources.

  • In para 76, the FCC declares its presumption that “it is unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard.”
  • Translation: economics is discriminatory.

At core the FCC is rejecting the market and the economic mechanism of supply and demand to reach equitable prices.

  • Only with a de-competition policy bias could the FCC conclude that economic pricing is a “barrier to entry.”
  • Even more amazing and anti-competition, the FCC concludes in para 76 that because “fees imposed on edge providers might be excessive” the FCC is justified in banning any edge pricing for prioritization!
    • Following the FCC’s illogic here, does the FCC believe Fedex, UPS, DHL, and the USPS should no longer allow customers to pay for priority delivery of letters and packages because someone’s fees “might be excessive?”

F. FCC Indicts Two-Sided Markets: Despite decades of experience overseeing two-sided communications markets (subscription fees and advertising) in newspapers and cable, the FCC (in paras 24-34) makes clear its de-competition policy bias and opposition to any two-sided market evolution or innovation for any Internet edge market.

  • Apparently, the FCC has no confidence in market-driven innovation around pricing or business models in order to enable better cost-causing cost recovery or to enable the Internet to evolve to meet the growing and differentiated demands of the future.

Amazingly, the FCC sees the legitimacy of allowing usage-based pricing (para 72) for consumers, i.e. that heavy-bandwidth users should pay more than low bandwidth users, but believes that the world’s heaviest bandwidth applications providers, like Netflix, Google-YouTube, Skype-video, etc., should have no usage-based pricing obligations (para 76).

  • This arbitrary and indefensible policy distinction, where users and broadband providers must subsidize all edge providers forever, no matter what, is un-economic, anti-competition, anti-market, anti-investment, and anti-consumer.
    • (If consumers were polled about whether they supported the new FCC policy declaring that heavy bandwidth using websites don’t have to pay more for heavy bandwidth usage like consumers do, they would not like it, and they would see it for what it is –corporate welfare subsidies for well-connected Silicon Valley companies.)


G. FCC Implicitly Regulates Specialized Services: The FCC is proactively protecting the Internet from competition. In para 93, the FCC declares “There is one Internet…” which effectively establishes the assumption that there should be no competition to the Internet now or in the future.

  • The FCC takes this hostility to the potential for competition to the Internet further.
  • In paras 112/113 on Specialized Services, the FCC asserts “…to the extent specialized services grow as substitutes for the delivery of content, applications and services over broadband Internet access service, the Internet my wither as an open platform for competition, innovation, and free expression.”
  • Simply, the FCC is summarily declaring that any non-Internet innovation is anti-competitive and contrary to the public interest.
    • Can no one imagine the possibility that innovators could possibly improve on the Internet’s approach or structure which was invented in the 1970’s?
    • Can there never be an Internet II? or Internet III in the United States?
    • Is the FCC guaranteeing that that next Internet-like network innovation must come from outside of the United States? How does that advance America’s competitiveness?

While claiming to not specifically regulate specialized services, the FCC slyly claims it already has implicitly regulated specialized services (at the end of para 113) by defining anything that is the functional equivalent of broadband Internet access service to be regulated and unable to avoid regulation.

Conclusion

I applaud President Obama for making it his Administration’s new “mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb.”

  • As the copious evidence above shows, the FCC’s Open Internet regulations fit all of the President’s criteria.

The evidence is there to make the FCC’s new Open Internet regulations the poster child for both the Administration’s effort to bring Government “toward a 21st century regulatory system” and for Congress’ efforts to fulfill its responsibilities under the Congressional Review Act.

 

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