FCC Chairman Pai seeks return to ‘light-touch framework’ for Internet regulation

By Steve Brachmann
May 3, 2017

Ajit V. Pai, FCC Chairman. Public domain.

On Wednesday, April 26th, Federal Communications Commission Chairman Ajit Pai gave an address titled The Future of Internet Freedom at the Newseum in Washington, D.C. Although the speech has inspired no small amount of ire and vulgarity from the tech press, Chairman Pai offers a reasonable argument on both why the FCC’s net neutrality policies have harmed Internet competition and how arguments in favor of FCC’s Title II regulations on Internet service providers have little basis in fact.

“The Internet is the greatest free-market success story in history,” Pai’s prepared remarks read. Pai credited much of this success to the “light-touch framework” for Internet regulation put in place by former President Bill Clinton who, working with a predominantly Republican Congress, enacted the Telecommunications Act of 1996, a bill which modernized American telecommunication law 62 years after passage of the Communications Act of 1934. The framework established in 1996 “enabled the Internet to grow and evolve beyond almost anyone’s expectations.”

“Under this framework, a free and open Internet flourished. Under this framework, America’s Internet economy produced the world’s most successful online companies: Google, Facebook, and Netflix, just to name a few. Under this framework, the private sector invested about $1.5 trillion to build the networks that gave people high-speed access to the Internet. And under this framework, consumers benefited from unparalleled innovation.”

Yet all of this changed in February 2015 when the FCC, operating under the direction of former Chairman Tom Wheeler, issued its Open Internet Order to create a new framework of rules for the regulation of Internet service providers (ISPs). The new rules, which included the reclassification of ISPs as common carriers under Title II of the Telecommunications Act, were ostensibly to preserve the openness of the Internet. Pai, on the other hand, saw the move as entirely political. He noted in his remarks that the Obama White House directive on Title II regulations, posted on YouTube, came days after a disappointing 2014 midterm election and was designed to energize a dispirited base. “This was a transparent attempt to compromise the agency’s independence,” Pai’s remarks read. “And it worked.” Pai further stated that the “digital dystopia of fast lanes and slow lanes” didn’t actually exist, calling those concerns “hypothetical harms and hysterical prophecies of doom” which caused the federal government to abandon successful policies.

In Pai’s view, the effects of Title II common carrier regulation on ISPs has been disastrous for investment into infrastructure and innovation. Between 2014 and 2016, Pai said that the country’s 12 largest ISPs have decreased their spending by $3.6 billion, a drop of 5.6 percent in investment. Pai also cited a letter sent to the FCC from a collection of 22 ISPs, each serving about 1,000 customers or fewer, who argue that the Title II common carrier regulations have affected their ability to obtain financing and have at least slowed the development and deployment of new infrastructure and services.

Pai’s remarks at the Newseum also outlined the steps he plans on taking in order to return the nation’s telecommunications regulatory environment to its state prior to the 2015 Open Internet Order. The commissioners of the FCC will convene a meeting on May 18th to vote on a notice of proposed rulemaking with a period of public input on the proposed rules to follow the FCC vote. According to Pai, the notice of proposed rulemaking will cover the return of broadband service classification from Title II common carrier to Title I information services, returning regulatory authority to the Federal Trade Commission (FTC); eliminating the Internet conduct standard,  a vague statute of which Pai said he’d “never heard a better definition of regulatory uncertainty”; and efforts to engage the public regarding comments on bright-line rules adopted by the FCC in 2015. Pai stated that he would publicly release the text of the notice of proposed rulemaking the following day, in contrast to the 313-page Title II order from 2015 which was only released to the public after it was adopted by the FCC.

Pai believes that the return to a light-touch framework would benefit Americans in a variety of ways. The lighter regulatory framework should spur broadband deployment towards better Internet service, create jobs for Americans to deploy those networks, boost marketplace competition, end government micromanagement and secure Internet privacy by returning authority to the FTC.

Many industry groups have bristled in the face of Pai’s remarks. A statement from Sir Tim Berners-Lee, the inventor of the World Wide Web, indicated his belief that the rollback would help “concentrated market players” more easily pick winners and losers online. And yet, it’s those concentrated market players like Google, Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) who have lobbied the FCC to keep the Title II common carrier regime intact. As we’ve reported in the past, these Internet companies lobbying to keep Title II regulations intact typically have larger subscriber bases and higher market capitalizations than the ISPs which face heavier regulations under the Open Internet Order.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 10 Comments comments.

  1. Anon2 May 3, 2017 7:11 am

    Excellent article.

    Sad that the shadow of the hand of tyranny is so prevalent in America that any little escape for individuals back into the arms of Freedom is euphemistically characterized as Government’s using a “light touch”, as though She were a kept mother that “needed” a good beating from time to time or as though the Government’s proper role were to firmly and constantly manhandle the citizens who rightly seek Her protection.

  2. Name withheld to protect the innocent May 3, 2017 8:54 am

    First of all, the FCC was always political. The President gets to appoint all vacant commissioner positions, and 3 of the 5 commissioners will be from the party in charge of the White House.

    Between 2014 and 2016, Pai said that the country’s 12 largest ISPs have decreased their spending by $3.6 billion
    I followed the link, and it just took me to Pai’s little one page statement. That statement contained no citations, and for an administration known for “alternative facts,” that is troubling. Regardless, even if the number itself is true, it is speculation that net neutrality caused that reduction. There are plenty of other market forces (including cyclical ones) that can cause the the increase (or reduction) of investment during any single period of time. Pegging that reduction on net neutrality is pure speculation.

    Pai believes that the return to a light-touch framework would benefit Americans in a variety of ways. The lighter regulatory framework should spur broadband deployment towards better Internet service, create jobs for Americans to deploy those networks, boost marketplace competition, end government micromanagement and secure Internet privacy by returning authority to the FTC.
    This all but ignores the reasoning behind “net neutrality.” On this blog, we decry the influence of the large high-tech companies in choosing the winners and losers of the patent system. However, what Pai proposes (i.e., ending net neutrality) does exactly the same thing. Net neutrality means that ISPs should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or websites. With their huge piles of cash, the likes of Netflix, Google, among others will be able to pay the ISPs so that consumers have premium (e.g., quicker) access to their services. Sure, that will help Google and pad the pockets of the ISPs, but that will put everybody else (particularly the small guys) at a disadvantage.

    Imagine 30 years ago (before the internet was widespread), if the telephone companies were allowed to give toll free (e.g., “800”) only to certain select customers who paid a (large) premium. While Sears & Macys could afford them, nobody else would be able to. Do you think that would help competition? Repealing net neutrality would accomplish the same type of thing.

    The truth of the matter are that the ISPs are common carriers. They all provide the same basic service — they should be competing on price and reliability (to the extent that there is competition as not all areas have competition). Net neutrality is all about having the ISPs not picking the winners and losers of the internet based upon how much cash they have.

    Who do you want picking the winners and losers of the internet? ISPs or consumers? Sure, regulating ISPs in the form of net neutrality hurts ISPs but HELPS everybody else.

    Since this is an intellectual property blog, we need to find some way tie this issue back to intellectual property. With that in mind, if the repeal of net neutrality is one of the first goals of this administration, then it doesn’t bode well for those of us looking for the Trump administration to restore the strength of the patent system. Repealing net neutrality is helping the big guys at the expense of the little guys, and the winners in the repeal of net neutrality will be very similar to the winners of a weakened patent system.

    Repealing net neutrality is anti-competitive for everybody except the ISPs and the large (and well-funded) internet companies.

  3. Ternary May 3, 2017 10:15 am

    Currently, I am completely tied to my ISP, who is one of the large telecom providers. Because this ISP also provides TV cable, it effectively determines what TV I can watch (1000s of channels of almost identical garbage) and at what price. The ISP does not provide a Netflix channel, for obvious reasons, or a medici.tv channel. In order to get those channels to my TV I have to rig a special construction, because the top box does not allow me the functionality that I have on my Internet connected computer. The FCC not only stepped back from net-neutrality, it also stepped back from liberating the top box from the ISP. Furthermore, ISPs are now allowed by FCC to track customers on content use. There appears to be a trend here, what?

    The way I see it is that I purchase digital bandwidth from my ISP who is paid to connect me to a content source (an IP address). Allowing ISPs to charge more for connections to certain IP addresses will not stimulate more investments, but it only promotes to squeeze more money out of installed infrastructure, a favorite “competitive strategy” in the old and the new telecom world. So, there may be a “light-touch” from government, but there certainly is not a light-touch by ISPs, who still operate in pretty much a monopolistic environment.

  4. Steven Brachmann May 3, 2017 11:01 am

    @Name withheld – You raise a very good point, I should have done some additional digging to figure out where that statistic came from and not just link to Pai’s speech. It appears as though at least that particular statistic came from DC economist and senior fellow at the George Washington Institute for Public Policy Hal Singer – https://haljsinger.wordpress.com/2017/03/01/2016-broadband-capex-survey-tracking-investment-in-the-title-ii-era/.

    @Ternary – When I’ve written on this subject in the past, it has appeared to me that net neutrality at the FCC has been a situation of the ends not justifying the means, even when the ends are entirely commendable goals. But here are my criticisms: 1, that regulating ISPs through Title II completely misses the idea of regulating the monopolies in the field. How is Comcast, the American telecom with the largest subscriber base as of December 2013, a monopoly that requires regulating when Facebook, Amazon, Hulu, Netflix and YouTube are allowed to operate rather freely with much larger subscriber bases and, in some cases, much higher market caps (http://www.ipwatchdog.com/2016/06/20/court-upholds-net-neutrality-rules/id=70189/)? Yes, Facebook doesn’t charge us to access the Internet, but if the definition of Title II common carrier is any carrier “engaged in interstate communication by wire or radio,” how are those other Internet services not also common carriers? Interstate communication by wire, and yet Facebook has the unfettered ability to collect user information and charge for advertising. 2, the FCC cannot do much to help with the regional monopolies which ISPs enjoy because, in actuality, its an issue with local government. Local governments and public utilities create pre-deployment barriers which make it very difficult for ISPs to negotiate “rights of way” access to attach wires to utility poles or lay them underground – https://www.wired.com/2013/07/we-need-to-stop-focusing-on-just-cable-companies-and-blame-local-government-for-dismal-broadband-competition/. 3, let’s revisit the paid prioritization argument. The fear was that ISPs were going to create tiered fast and slow lanes. Sure, no one wants to have their wallet squeezed over something as important as Internet access, but many people interpret net neutrality principles as rendering the practice of zero rating, in which content is given away for free to subscribers, illegal (http://www.ipwatchdog.com/2016/11/09/att-time-warner-merger-fcc-rulemaking-zero-rating-practices/id=74485/). As a consumer, how is zero rating a bad thing? I subscribe to an ISP and then, for no additional charge, let’s say I get cheaper Netflix or a free stock/finances manager service? Those are just hypotheticals, but the point I see is that a rigid net neutrality regime at FCC prevents the development of more robust Internet services. I agree with the DC point of view that I shouldn’t be paying too much for access for the Internet, but that’s a local fight, not a federal one. The road’s paved with good intentions, I’m just not sure where it was leading.

  5. Anon2 May 3, 2017 1:10 pm

    NWTPTI@2

    One chunk of traffic/services that drives the internet are marketing and sales and communications, and as a legitimate platform for real world people and real world products, this works relatively fine. The bandwidth is low and the “content” is not so much of an issue to anyone as to give rise to any neutrality issues.

    The other chunk of traffic/services is associated with valuable content. Movies, music, photographs, books, software, games, really any media or entertainment in digital form, which were created through creative effort and which content is owned and/or licensed by their creators. This is where ISPs, media companies, broadcasters, distributors, content creators etc., and the structures, systems, business models, and services they tend to create in order to exchange value with end consumers becomes tangled up with the issue of piracy and theft of that content.

    Enforcement of Copyright is notoriously difficult in the digital space, and the loss caused by theft both by illegitimate entities and unscrupulous individuals is huge. It’s so bad that the entire structure and delivery of content is not centered around the new conveniences of the digital age (which it would if theft were not such a problem) but instead center around control and technological efforts to protect copyright.

    Anecdotally, it’s as though in the digital age people forget that just because they can get away with theft somehow, they are perfectly justified in doing it, and rather than being lifted by technology they revert to the conduct of a savage.

    Consider the point of view of a content creator. His creation stands to earn him more money the greater the number of people he can deliver his product to, and the easier it is for those people to get it directly from him. In a society of honest people, many of the middle man, and the middle systems would slowly fade out of existence due to the relative ease with which these products could otherwise be directly provided to consumers. Currently, this is not happening as quickly as otherwise it would – legacy models with incumbent distributers and exclusive licensing endure because those policies have inertia and have been and can continue to be tied to delivery methods which are less prone to piracy: cable, encrypted set top boxes, and physical media.

    Of course government regulations (controls on infrastructure, lines, frequencies) interfere with the systems which could be put in place, but here the interference with content provider’s rights by consumers at large is primarily to blame for the whole s#1t show.

    The acceptance of any form of piracy by anyone and everyone in the public, from intellectual elite to the common man is fully responsible for this mess.

    If there were rigorous enforcement, a larger population of upstanding citizens who respected rights, and/or more convenient and efficient methods to protect content, the whole problem of net neutrality would go away. ISPs would naturally separate from broadcasting, the method of delivery would naturally separate from the content delivered. Efficiency demanded by the consumers and the creators alike will require it.

    Centuries ago merchants often delivered goods directly to their customers, making rounds to provide their milk, bread, or whatever was their specialty. Today FedEx and UPS are more efficient and better at delivery, and although they may charge by weight and size it’s not in their interest to charge by the contents of the packages they deliver. This is a natural (free market) neutral package delivery system.

    If and when the piracy and theft issue is solved (and if government gets out of the way) eventually there will be a natural neutrality in the delivery of bandwidth no matter what the content.

  6. Ternary May 3, 2017 5:27 pm

    The invisible hand of the free market, eh? Not in our life-time. The large companies work hard to skew the system in their own interest. I am willing to pay for Netflix and medici.tv (actually, I am already paying). And if I want, I can rip content from those channels. But I don’t want to and I don’t. I merely want access to channels and content on my TV. They already having me pay for “transport” services for High Speed. I am properly using and paying for the data transport. There is no reason for the source to also pay (though they probably do). ISPs have to trouble sending HBO to my PC when I pay for it, and with no concern for stealing IP. Furthermore, there appears to be still an enormous amount of unused bandwidth around, which could easily be unlocked. It is not the bandwidth that is the problem. ISP are data transporters, so let them transport data.

    But this is the issue: ISPs seem to be relegated to the role of a “utility” like gas, water and electricity, and they don’t like it. The growth of subscribers is limited and the profit margins do not meet the requirements/expectations of Wall Street, certainly compared with content providers, as pointed out by Steve.

    The regulatory system is open to be influenced by large companies. Not unlike the case with the patent system. In fact large institutions will do whatever they can to influence the system to their benefit. That is what they do and the regulatory system responds with rules that address largely made-up concerns (trolls, bandwidth, IP theft, cost of research) and that in the end benefits the companies, and do not really address the actual concerns, but rather limits the freedom of actual users in the name of freedom, quality, security to further the financial interest of the industry. Patent trolls come to mind in a similar approach in the patent system.

    Oh, if only the government steps out of the way. There is very little I can do as an individual about industries’ shenanigans, be it in Internet, Patent Prosecution, Healthcare or Utilities. But please, don’t try to convince me that industry is convincing regulators about new regulations in the interest of the individual user, subscriber, patient or independent inventor.

    Like the Patent Trolls, IP theft probably is an issue and so is a difference in regulating ISPs and content providers. But that is not the purpose of the regulatory change pursued by the industry.

  7. Name withheld to protect the innocent May 3, 2017 5:58 pm

    Steve — looking at the link you provided, it appears that excluding AT&T, the rest of the industry (about 2/3 of the total) actually increased spending between 2014-2016. As such, it is really tenuous to stay that net neutrality had a significant impact on network investments.

    How is Comcast, the American telecom with the largest subscriber base as of December 2013, a monopoly that requires regulating when Facebook, Amazon, Hulu, Netflix and YouTube are allowed to operate rather freely with much larger subscriber bases and, in some cases, much higher market caps
    Because they have near monopoly control in many markets. Based upon this article, https://arstechnica.com/information-technology/2016/08/us-broadband-still-no-isp-choice-for-many-especially-at-higher-speeds/, there appears to be significant numbers of the US population that don’t have competition for their ISP. The upshot of repealing the net neutrality rules will be having near monopolies scratching the backs of other near monopolies — to their mutual benefit and to the detriment of both consumers and other content providers on the internet.

    any carrier “engaged in interstate communication by wire or radio,” how are those other Internet services not also common carriers?
    Because they aren’t carriers. Content providers generally are not carriers (although recent proposed mergers will change that). If, for example, Comcast purchases FOX and decides to down throttle any content provided by CBS, NBC, & ABC, how is that good for consumers? OK, let’s say you are one of the lucky ones with ISP competition and are able to pick another ISP that doesn’t down throttle CBS content, but they down throttle everybody else’s content, what do you do then?

  8. Anon May 3, 2017 7:27 pm

    Excellent discussion – thanks one and all

  9. Night Writer May 5, 2017 9:55 am

    @7 Name withheld. Thanks for taking the time to make all the correct arguments.