Economic Arguments for Net Neutrality Rules Fall Short, Economists Say

Twenty-one economists, including academics from universities across the U.S., filed a paper Monday at the FCC concluding that the economic evidence doesn’t justify the net neutrality rules the commission is considering. The paper builds on qualms expressed by Commissioners Robert McDowell and Meredith Baker, the rule opponents on the FCC.

"There is simply no basis for believing that there is any kind of generalized or systematic market power one would expect to require as a precondition of the prohibitive ex ante regulations the commission has proposed,” said Jeffrey Eisnach of Navigant Economics and George Mason University during a Monday news conference. “There are multiple broadband providers for the vast majority of markets. Entry is occurring. … This is certainly not a monopoly, the kind of situation that would justify Carterfone."

Getting a large group of economists to agree on a detailed statement is unusual, Eisenach said. “We are real pleased we are able to have 21 pretty well respected economists sign on to a declaration this detailed and this substantive,” he said. “If you go back to some of the prior joint statements that have been done … they have tended to be shorter and they have tended be less specific and they have tended not to be filed in formal rulemaking proceedings and tended not to make as substantive or detailed of recommendations.”

"Having over 20 economists come together in a statement as detailed and as strongly worded as this one should send a message to the commission that it’s barking up the wrong economic tree,” said Robert Litan of the Kauffman Foundation and the Brookings Institution. An official in the Clinton administration, he said he hopes that the FCC is listening closely and commissioners remain open-minded -- but in any case the economic declaration could figure into any legal challenge to any net neutrality rules imposed by the commission. “In the future of course, if there’s any litigation over whatever they do, one of the things courts look to are what kind of comments are in the public record and whether the agency has adequately responded,” Litan said. “With a filing like this, which we hope has substantial weight behind it, the commission not only will want to look at it but will want as a matter of administrative law to examine whether the arguments are right or not.”

"If you look at the market for broadband, roughly speaking, with few exceptions, rural areas of the country and so forth … most of the country is covered by in effect two and half providers,” Litan said. “You've got telecos, you're got cable and you've got wireless to some degree. I personally do not subscribe to the view that the degree of competition is ideal, but it’s workable. There’s no evidence there’s a natural monopoly. And judging by the ads that I see on my TV every night, there is vigorous competition between the incumbent telco in any region and the cable provider. There’s price wars all the time."

The neutrality rules proposed would prompt a huge number of lawsuits, Litan said. “It would open up a Pandora’s box to me of all kinds of litigation complaints by virtually anyone who claims that they are being discriminated against,” he said. “Whatever rules you write are going to be litigated to death. … This is the worst thing that could happen to the Internet, is overlitigate it and overlawyer it."

Meanwhile, Susan Crawford, a former Obama administration official and a University of Michigan law professor, threw her weight behind proposals to reclassify broadband under Title II. The FCC doesn’t need to abandon net neutrality rules or pursuit of the goals of the National Broadband Plan because of last week’s decision in the FCC v. Comcast case, she wrote in an op-ed piece in the New York Times.

The FCC “can regain its authority” by “formally relabeling Internet access services as ’telecommunications services,’ rather than ‘information services,’ as they are called now,” Crawford said. “All the commission needs to do is prove it has a good reason. It wouldn’t be the first time that the FCC relabeled Internet access services -- and certainly not the first time it addressed the need for equal access. Until August 2005, the commission required that companies providing high-speed access to the Internet over telephone lines not discriminate among Web sites. … There was nothing unusual about this legal requirement; for more than 100 years, federal regulators had treated telegraph and telephone service providers as ‘common carriers,’ obligated to serve everyone equally."

Not true, AT&T Vice President Hank Hultquist replied in a blog Monday. “Some believe, incorrectly, that broadband Internet access used to live under the watchful eye of a wise and beneficent FCC,” he said. “I can see why some people want to peddle this story and why others might believe it. But the truth is that the FCC has never regulated ‘broadband Internet access’ under Title II. In fact, the FCC has never regulated any type of Internet access under Title II. … Everyone knows that the deregulatory Bush Administration spoiled everything when it changed the classification of broadband to an information service under Title I. However, this narrative simply is not true. In fact, it was the Clinton Administration FCC that definitively declined to classify Internet access as a telecommunications service."

Stifel Nicolaus said it’s too early to predict whether commissioners will move to reclassify broadband under Title II. “Instead we believe the issue is still being debated internally, with compelling considerations on both sides, and no easy option,” said a research report. “While last week’s decision undercutting the FCC’s Title I authority did not foreclose the agency from moving forward on all broadband regulation, certain important areas will be more difficult, some likely impossible, and many, if not most, litigated before a skeptical court.”