Net Neutrality Economic Analysis Seen as Solid Enough to Pass Judicial Review

The FCC draft "restoring internet freedom" order cites studies to show the 2015 net neutrality order hurt the economy. Such arguments have been disputed, but court watchers agree for the most part that when legal challenges are filed, judges are likely to give the analysis little scrutiny. NCTA CEO Michael Powell told reporters Wednesday consumers will see no change due to the order. The National Hispanic Media Coalition said it expects to take the regulator to court, and states may as well.

The FCC could make a "few tweaks" to the draft order, said a spokeswoman for Commissioner Mike O'Rielly, who has concerns about citing Communications Act Section 218 and Title III to help justify a proposed transparency rule. "We're looking at removing those," she said, noting the draft's use of Section 257 authority would remain: "We think that's sufficient." She said O'Rielly believes Section 218 authority "could be abused" by future commissions, and he doesn't "support throwing it against the wall to see what sticks." O'Rielly has also been "working to strengthen the pre-emption language" affecting states and localities, she added, and there could be "a reminder that the record is built off the substantive comments and not off the fake comments."

Powell complained about the shrill nature of the net neutrality debate, which he said is typical of many policy debates today. The fight “has given the public an overexaggerated and catastrophic image of what’s likely to happen in the wake of the FCC’s inevitable decision,” he said. Powell said his message for consumers is they won't see any differences in the internet. “ISPs like net neutrality, too,” he said. “They make a lot of money on an open internet.” Powell made some of the same points in recode.

The economic arguments in the draft order are “sufficiently sound from a legal standpoint,” Powell told reporters: Reviewing courts “defer to the policy and economic judgments of the expert regulatory agency, unless those judgments are arbitrary and capricious.” The economic case is a “more than adequately reasoned and documented and substantiated analysis for purposes of the legal reviewable standard,” he said. All economists might not agree, but that’s not the point, Powell said.

The bigger question is whether utility regulation like that of Title II of the Communications Act is a good model for ensuring investment, Powell said. “I like to immediately point to the chronic underinvestment problems of every other public utility infrastructure in the United States,” he said. The electric grid, water and sewage systems are public utilities and get low or failing grades from the American Society of Engineers, he said. It’s “reasonable” to say “those kinds of models are going to lead to those kinds of results” without looking at levels of investment since the 2015 order was approved, he said.

FCC Chairman Ajit Pai, meanwhile, told NPR the draft provides “detailed analysis” showing the 2015 order led to less investment. “We point to the 5.6 percent decline in overall infrastructure investment,” Pai said. “We also observe that those studies purporting to show that there has been an increase actually count things like AT&T investment of billions of dollars in Mexico to upgrade its wireless networks.”

Powell was joined on the call by USTelecom President Jonathan Spalter and CTIA President Meredith Baker, who both said their members are investing less because of Title II reclassification. A USTelecom study found a decline in annual investment by broadband providers from $78.5 billion in 2014 to $76 billion this year, Spalter said. “That is alarming,” he said: The trend “gave us pause.”

Some Disagree

Nicholas Economides, professor of economics at New York University’s Stern School of Business, questioned the rigor of the analysis, saying he would give the lawyers who wrote the order a failing grade. The FCC needs to look at the broader public interest -- consumers, ISPs and edge providers -- and not just investment by ISPs, he said in an interview. “I understand the people who write these [orders] are lawyers, but somehow the thing has to be principled, it has to have some kind of methodology,” he said. “Here there is no methodology. There is no clear statement of what it is that the FCC is trying to maximize.”

What a court might do is hard to predict, said Mark Jamison, University of Florida professor and a member of the Trump FCC transition landing team. “The court gave the FCC’s 2015 order a pass on its economics-free analysis, but a nearly 180-degree change in policy may prompt a court to wonder why and set aside the Chevron-based practice of deferring to the expert agency,” Jamison said. “Fortunately, this time the FCC has done its economics homework and the order is likely to be able to stand on its substance.”

Powell also said on the call he doubts any ISP will challenge the transparency rules expected to be approved by the FCC. That prediction is with the caveat "that there are hundreds of ISPs,” he said. Spalter agreed a challenge by ISPs is unlikely.

Pai urged calm on NPR, citing “those who have peddled hysteria and misinformation over the last three weeks” suggesting “the internet as we know it is about to end, that democracy is threatened, that free speech and expression online are at risk.” People will soon find there's no change as a result of the order, he said.

Underpinning Seen OK

Other experts told us they agree with Powell that a reviewing court is likely to view the economic underpinning of the order as adequate.

The cost-benefit analysis in the draft order is “a wise insurance policy,” said Larry Downes, senior fellow at the Georgetown Center for Business and Public Policy. “I don’t expect the appellate court will give it much scrutiny” since few federal judges feel comfortable or competent reviewing economic analysis, he said. “The court will focus primarily on the legal arguments,” said Lawrence Spiwak, president of the Phoenix Center. “So long as the commission provides a patina of economic analysis, courts are loathe to get into the weeds.”

“I don't expect the economic analysis will be looked at with any more scrutiny than the court looked at the analysis of the 2015 order,” said Gus Hurwitz, co-director of the Space, Cyber & Telecom Law Program at the University of Nebraska College of Law. “It is important that [the analysis] be there, but the court will defer almost entirely to the FCC's analysis.” Daniel Lyons, associate professor at Boston College Law School, agreed. “The legal standard under the Administrative Procedure Act is fairly deferential," he said. "The court reviews to make sure that the agency's decision is not arbitrary or capricious, and that it has substantial evidence to support its claims.” Case law "is pretty clear that drawing conclusions from the evidence is primarily the province of the agency, not the court,” Lyons said.

The FCC’s analysis “relies solely on self-interested studies provided by the broadband industry and its surrogates,” said Gigi Sohn, aide to former Chairman Tom Wheeler. “No publicly traded ISPs have told their investors that Title II dampened investment,” she said. “Top executives at Comcast, Charter and AT&T have said explicitly that Title II had no impact on their investment decisions.”

“What a surprise that the FCC chair-turned-cable lobbyist agrees with the telecom lobbyist-turned-FCC chair,” Free Press Policy Director Matt Wood said of Powell and Pai. "We’ve shown dozens of times over that Pai’s cherry-picked numbers are wrong," Wood said.

Jon Leibowitz, FTC chairman under President Barack Obama and now a lawyer who represents ISPs, said in The Wall Street Journal that everyone should calm down about the threat posed by the order. “There is a critical need for protections from anticompetitive practices online, but both sides are exaggerating,” he said. The FTC is well positioned to police the internet, he said.

Other net neutrality news Wednesday: on state attorneys general potentially suing over the new rules (see 1712130051), on Capitol Hill (see 1712130056), on how Disney possibly buying Fox may affect the debate (see 1712130010) and on the issue in Europe (see 1712120001) and on the Democrat who won Alabama's Senate race backing the past rules (see 1712130001).

Net Neutrality Notebook

The FCC "failed the public," said Commissioner Jessica Rosenworcel in a tweet Wednesday. "The public record it's using to justify the roll back of #NetNeutrality is a corrupted mess and the agency isn't doing anything about it. That's not right. Public integrity matters." She noted a Wall Street Journal tweet that said of a story: "The WSJ sent thousands of surveys to people whose names appeared on the FCC's website to verify their authenticity -- in one sampling, 72% of respondents said they didn't submit the comments." Separately, Pai aide Nathan Leamer tweeted about Twitter Public Policy net neutrality promotion: "That @Policy is using a paid prioritization mechanism to artificially promote the net neutrality hashtag on its platform is just a tiny bit ironic." Twitter didn't immediately comment.

"Overwhelming bipartisan majorities oppose" the FCC net neutrality regulation repeal plan, said the University of Maryland's Program for Public Consultation. PPC surveyed 1,077 registered votes Dec. 6-8, first giving them a short briefing on the main arguments for and against repeal, which were reviewed by experts on both sides to ensure accuracy and balance. "At the conclusion, 83% opposed repealing net neutrality, including 75% of Republicans, as well as 89% of Democrats and 86% of independents," it said this week in a release linking to three survey questions and related data (16 questions were withheld for future use). Commissioner Mignon Clyburn tweeted that the results "very telling," but an FCC spokeswoman responded: “This is a biased survey that, among other things, makes no mention of the role that the Federal Trade Commission will play in policing anticompetitive or unfair conduct by Internet service providers. Earlier polling by Democratic pollster Peter Hart showed that most Americans believe that utility-style regulation of the Internet is harmful, and this is the regulation that the Restoring Internet Freedom order will eliminate.” PPC Director Steven Kull told us a potential FTC role was discussed with the experts during the review process, but it didn't appear to be "the dominant argument" in favor of repeal, and it raised "complex questions" that would require "a lot of ins and outs" to present to the public. "I don’t think the absence of it means it’s a biased poll," he said. He noted one of the experts was a government official who presented "the administration view." PPC took much if not most of the advice of the experts, but they did not "sign off" on the final survey content, he said.

Broadband providers and critics made closing arguments. Comcast is "reconfirming" its "commitment" to an "open internet and net neutrality," blogged Senior Executive Vice President David Cohen, linking to its policies and previous statements. He said Comcast won't block or throttle internet access to lawful sites or create "fast lanes." Cox Communications "reaffirms" its "commitment to providing an open internet experience" and said it won't block, throttle "or otherwise interfere with consumers' desire to go where they want on the Internet." The expected FCC action won't change "that the internet has been a platform of innovation and entrepreneurship for close to 30 years," blogged AT&T Executive Vice President Joan Marsh: "What will change is that this country will return to a rational regulatory framework similar to the one that capably governed the internet for decades before the Title II fever" at the FCC in 2015.

Netflix "continues to support strong net neutrality protections, a position that has not changed even as our business has grown," it said. "Although there are other companies for whom this is a bigger business issue today, we continue to support net neutrality protections so that the next Netflix has a fair shot at going the distance.” The Computer & Communications Industry Association said Pai's plan would "essentially forfeit" the FCC’s role in protecting consumers. The FCC proposals "invite the big, incumbent ISPs to block, throttle and discriminate against any website they want by throttling their own legal authority that should be used to protect consumers and users," said CCIA President Ed Black. "It is baffling that the agency that Congress created to protect consumers’ access to communications would so aggressively abdicate its duty."

More mayors and elected county officials signed a letter opposing local pre-emption in the Pai draft order rescinding 2015 net neutrality rules (see 1712070069). The letter has 67 signatures, now including mayors of Houston, Kansas City, San Antonio and Washington, D.C.

IHS Markit suggested net neutrality deregulation may spur broadband activity and returns that attract new competition over time, with costs. "The transition period may prove difficult for consumers, as what are effectively local monopolies will be able to take advantage of their new freedoms to limit access to services or implement discrete fees for third-party services," said a release Tuesday. It announced a report saying: "Broadband is available in 9.1 million of the 11.2 million census blocks of the United States, but in 10% of those blocks it does not reach advertised speeds of 10Mbps, and in 38% there is only one provider." The release said "video will be the key battleground," since U.S. cable-TV monthly average revenue per user of $80 is considerably higher than elsewhere, including in Western Europe where cable monthly ARPU is just $19.49. "Revenue for pay TV services is therefore highly threatened by the lower-cost over-the-top television providers, which are rapidly gaining new subscribers and enabling cord cutting from traditional service providers," it said.

Voices for Internet Freedom, a coalition that includes Center for Media Justice, Color of Change, National Hispanic Media Center and Free Press, said it plans a series of pro-net neutrality speakers outside FCC headquarters starting at 9 a.m. Thursday. Free Press Wednesday morning tweeted that more than 100 protesters were already outside the agency's headquarters. The Metropolitan Police Department said it received an FCC request to provide additional security at the building during Thursday's meeting and its Special Operations Division likely will send some uniformed and plain-clothes officers. The FCC didn't comment.