Reply Comments of the R Street Institute in the Matter of Safeguarding and Securing the Open Internet

IN THE FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554

______________________________________________

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REPLY COMMENTS OF THE R STREET INSTITUTE

Jonathan Myles Laurier Cannon
Policy Counsel
R Street Institute
1411 K Street NW
Suite 900
Washington, D.C. 20005
202-525-5717
[email protected]

January 17, 2024

Introduction

We once again thank the Commission for the opportunity to submit reply comments in this proceeding. The R Street Institute (R Street) reaffirms our request for the Federal Communications Commission (FCC or Commission) to abandon the effort to reclassify broadband service under Title II. As the record reflects, regulations should evolve with the advancement of technology. The record fails to identify good-faith reasons for restoring the heavy-handed framework first imposed by the 2015 Open Internet Order.[1] As highlighted in our initial comments, “imposing common carriage rules on the internet would ‘fundamentally transform the internet by prohibiting internet service providers from choosing the content they want to transmit to consumers.’”[2]

Ultimately the goals of net neutrality are “not about neutrality for its own sake, but about advancing consumer choice and welfare.”[3] Since 2010, there has been discussion about the role (if any) the government should play in promoting consumer welfare while preserving an open internet. However, this proposed rulemaking seeks to upend this struggle for a more perfect internet and looks only to move the goalpost for regulatory takeover. This agency’s proposal has become far removed from the ideal of a free and open internet. By definition, a network buried in regulation is anything but free and open.

Some commenters have suggested that the United States look to the European Union and India as models of how our internet should be regulated.[4] The United States should be leading on innovative policies that facilitate growth and advancement, unlike our contemporaries across the Atlantic. As a study published during the COVID-19 pandemic noted, “[t]he U.S. fixed broadband download speeds exceeded speeds in the European Union.”[5] In Europe, as of 2020 “34% of households had a fixed broadband subscription at 100 megabits per second or more” compared to 55 percent in the United States.[6] This was in large part due to the soft-touch regulatory paradigm that led to the dot-com boom and helped Silicon Valley explode.[7] Europe should not be the standard for any law, policy, or regulation.

In these reply comments, we reaffirm the arguments made in our initial comments and highlight key arguments raised by stakeholders including the benefits of zero-rating, the burden of the rule on providers, and stifling new innovations.

I. Zero-rating is neither anti-competitive nor harmful to consumers

One justification used to urge the FCC to restore Title II classification is to prevent zero-rating. This “enable[s] mobile wireless customers to download and upload online content without incurring data usage charges or having their usage counted against data usage limits” leading to “lower prices for customers.”[8] It also fosters “more consistent connectivity,” “expands diversity of content,” and “increases participation” online.[9]

Arguments against zero-rating focus on the premise that it is anti-competitive and bad for consumers. For example, Public Knowledge argues that “using a service that has not been zero-rated can carry a financial cost. Further, a customer can tell—just by using an app or visiting a website—whether it has slow or degraded performance. But a user has no way to know which services they are using are zero-rated, and which are not.”[10]

Technology experts have argued that zero-rating is a positive offering that “reflects the carrier’s unilateral determination that doing so improves the values of its platform.”[11] Customers will seek services that offer these incentives, and with customer choice increasing, companies must consider any competitive advantage they can use to woo customers. Further, the number of unlimited offerings has only increased since 2015, negating the need for zero-rated product offerings.

As one technology scholar noted in his comments, most arguments against zero-rating can be distilled into “efficiencies created by practices like zero-rating and network slicing to enhance consumer experience don’t actually protect free speech online, and only government control can protect consumers.”[12] As networks become increasingly competitive and options continue to increase for consumers, it becomes necessary for companies to create novel approaches to attract and maintain customers. Zero-rating is just one tool companies can incentivize to retain happy customers.

Commenters further highlighted the net benefits of zero-rated offerings:

First, applications can use zero-rating to help bring in new customers, enhancing the value of the product and providing revenues to defray the investment for additional innovation. Second, zero-rating can lower the cost to subscribe to broadband and actually use services to communicate, especially globally where some 2.5 billion people have access to broadband but choose not to subscribe. Finally, zero rating can lead to more efficient use of networks, especially if the zero-rated services use fewer bits than a non-zero rated version. With zero-rated services, consumers gain more options, at lower costs, than they would otherwise.[13]

We disagree with commenters like the Electronic Frontier Foundation calling for a California-like approach to prohibit zero-rating.[14] Public Knowledge highlights a particular example of zero-rating utilization involving AT&T and HBO to demonstrate a failure. When California imposed its own net neutrality law, it prevented AT&T from offering a competitive incentive to provide HBO to its customers.[15] The Internet & Television Association (NCTA) noted that this notice of proposed rulemaking “expressly raises the likelihood of the FCC regulating data plans and investigating ‘unjust and unreasonable charges and practices’ … creat[ing] risk that will further lessen investment.”[16]

To reiterate, the Commission is working in an anti-competitive manner to suppress providers’ ability to incentivize customers with products and services that include zero-rating. As noted in our initial comments, Absent Title II, net neutrality principles are still enforceable. The FTC is the appropriate cop on the beat to ensure ISPs are not harming consumers.[17] Ex-post enforcement would be vastly superior to ex-ante regulation under common carriage-era Title II.

II. Title II regulation will place a direct burden on providers

The record shows overwhelming evidence supporting the economic burden that reclassification of Title II will have on the internet economy. The result of Title II reclassification under the 2015 Open Internet Order speaks for itself. As the Phoenix Center for Advanced Legal and Economic Public Policy Studies highlighted: 

[T]he FCC’s Title II regulatory approach reduced investment by $8.1 billion annually (10%), on average, between 2011 and 2020, or $81.5 billion over ten years, reducing employment in the information sector by about 81,500 jobs and total employment by about 195,600 jobs (many of them union jobs), reducing labor compensation by $18.5 billion annually. Gross Domestic Product (“GDP”) has been reduced by $145 billion annually, or $1.45 trillion over ten years.[18]

As R Street previously argued, “[the Broadband Equity Access and Deployment Program], combined with affordability programs like the Universal Service Fund Programs and Affordable Connectivity Program, provides an once-in-a-lifetime chance to help connect those on the wrong side of the digital divide.”[19] So, not only would the FCC imperil its own efforts, it would stymie private-sector investment—jeopardizing a once-in-a-generation opportunity to provide universal access.

All commenters would likely agree that broadband has become an essential service to everyday life; however, “that rationale is an insufficient foundation upon which to rest such intrusive regulations.” [20] Absent competition, heavily regulated utilities largely lack innovative technologies and usually do not have incentives to provide anything but the bare minimum to customers.[21] Broadband, on the other hand, is an increasingly competitive marketplace with service providers constantly looking at ways to innovate and improve to offer cutting-edge products that suit consumer needs.[22] Turning broadband into a utility would moot these incentives, thereby harming both customers and innovation.

Further, the economic burdens would not only impact large ISPs. They would also have a downstream impact on smaller local ISPs, ultimately reducing competition and driving up prices. As the Wireless Internet Service Providers Association highlighted in their comments: “A return to a Title II regulatory regime would impose a disproportionate and unfair burden on the small broadband providers that have gained a foothold in the market for broadband services, in part because of the light-touch regulatory environment.”[23] These ISPs have built their networks and invested in reliance on the light-touch framework that has existed for decades. Absent the failed Open Internet Order experiment, this framework has enabled wireless internet service providers and similar smaller providers to connect customers, predominantly in previously unserved or underserved areas.

III. Imposing net neutrality rules on ISPs will stifle innovation

Additionally, these newly proposed regulations would have a detrimental impact on innovations and new technologies that would revolutionize network management, obviating many concerns raised by net neutrality advocates. Innovative technologies depend on dynamic networks to provide applications with high-speed and low-latency service previously thought impossible. In the context of 5G, “providers can tailor network performance to the specific metrics that are most important to the customer, including speed, latency, reliability, quality of service, security, and support for massive numbers of connected devices.”[24] This could help with telehealth, smart grids, self-driving vehicles, and more by prioritizing dataflows and “creating customized, software-defined, virtual networks—or ‘slices’—that are each logically separated and individually optimized to meet the specific needs of each application.”[25] The opportunity proposition of what network slicing will do—and how it will benefit consumers—will be enormous.

This arbitrary proposed rule would impede carriers’ ability to create these flexible networks that will create new innovations and improve the customer experience. The FCC should maintain its light-touch framework and ensure that any proposed rule anticipates new innovations like network slicing in order to build a forward-looking framework that anticipates new innovation instead of handcuffing the industry to antiquated regimes.[26]

As carriers continue to invest in innovations to promote new applications and technologies, the FCC should ensure that any action taken by the agency promotes innovation while maintaining U.S. dominance and leadership in connectivity.

Conclusion

As the FCC is content rewriting the same rule from 2015, we see no reason not to rewrite our conclusion from our initial comments. For the aforementioned reasons, R Street urges the Commission to reject this misguided attempt at reclassification and instead retain the Commission’s light-touch regulatory framework that has served the internet in the three decades since it became commercially viable. The Commission should work with Congress to legislatively resolve the issue and avoid a fourth attempt at reclassification—a likely result should this regulation be implemented and survive court scrutiny.

An open internet is best secured by the light-touch regulatory framework enshrined in the Restoring Internet Freedom Order. Congress can and should address potential consumer harms or grant the FCC authority to promulgate rules appropriately. Absent a clear directive from Congress, the FCC cannot act alone to wreak havoc on the internet ecosystem that has become an essential part of our society.

Respectfully submitted,

__/s/________________________

Jonathan Cannon, Esq.
Policy Counsel
R Street Institute
1411 K Street NW
Suite 900
Washington, D.C. 20005
202-525-5717
[email protected]

[1] In the Matter of Protecting and Promoting the Open Internet, GN Docket No. 14-28, 3- FCC Rcd 5601 (2015).

[2] Id.

[3] Beyond Neutrality: How Zero Rating Can (Sometimes) Advance User Choice, Innovation, and Democratic Participation, BJ Ard, Maryland Law Review 75 Md. L. Rev. 985 (2016).

[4] See e.g., Comments of Public Knowledge at 78.

[5] See Mike Robuck, U.S Networks out perform Europe’s during COVID-19 pandemic, Fierce Telecom (June 22, 2020), https://www.fiercetelecom.com/telecom/report-u-s-networks-out-perform-europe-s-during-covid-19-pandemic.

[6] See NCTA Comments at 49.

[7] The internet, as a result of this light-touch approach, exploded—accounting “for $3.70 trillion of gross output, $2.41 trillion of value added (translating to 10.3 percent of U.S. gross domestic product (GDP)), $1.24 trillion of compensation, and 8.0 million jobs.” Adam Thierer, Getting AI Innovation and Culture Right, R Street Institute (March 2023), https://www.rstreet.org/wp-content/uploads/2023/03/Final-Study-No.-281.pdf, at 8. 

[8] Jeffrey A. Eisenach, Ph.D., The Economics of Zero Rating, NERA Economic Consulting (March 2015), https://www.nera.com/content/dam/nera/publications/2015/EconomicsofZeroRating.pdf.

[9] Information Technology Industry Council Comments at 7.

[10] Public Knowledge Comments at 73.

[11] Jeffrey A. Eisenach, Ph.D., The Economics of Zero Rating, available at https://www.nera.com/content/dam/nera/publications/2015/EconomicsofZeroRating.pdf.

[12] Jeffrey WestlingComments at 6.

[13] Jeffrey Westling Comments at 4-5.

[14] See e.g. Electronic Frontier Foundation Comments at 15.

[15] Public Knowledge Comments at 17.

[16] NCTA Comments at 7.

[17] See R Street Comments at 4.

[18] Phoenix Center for Advanced Legal and Economic Public Policy Studies Comments at 2.

[19] R Street Comments at 7.

[20] Fiber Broadband Association Comments at 5.

[21] Michael Giberson and Devin Hartman, Electric Paradigms: Competitive Structures Benefit Consumers, R Street Institute, https://www.rstreet.org/wp-content/uploads/2023/09/FINAL_r-street-policy-study-no-293.pdf, (September 2023).

[22] Broadband Competition is Thriving Across America, ACA Connects, https://acaconnects.org/broadband-competition-is-thriving-across-america/#:~:text=Broadband%20Competition%20Is%20Widespread%20and%20Increasing%20Rapidly&text=Based%20simply%20on%20projecting%20historic,offering%2025%2F3%2B%20service (June 23, 2022).

[23] Wireless Internet Service Providers Association Comments at 10.

[24] T-Mobile Comments at 5.

[25] Id.

[26] Id.