September 17, 2013 Bloomberg View - As the Federal Communications Commission gets a new chairman, probably this month, the agency faces historic resistance from the companies it is meant to regulate. The giant companies that sell access to the Internet are working on multiple fronts to ensure that no regulator has any real authority over them.
In a hearing last week before the U.S. Circuit Court of Appeals in Washington, a lawyer for Verizon Communications Inc. argued that when the FCC deregulated high-speed Internet access services in 2002, it gave up any authority to require that network access providers not discriminate in the way they provide their transport services to end-users, other networks and content providers such as Netflix and Google.
The next day, AT&T Inc. (T)’s chief lobbyist said that policy governing competition in Internet access should be set by the Department of Justice and the Federal Trade Commission, not the FCC. And two days later, Jon Leibowitz, the former chairman of the FTC, agreed that privacy concerns should be heard by his former agency. Leibowitz is now a private lawyer working on behalf of AT&T, Verizon, Comcast Corp., Time Warner Cable Inc. (TWC) and the trade associations for the wireless and cable industries.
The U.S. Senate can finally confirm Tom Wheeler as FCC chairman, now that he has been paired with Republican Michael O’Rielly as a candidate for another seat on the commission. It’s imperative that Wheeler reclaim the FCC’s authority over telecommunications. Otherwise, Americans may lose the high-quality, reasonably priced and ubiquitous communications capacity that they have enjoyed since electronic communications began. Smart and appropriate regulation would bolster our country’s competitiveness and help unleash the productive potential of the middle class.
Consider the access providers’ claim that antitrust law can be used to manage any threats to innovation or competition in the concentrated market for wired high-speed Internet connection. (Over the past year, 85 percent of new subscriptions went to local cable monopolies, all of which sell content as well as data transport.) Leibowitz himself pooh-poohed that notion in 2007, when he pointed out that a high-speed Internet access provider “with monopoly power in a local market might use that power to block or degrade some applications or content that compete with applications or content the broadband company itself provides.” Antitrust law, Leibowitz added, “would not prevent such a scheme except after a ‘rule of reason’ analysis” which would be “drawn out, uncertain, and expensive” -- leading him to conclude that antitrust law “is not necessarily well-suited to protecting” consumers’ interests.
He was right. By its nature, antitrust law looks backward at specific cases, asking only whether a monopolist in one market is driving competing producers from a second market. In the case of Internet access, however, the existing operators’ rational decisions to favor particular traffic and networks -- even if they don’t completely exclude content competitors -- cause real economic and social harm. Allowing communications transport companies to act as gatekeepers, choosing winners and losers, keeps the free market from functioning.
The FTC and Justice Department are both law enforcement agencies, not charged with economic regulation or industry management. The FCC, in contrast, enforces a “public interest” standard. It is allowed to consider values such as national economic competitiveness, economic inequality, and private companies’ incentives to provide reasonably priced fiber-optic connections or to connect their networks with others’. The push to move privacy issues from the FCC to the FTC should be seen for what it is -- the thin edge of a wedge designed to pry all authority from the FCC.
The existing network-access providers (mainly, Verizon and AT&T for wireless and Comcast and Time Warner Cable for wires) just keep repeating their mantra that everything is fine in America. That’s simply not true, as any mayor interested in ensuring reasonably priced fiber connectivity for local businesses can attest.
The U.S. lacks any plan to upgrade from cable to faster fiber-optic connections, and there is no competition among providers to drive technology upgrades. Nor do the providers have any incentive to treat fairly any interconnecting networks being used by their content-level competitors (again, think of Netflix). Instead, as Verizon’s lawyer told the court last week, they’re planning to exact payments from these networks for the privilege of reaching their subscribers on the equivalent basis as Verizon’s own services.
What’s at stake is more than just how the FCC treats AT&T, Verizon, Time Warner Cable and Comcast: It’s the country’s competitive future.
It’s encouraging that Democrats and Republicans in the Senate seem willing to come together to approve the new FCC commissioners. Wheeler and the administration must now rise to the regulatory challenges ahead.
(Susan Crawford, a professor at the Cardozo School of Law and a fellow at the Roosevelt Institute, is the author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Follow her on Twitter at @scrawford.)
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