I’ve been searching for a good explanation of how net neutrality proponents think that Title II could be used to banish priority-delivery arrangements (“priority”) from the earth. Harold Feld of Public Knowledge was kind enough to alert me to this legal theory, which he filed with the FCC in May.
Before reading Mr. Feld’s submission, I had been laboring under the belief that netizens wanted Title II so they could regulate the rates of priority to zero. As pointed out to me by a telecom lawyer, this zero-price theory can’t overcome the legal requirement that common carriers receive a positive “fee” for services rendered, which must afford the carrier a reasonable chance for a return on investment.
Before assessing Mr. Feld’s alternative legal theory, it bears noting that economists don’t like to prohibit conduct that can be motivated by either efficiency or nefarious reasons. This “don’t-throw-out-the-baby-with-the-bathwater” concept is best captured in the rule-of-reason treatment of certain restraints in antitrust law. We don’t banish joint ventures from the face of the earth because some JVs could be used to coordinate prices. Ditto for vertical restraints. In contrast, price fixing is treated as a per se violation of the law—there is no plausible efficiency justification.
Because an ISP and its customers could reasonably want to prioritize the packets of a life-saving telemedicine application over those of a cat video (no offense to cat lovers), a rule that barred all priority would toss the baby overboard. And we love babies! While priority could be abused in theory—for example, an ISP could give preference to its own online gaming website or threaten to degrade the connection speeds of apps that declined priority—priory is not evil in all manifestations.
The netizens can’t see any good in priority. According to Mr. Feld’s legal theory, Title II has been used to banish conduct that the FCC found was “inherently unjust, unreasonable, or subject to abuse.” Because all priority is evil, goes the theory, it must be banished. Yet the odds that the D.C. Circuit would find that any discrimination across applications is “inherently unjust” are slim to none.
Setting aside this minor roadblock, let’s see if Mr. Feld can claim precedent. He cites two cases in which the FCC barred conduct under its “inherently unjust” power. The first is Carterfone, in which “the FCC found that it was inherently unjust and unreasonable to permit a carrier to interfere with the ability of a subscriber to attach a device to a network.” The analogue here would be barring ISP conduct that interfered with the ability of a broadband customer from accessing a website or from experiencing the website in all its glory.
I am in favor a rule that prohibits blocking (complete interference) and bars ISPs from degrading the treatment of packets from edge providers that decline priority (partial interference or extortion). But leaving one application provider whole (who declines priority) while giving priority to another (who pays for it) does not constitute interference in any way, shape or form.
Mr. Feld uses the ambiguous language “discriminating between devices” to bolster his Carterfone analogy. But recall that in that context, Ma Bell was trying to extend her monopoly to equipment. Offering priority to a third party online gamer—and extending the terms to all comers—is light years away from trying to be the exclusive provider of online gaming.
The Carterfone example is further distinguished from today’s debate because, according to a recent FCC report, only seven percent of U.S. homes are beholden to a single provider of wireline broadband at speeds of 10 Mbps (See Figure 5a). Mr. Wheeler offered alternative stats showing that 30 percent were subject to a single wireline provider at speeds of 10 Mbps, but even this is a far cry from the percentage of homes beholden to a single provider of local telephone service in the 1960s.
Mr. Feld’s second case is equally inapposite. In Computer II, the FCC determined that common carriers could offer “enhanced services” only through a standalone entity—that is, common carriers were forced to structurally separate voice from enhanced services. Offering priority to third parties is not equivalent to vertical integration. Certainly ownership could be effectuated via an exclusive priority arrangement. But if that’s the concern, let’s focus our attention on exclusive priority, as opposed to all priority. Don’t toss that cute baby.
In his preamble, Mr. Feld makes an important disclaimer: “[Public Knowledge] notes that while the Chairman is correct that Title II would permit reasonable discrimination, it does not, as some seem to insist, require reasonable discrimination and therefore Title II would require paid prioritization.” If Title II permits reasonable discrimination, and could bar priority only if the D.C. Circuit found that priority was “inherently unjust,” then Title II is likely being peddled to serve a different regulatory agenda.