Net Neutrality Order Will Lead to 'De Facto' Rate Regulation, McDowell Says
Former FCC Commissioner Robert McDowell said the FCC’s net neutrality order, slated for a vote Thursday, will inevitably lead to rate regulation regardless of claims otherwise. ISPs and other companies also will face unprecedented oversight from the FCC as a result of the order, expected to reclassify mobile and fixed broadband as a common carrier service, McDowell said Tuesday at a Hudson Institute event. McDowell voted against the 2010 net neutrality order as a member of the FCC and is now at Wiley Rein.
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“Where I think this is ultimately going is price regulation,” McDowell said, acknowledging FCC Chairman Tom Wheeler says that's not in the offing. But by reclassifying broadband under Title II of the Communications Act and not forbearing from Section 201, the FCC opens itself up to looking at whether rates, terms and conditions of service are just and reasonable, he said.
At some point a content delivery network will file a complaint at the FCC to say “this ISP/backbone provider” is charging rates that are too high, McDowell said. “The FCC is going to say, ‘Well, we weren’t going to regulate rates, but you’re right, that rate is too high,’” he said. “’We’re not going to say what the rate is, but that rate is too high.’ That becomes de facto price-cap rate regulation. That’s going to happen. Mark my words.”
McDowell said the list of Title II sections from which the FCC won't forbear has grown over the past month to as many as 13. The order is likely becoming even more regulatory as it's finalized at the FCC, he said. The FCC will answer some questions Thursday, but will create many more, McDowell said.
One big question is how the FCC will draw lines between what's an edge provider versus an ISP, McDowell said. Big content delivery companies have thousands of miles of fiber connecting servers, sometimes all over the world, he said. “Is the differentiation going to be last-mile connectivity?” he asked. “Well, Google Fiber has last-mile connectivity.” McDowell also said he understands the FCC will launch an ombudsman and “mother, may I?” panel for industry to file business plans in advance “before they innovate.”
The order will mean litigation uncertainty for 30-48 months as numerous players challenge the rules in court, said Scott Cleland, chairman of NetCompetition, at the event. “This is the biggest change in modern FCC history,” Cleland said. The FCC has moved toward a more deregulatory regime since 1970, he said. “The entire foundation of everything that the Internet has been built in the United States is now an open question,” he said. ISPs will now fall under “mother, may I?” regulation, he said. “This is a dramatic, big change.”
Uncertainty means risk and that means less investment in networks, Cleland said. Big companies wouldn’t have invested as much they have if they thought they could be reclassified under Title II, he said. “No one in this industry ever fathomed that the FCC could be this stupid, this political, this disruptive,” he said. Investors will inevitably want to move away from the telecom industry, toward industries “that don’t have an unquantifiable, unknown risk,” he said. McDowell predicted an appeal could go all the way to the Supreme Court and that challenges will come from net neutrality supporters and opponents.