US FCC Chairman Ajit Pai has proposed to end the Obama Administration’s Net Neutrality regulation, and move to what the FCC calls is a “bipartisan, light-touch framework that preserved a free and open Internet for almost 20 years.”

This development is important because it comes at a time when the Indian Telecom Regulator TRAI is holding its own consultation on throttling of Internet traffic. Indian telecom operators and ISPs are asking for a “light-touch” framework as well. Pai is pitching the regulations as a switch back to the regime under the Clinton administration, saying that it would allow the preservation of “vibrant and competitive free market that presently exists for the Internet…unfettered by Federal or State regulation”, saying that under the Obama administration, “the FCC suddenly changed course even though there was no problem that the agency needed to solve.”

Under that regulation, broadband carriers were brought under Title II, which meant that they were governed as public utilities. This shift in the FCC’s stance under Pai was expected, indicated by his move to drop investigation into complaints of Net Neutrality violations by zero rating services.

It’s important to note that this is a proposal. The FCC is planning a public consultation process on Net Neutrality.

Our analysis

1. Competition and Investment:
– What Pai said: “…when it comes to high-speed Internet access, or broadband, I’ve found that there is far more that unites us than divides us”…”people tell me that they want fast, affordable, and reliable Internet access. They say that they want the benefits that come from competition”…”Among our nation’s 12 largest Internet service providers, domestic broadband capital expenditures decreased by 5.6% percent, or $3.6 billion, between 2014 and 2016, the first two years of the Title II era”…”According to one estimate by the nonprofit Free State Foundation, Title II has already cost our country $5.1 billion in broadband capital investment. And given the multiplier effect from such spending, that means Title II has already cost our nation approximately 75,000 to 100,000 jobs.”
Our take: Pai is using the lack of competition in broadband as a reason for undoing Net Neutrality regulations, essentially equating the removal of Title II as a means of reducing government restrictions. Net Neutrality was an unwritten rule for a while, and hence needed no regulatory backing, but it was after prioritisation became a threat that regulatory intervention was sought. Remember that in India, telecom operators actually sought regulatory intervention for allowing Net Neutrality violations.

2. Impact on smaller ISPs:
– What Pai said: “And the impact hasnít been limited to big ISPs. Smaller, competitive providers have also been hit. For example, one small Arkansas ISP called Aristotle told Congress last year: Before the [Title II Order] was adopted, it was our intention to triple our customer base and cover a three-county area. However, we have pulled back on those plans, scaling back our deployment to three, smaller communities that abut our existing network. Other small providers followed suit. KWISP Internet, which serves 475 customers in rural northern Illinois, delayed its plans to upgrade its network and increase consumers speeds from 3 Mbps to 20 Mbps. Wisper ISP, a provider that serves 8,000 customers around St. Louis, Missouri, also cut back its investments, resulting in slower speeds. And just this week, 22 small ISPs, each of which has about 1,000 broadband customers or fewer, told the FCC that the Title II Order had ìaffected [their] ability to obtain financing. They said it had slowed, if not halted, the development and deployment of innovative new offerings which would benefit our customers. And they said Title II “hung like a black cloud” over their businesses. Our nation’s smallest providers simply do not have the means or the margins to withstand the Title II regulatory onslaught.”
Our Take: Pai is suggesting that if allowed to violate Net Neutrality, smaller ISPs will be able to invest in broadband, and improve speeds, and act as competition against larger ISPs. The fact is that broadband is a game that is played at scale, and – at least in India – smaller ISPs never really were able to benefit customers. India took the opposite route: increased barriers to entry in the ISP market. This led to the demise of neighbourhood ISPs, many of which essentially became franchisees of larger players. That didn’t help either, and India’s wireline broadband user base is still less than 20 million: a target which had been set for 2010. The growth has come in wireless, because of the investment in infrastructure by larger telecom operators. As such in India, competition in access (and not content among ISPs), despite its own Net Neutrality rules, has only increased. Different markets, different situations.

3. Content, not Internet:
– What Pai said: “…And they tell me that they want to access the content and use the applications, services, and devices of their choice. The question that we at the FCC must answer is what policies will give the American people what they want.”

Our take: Here Pai appears to be hinting towards slicing up of the Internet into services, equating people getting popular services at higher speeds with people getting a choice. This instance of ISPs giving preferential treatment to specific apps actually inhibits the free markets on the Internet. So Pai is pushing for free market competition among ISPs, but at the same time, inhibiting free markets online, by giving ISPs the right to prioritise and discriminate between apps.

4. Bipartisan approach:
– What Pai said: “And this is in large part due to a landmark decision made by President Clinton and a Republican Congress in the Telecommunications Act of 1996. In that legislation, they decided on a bipartisan basis that it was the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet”…”But two years ago, the federal governmentís approach suddenly changed.”
– Our Take: Pai is trying to position this in two ways politically: firstly as if the Obama administration went against a bipartisan approach by enacting the Open Internet rules, and secondly as if this will be a switch back to the Clinton administration’s bipartisan approach, thus trying to reduce opposition from Democrats.

5. Light-touch regulatory framework worked:
– What Pai said: “For almost two decades, the FCC respected that policy. It adopted a light-touch regulatory framework, one explicitly approved by the U.S. Supreme Court, which enabled the Internet to grow and evolve beyond almost anyoneís expectations. Under this framework, a free and open Internet flourished. Under this framework, Americaís Internet economy produced the worldís most successful online companies: Google, Facebook, and Netflix, just to name a few. Under this framework, the private sector invested about $1.5 trillion to build the networks that gave people high-speed access to the Internet. And under this framework, consumers benefited from unparalleled innovation”. The Obama administration “decided to put the federal government at the center of the Internet”…”It decided to slap an old regulatory framework called Title II originally designed in the 1930s for the Ma Bell telephone monopoly upon thousands of Internet service providers, big and small.”
– Our Take: Pai is trying to position regulations protecting Net Neutrality as onerous, and one that benefits larger ISPs, and “monopolies”. This isn’t applicable to India, where there is little competition among ISPs.

5. Ex post regulations:
– What Pai said: “And there wasn’t a rash of Internet service providers blocking customers from accessing the content, applications, or services of their choice”…”Did these fast lanes and slow lanes exist? No. The truth of the matter is that we decided to abandon successful policies solely because of hypothetical harms and hysterical prophecies of doom. It’s almost as if the special interests pushing Title II weren’t trying to solve a real problem but instead looking for an excuse to achieve their longstanding goal of forcing the Internet under the federal government’s control.”
– Our Take: It’s difficult to quantify harm to innovation online. How do you determine whether a service wasn’t launched because its competition was getting preferential treatment from an ISP? How do you know that Hulu can be negatively impacted by preferential treatment for Netflix? Sometimes, regulations have to be made on the basis of certain fundamental principles: such as the idea that ISPs should treat all users equally, whether they are a business or an individual. All users are creators, and where regulators often fail (and the TRAI didn’t) is in the thinking that users are mere consumers of content.

6. Privacy:

– What Ajit Pai said: “this proposal is the best path toward protecting Americans’ online privacy. Privacy is a topic that has received a lot of attention lately. I understand that many disagreed with Congress decision to stop the FCC’s flawed privacy rules from going into effect later this year. But wherever you stand, one thing is indisputable: Congress was maintaining the status quo that the FCC put in place when it imposed Title II. That FCC decision actually stripped the Federal Trade Commission of its authority to regulate broadband providersí privacy and data security practices. That’s because the FTC cannot regulate common carriers which the prior FCC suddenly deemed broadband providers to be. This decision was a mistake.”

– Our take: Here Pai is using the unpopular decision by the US Congress to allow to sell user broadband usage data to advertisers, as a ruse for removing Title II, saying that “Repealing Title II will simply restore the FTC’s authority to police broadband providers privacy practices.”

More in the speech linked to below.

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