How the FCC can justify regulating U.S. internet

An ugly word – regulation – but it made the internet fast and inexpensive in South Korea and elsewhere. Now ranked No. 17 in the world and sinking, the U.S. needs a remedy.

Throwing his full weight behind net neutrality, President Obama released a statement yesterday supporting the regulation of an open internet. The President’s statement didn’t have the same impact of Last Week Tonight’s John Oliver’s net neutrality rant, which ultimately broke the Federal Communications Commission’s website. But the President was heard and will bring the net neutrality discussion back to regulating an open internet.

See also: Obama's net neutrality proclamation won't help solve the problem

Comparing worldwide internet speeds with those in the U.S. and South Korea, home to a government-regulated internet, bolsters the President’s argument. Beginning in 1981, advanced telecommunications became a pillar in the Korean government’s educational and economic plans. Charged with modernizing telecommunications, the Korean Telecommunications Authority replaced the slow-moving South Korean Post and Telecom Ministry’s bureaucracy. South Korea made the information superhighway the core of an urgent economic restructuring, turning smoke-stack industries into an information technology economy that would compete with the rest of Asia. The results of South Korea’s choices of policy and competition are clear.

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Understanding the background of net neutrality, which is often described as tearfully boring, isn’t the exclusive domain of policy analysts and regulators. Here’s the short form version, explaining the tall poles holding up the tent of net neutrality.

When Congress passed the Telecommunications Act of 1996, it deregulated telecommunications and created a virtuous cycle of innovations. The act failed at providing much choice for residential internet access. Susan Crawford, a visiting professor at Harvard Law School, said in a recent interview with NPR:

"for at least 77% of the country, your only choice for a high-capacity, high-speed Internet connection is your local cable monopoly."

In 2010, when ISPs started to exercise their choke-hold to demand payments to create a fast lane for content providers like Netflix, the FCC issued its Open Internet Order that created net neutrality rules, which prohibited Internet service providers from blocking content and prioritizing certain kinds of traffic.

Verizon challenged the order and won on appeal before the United States Court of Appeals for the District of Columbia in January of this year. The court didn’t stop at striking down the FCC’s Open Internet Order, but clarified how the FCC could regulate an open internet under two provisions of the act.  

Now, this gets a little wonky. The court interpreted Section 706 of the act to give the FCC the authority to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans…Contrary to Verizon’s arguments, we believe the Commission has reasonably interpreted section 706(b) to empower it to take steps to accelerate broadband deployment if and when it determines that such deployment is not 'reasonable and timely.'"

This can be compared to telephone universal service, promoting telephone service for all Americans. However, the decline in American leadership in broadband isn’t encouraging about the FCC’s ability to encourage unregulated ISPs to build out broadband comparable to what can be found elsewhere across the globe.

The President recommends an alternative to the weak authority of Section 706, regulating the internet using Title II of the act. It’s analogous to the way electric utilities are regulated. Electricity, an essential service in everyone’s’ lives, delivered through utilities that hold monopoly positions are regulated because consumers don’t have an alternative if the utility raises prices unreasonably. Electric utilities are managed to produce a fixed return on investment. If a utility wants to raise prices to cover the increased cost of improved services, the utility’s plan and ROI consistency must win regulatory approval.

Verizon and other internet access providers have a monopoly in 77% of the U.S., according to Crawford. Therefore, the FCC could choose to regulate internet access providers. The justification is that, without price competition or regulation, the internet access providers can increase prices without investing in improved service. The cost of internet access to consumers in the U.S. proves that the act failed to spark a virtuous cycle of internet innovation.

The Open Technology Institute’s October policy paper reports that internet access costs American consumers 25% more than their European counterparts for equivalent services. It also points out what could be possible. South Korea’s KDDI delivers 1 Gbps for just $30 per month, and Google delivers the same capacity in selected U.S. markets for $70 per month, a price that was considered shockingly low in the U.S. when Google introduced it.

The President can’t order the FCC to act, though. It gets its funding and oversight from Congress, and any new open internet rules must be voted on by its board of five commissioners, consisting of three Democrats and two Republicans. But the decline in the country’s internet ranking and its high cost to consumers, an urgent issue, warrants the President bringing regulation to the forefront in the discussion.

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