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Why FCC’s broadband public option is a lose-lose gamble

April 27, 2010 | Filed Under Business, Capitalism, Computers, Economy/Finances, Free Trade, Inernet, Net Neutrality, Scott Cleland, Technology | Comments Off on


Why FCC’s broadband public option is a lose-lose gamble

-By Scott Cleland

The FCC would be making a longshot, bet-the-farm gamble, if it decided to mandate the broadband public option, i.e., deeming broadband to be a common-carrier-regulated service and regulating the Internet essentially for the first time.

It would be a classic lose-lose gamble because the FCC is very likely to lose in court — accomplishing nothing, but damaging the hard-built trust, cooperation and commitment necessary for public-private partnerships to be able to get broadband to all Americans fastest. Also everyone else would lose from the irreparable damage to private broadband investment, innovation, growth, jobs and America’s broadband ranking in the world.

I. Lose in Court:

It is a given that the FCC would be sued; and it is very likely that the Appeals Court and/or the Supreme Court would overturn any FCC unilateral assertion of authority to deem broadband a common carrier service. It is also likely that the court would stay such an FCC action from going into effect because of the likelihood of the petitioners winning on appeal and because of the easy case that it would cause irreparable harm.

An FCC public option is a longshot legal gamble because the FCC would essentially have to draw the equivalent of an inside straight in poker. The FCC would have to survive a brutal gauntlet of very strong legal arguments against such an extreme, unnecessary, unwarranted, unjustified and unauthorized FCC unilateral action. If the FCC doesn’t prevail on every single one of the five strong legal/constitutional arguments against them — they lose.

First, the FCC will have to establish a record to justify reversing four different FCC precedents (the first was affirmed by the Supreme Court) and explain why in “over 30 years of FCC precedent… the FCC has never treated Internet service providers as common carriers.” (Please see PFF Barbara Esbin’s outstanding legal analysis.) Simply, the FCC must explain what’s changed and it needs to be more than just the FCC’s mind.

Second, the FCC must “convince the courts that it is reasonable to apply unchanged law to unchanged facts and reach a different outcome.” (See Esbin.) Facts matter. Precedent matters. If they do not matter, the FCC could change its mind on definitions, classifications, etc., on whim, the essence of being unconstrained by the rule of law and illegally arbitrary and capricious.

Third, the FCC must convince the court that it “has the authority to force common carrier status on non-carriers.” (See Esbin.) Implicit in net neutrality proponents arguments that the FCC just has to “relabel” broadband a regulated service is that the FCC has unlimited power to do whatever it wants to do to communications providers. However, nowhere in the statute does it grant the FCC express authority to force a company to be a common carrier that has not been one.

Fourth, the FCC will have to argue that restricting a constitutionally-protected speaker’s right to any differentiated speech on their network survives first amendment scrutiny, especially for cable, wireless and satellite networks that have never been common carrier networks. (See NCTA FCC filing — Section IV.) Net neutrality proponents’ core political argument that the Government must restrict ISP speech in order to preemptively protect user free speech that has not been threatened by ISPs, could be the most difficult legal argument facing the FCC. Unlike the average person, net neutrality proponents have tried to persuade the appeals courts and the Supreme Court understand that the purpose of the First Amendment is to protect citizens from the Government infringing free speech not from corporations.

Fifth, the FCC will have to argue that their unilateral action does not violate the U.S. Constitution’s Fifth Amendment which requires: “nor shall private property be taken for public use, without just compensation.” (See Precursor post.) The entire premise of deeming broadband to be regulated is for the FCC to be able to legally restrict currently legal broadband business practices and business opportunity based only on what broadband providers might do in the future — without any mention of compensation for that takings.

II. Lose in the market, nation and world

Market: First, the FCC deeming broadband to be regulated would cause chaotic-level uncertainty and seriously chill private investment because at core it would threaten hundreds of billions of dollars of past and future private broadband investment with the risk of stranded investment and a more regulated return on investment rather than a market-based return on investment.

If the FCC actually went through with the most radical and sweeping unilateral FCC regulatory changes in the Internet era, in deeming broadband to be regulated, no company or investor would or could trust most business/investment baseline assumptions involving the FCC.

Companies and investors would be left with legions of questions and little, if any, trustworthy answers — for years.

To protect their shareholders interests, broadband companies would have little choice but to litigate most everything and seek court stays of most every FCC decision implicated by the completely new and hostile foundational regulatory baseline.

The old adage is true, “capital goes where it is welcome,” and the FCC deeming broadband to be regulated for the first time would be like putting neon signs over the communications sector: “Restricted Area,” “Do Not Enter,” “Dead End” and “Bridge Out Ahead.”

Nation: If the National Broadband Plan is the FCC’s top priority, and if the FCC believes that private investment and public-private partnerships are critical to getting broadband to all Americans fastest, no single decision the FCC could make could be more counter-productive than radically changing the rules and moving the goal posts mid-game by deeming broadband to be regulated for the first time.

Moreover, if the FCC is in fact concerned about the U.S. falling behind the rest of the world in broadband, taking a multi-year pit stop mid-race to re-engineer and retrofit the engine of the U.S.’ broadband race car — by removing its high-performance market competition engine and replacing it with a dramatically slower regulatory and government spending engine — is a sure-fire way for the U.S. to fall behind the rest of the world on broadband.

On what basis can the FCC assume that deeming broadband to be regulated would not substantially slow current progress and momentum to getting broadband to all Americans fastest?

On what basis can the FCC assume that their government-first broadband approach can outperform the current market-competition-first approach?

If the FCC is committed to private investment, economic growth, job creation, and prosperity, how would regulating broadband for the first time have a positive net impact on achieving these goals?

World: If U.S. Government policy is to encourage an Open and free Internet, why would the FCC want to lead the world towards more regulation of broadband and government-control of the Internet?

Has the FCC fully considered the international ramifications of leading the balkanization of the Internet by setting the example for more country-specific regulation and Government-control of broadband Internet Service Providers? And by discouraging the current voluntary, collaborative, private efforts that have made the Internet the success it is today?

In sum, the FCC deeming broadband to be regulated would be:

  • Unnecessary, unwarranted, unjustified and unauthorized;
  • A longshot, bet-the-farm gamble that the FCC would very likely lose in court;
  • A lose-lose dynamic with little upside and massive downside; and
  • The height of regulatory hubris and irresponsibility.

_________________
Scott Cleland is one of nation’s foremost techcom analysts and experts at the nexus of: capital markets, public policy and techcom industry change. He is widely-respected in industry, government, media and capital markets as a forward thinker, free market proponent, and leading authority on the future of communications. Precursor LLC is an industry research and consulting firm, specializing in the techcom sector, whose mission is to help companies anticipate change for competitive advantage. Cleland is also Chairman of NetCompetition.org, a wholly-owned subsidiary of Precursor LLC and an e-forum on Net Neutrality funded by a wide range of broadband telecom, cable and wireless companies. He previously founded The Precursor Group Inc., which Institutional Investor magazine ranked as the #1 “Best Independent” research firm in communications for two years in a row. His latest op eds can be seen at www.precursorblog.com.

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Fair Use: This site may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of political, human rights, economic, democracy, and social justice issues, etc. I believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research, educational, or satirical purposes. If you wish to use copyrighted material from this site/blog for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

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