FCC Should Fold Its Losing Hand

Apr. 7.10 | About: Comcast Corporation (CMCSA)

The proponents of “net neutrality” have done a great job of convincing the world that the future of mankind — or at least USA’s national competitiveness — depends on the ability of the Federal government to tell broadband carriers what they can or cannot do to manage their networks.

Thus, the media has been predicting a catastrophe for net neutrality after the unanimous decision Tuesday by the D.C. Court of Appeals on Comcast v. FCC, in which they reversed the FCC order that Comcast (NASDAQ:CMCSA) not block BitTorrent. (Unlike most, CNET managed to find two sides to the story.)

The problem for the FCC is that there was no legal basis for its action. The 3-0 Appeals ruling concluded:

Yet notwithstanding the “difficult regulatory problem of rapid technological change” posed by the communications industry, “the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer . . . Commission authority.” NARUC II, 533 F.2d at 618 (internal quotation marks and footnote omitted). Because the Commission has failed to tie its assertion of ancillary authority over Comcast’s Internet service to any “statutorily mandated responsibility,” Am. Library, 406 F.3d at 692, we grant the petition for review and vacate the Order.

Translation: the FCC gave a laundry list of reasons why it had authority to regulate Internet carriers, but in no cases did Congress ever give them statutory authority.

This was, in fact, predicted by the dissent in the sharply divided 3-2 FCC vote in August to go after Comcast. As CNET reported at the time:

In an unusually pointed dissent, Commissioner Robert McDowell, a Republican, said the FCC's ruling was unlawful and the lack of legal authority "is sure to doom this order on appeal." …

(This) is the FCC's "journey into the realm of the unknowable," McDowell said, saying that the outcome "may result in slower online speeds" for most Americans.

The problem is, despite all the lawyers involved, the FCC majority and its allies are pursuing an end-justifies-the-means strategy: it is right that the government regulate carriage of data over broadband carriers, no matter what the law says.

The FCC is now considering two options around the ruling. One is to appeal to the Supreme Court, while another is to reclassify broadband as a different type of service and try again. Both could end up with the same result.

To an outsider, the answer is obvious: if the law says the FCC doesn’t have authority over Internet services, then the FCC should stop trying to weasel out of the law and instead go through the Constitutional process to change the law.

After C-SPAN and the other media cover the Congressional hearings, our elected representatives will come up with something that considers all the competing perspectives. That’s what a democracy is about, not having an unelected regulatory agency interpret, stretch or ignore the law as it sees fit. (The solution won’t be perfect, but then neither will any FCC order).

In the meantime, the market will do what it usually does: solve problems on its own, with both competitors and the real threat of regulation preventing excesses. As the Merc quoted one trade group leader:

"The idea that this ruling will invite bad behavior is nonsense," said Bruce Mehlman, a former assistant secretary of commerce for technology policy during the Bush administration and now co-chair of the Internet Innovation Alliance. "Companies need to manage their networks to handle high volumes of traffic and bona fide threats out there, but we're simply not going to see blocking or degrading of disfavored sites. It would be bad business and it would beg for regulatory overkill."

There was similar sturm und drang over mobile carriers blocking VoIP services such as Skype. But in the face of overwhelming consumer demand, the carriers have given up their futile fight against VoIP.

One radio account said that a possible outcome of the Comcast decision is variable-rate pricing, in which home broadband users pay more for faster or greater data transfer. What’s wrong with that? That’s the only thing that’s going to save 3G data services from negative externalities, and home broadband — or at least the shared bus cable TV internet — will similarly collapse in downloads of multi-gigabyte HD movies.

Disclosure: No positions