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Title II Doesn’t ‘Rate’

1/18/2016 8:00 AM Eastern

The following is an edited excerpt of testimony from Robert McDowell, a former Republican Federal Communications Commission member and current partner at Wiley Rein, at a Jan. 12 House Communications Subcommittee hearing on the No Rate Regulation of Broadband Internet Access Act

 

 H.R. 2666 [the No Rate Regulation of Broadband Internet Access Act] addresses a very significant problem raised by Title II regulation of broadband Internet access: Title II is fundamentally about economic regulation and, specifically, price regulation.

 

Although the FCC’s order expressly prohibits the commission from engaging in ex ante rate regulation — in the form of tariffing requirements or otherwise — the order does nothing to proscribe ex post rate regulation. Instead, because the commission has reclassified broadband as a Title II service, its provision is subject to Section 201(b) of Title II, which requires that all charges and prices be “just and reasonable.” Under this provision, in the FCC’s view, it has the authority — either in response to a complaint or on its own initiative — to review and pass judgment on the retail prices charged by broadband providers.

 

The FCC attempted to reserve this authority in the order. While it differentiates between ex ante and ex post rate regulation, the order asserts only that the FCC will forbear from applying Title II “in a manner that would enable the adoption of ex ante rate regulation.” By singling out ex ante rate regulation for forbearance, the order makes clear that ex post rate regulation has not been prohibited.

 

Moreover, the order acknowledges that the FCC will have authority to dictate the rate-related terms and conditions of broadband plans that are offered to consumers. The order explains that the commission will be reviewing practices such as usage-based pricing and zero rating of broadband uses, which have a direct effect on the rates that consumers pay for broadband.

 

REGS STIFLE INVESTMENT

 

Rate regulation, especially through common-carrier regulation, has a history of stifling investment and innovation in services.

 

In fact, when governments have stepped back from rate-regulation regimes in the common-carrier context, whether those carriers were railroads, trucking companies, airlines or communications services, investment and innovation have surged, prices to consumers have fallen and services have improved in quality.

 

The Progressive Policy Institute analyzed the effect of rate regulation specifically on the investment of incumbent telco entrants and cable providers in the early 1990s and early 2000s, concluding based on those examples that regulating the rates for broadband Internet access would have a deleterious eff ect on investment by ISPs.

 

FCC chairman Tom Wheeler has stated that “the Open Internet order was constructed so as to put broadband providers in a situation where they could profit from the value of their investments free from any limiting rate regulation.”

 

Additionally, both President Obama and chairman Wheeler have acknowledged the risk of rate regulation by insisting that the commission should not and will not engage in the practice.

 

Wheeler also testified at a Senate appropriations subcommittee hearing that “our goal is not to have rate regulation. And the 201(b) interpretations that some people have said that this gives us some kind of ex-post authority, I would like to be able to make it clear that it is not a rate-regulation tool.” In response to a follow-up question regarding whether he would object to Congress prohibiting the FCC from regulating broadband rates in the future, the chairman answered, “If Congress wants to come along and say that’s off the table for the next commission, too, I have no difficulty with it.”

 

The language of H.R. 2666 is no broader than what chairman Wheeler testified that he supports. The bill simply addresses the risk that a future commission will use the substantial discretion left by the Open Internet Order to regulate rates post hoc through enforcement, notwithstanding the current commission’s promises to avoid rate regulation.

 

In fact, while I fully support the passage of H.R. 2666 as currently constituted, the bill would be improved by clarifying two ambiguities in its language that could undermine this purpose.

 

MURKY MEASURE

 

First, the bill does not expressly state whether it prohibits all rate regulation, including ex post determinations that rates are unjust or unreasonable, or if it prohibits only the ex ante setting of rates. This creates the possibility that the next commission could interpret the law to prohibit only ex ante rate regulation, which would vitiate the law’s purpose and allow the commission to engage in other forms of rate regulation.

 

Second, the bill is ambiguous as to which rates it addresses. To be sure, the bill is likely intended to regulate the rates charged to consumers for broadband Internet-access service. But the order also gives the FCC authority to regulate other kinds of rates, including the rates charged to edge providers and the rates charged to other ISPs and backbone providers.

 

To avoid any confusion as to what H.R. 2666 is intended to address, it should be revised to state with specificity that it refers to all forms of regulation of the rates for Internet access services, including peering and interconnection.

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