No, Mr. Wheeler. Your net neutrality rules haven’t been kind to the communications sector

Posted March 18th, 2015 in Federal Communications Commission, net neutrality, Title II and tagged , , by Alton Drew

During testimony before the U.S. Senate Committee on Science, Commerce and Transportation, Federal Communications Commission chairman Tom Wheeler argued that the Commission’s net neutrality rules would have a positive impact on investment, citing an uptick in the market the day after the Commission issued its broadband reclassification order.  Mr. Wheeler is correct that the market enjoyed a sweet ride upwards on February 27.  CNN reported that the Nasdaq increased 7% while the Dow rose 5.6%.  The S&P 500 gained 5.5%.

But were these returns the result of the Commission’s decision to take us back to 1995?  No, they were not.  The jump in stock market values were likely due to signals from central bankers around the globe, including insights shared by Federal Reserve Board of Governors chairman Janet Yellen.  Dr. Yellen opined before Congress that the economic outlook for the United States in 2015 was good.  Also adding to the positive outlook on that day were actions taken on the part of a number of European central banks.  For example, the European Union approved another stimulus package for the Euro Zone with particular emphasis on Greece’s struggling economy.  That type of positive news out of Europe could only signal to investors that an important market for American business was thawing.

If we go back to the day of the Commission’s issue of its rules, February 26th, the news was gloomier for the markets overall.  According to Zacks.com the market took a downturn, with the Dow Jones Industrial Average falling .1% and the S&P 500 falling .2%.  The Nasdaq, which weighs heavily toward tech stocks, did see an increase of .4%.  This increase was led, however, by Google, Adobe Systems, and Facebook.  Ironically, Google and Facebook have been proponents to some degree of net neutrality so maybe Mr. Wheeler was doing the happy dance for these guys.

Overall the past four weeks have not been good for the media and telecommunications.  Over the last four weeks, the New York Times Technology Media and Telecommunications index has been down .62%.  For the past 52 weeks, a time period that for the very most part did not include any net neutrality rules, the New York Times TMT increased  9.37%.  With that type of growth the industry didn’t need any rules to spur innovation.

Bottomline, Mr. Wheeler hasn’t shown me any evidence that his latest version of net neutrality rules is having any positive impact on the markets.

Does the Republican Party want to turn ‪#‎netneutrality‬ into ‪#‎Benghazi‬?

Right now Tom Wheeler, chairman of the Federal Communications Commission, is testifying before the House Committee on Oversight and Government Reform. The Republicans have making an issue of President Obama’s supposed influence in the FCC’s rulemaking in the net neutrality space, arguing that until a number of meetings either with the President or White House staff, Mr. Wheeler was pursuing net neutrality rules based on section 706 of the Telecommunications Act of 1996 versus the common carrier rules from Title II of ythe Communications Act of 1934.

Section 706 authorizes the FCC to promote the deployment of advanced communications services with different regulatory schemes including price regulation. Title II, a section of the 1934 Act, allows the FCC to regulate rates, services, classifications, and practices of telecommunications companies. The FCC wants to reclassify broadband operators as telecommunications companies thus sending public policy in the telecom space back to the late 20th century when we sported Kangols and rocked to Dougie Fresh and Slick Rick.

Unfortunately for the American public, the issue of how much influence the White House had over the decision making process at the FCC is turning into another #Benghazi hearing.

The GOP inquiry into how much Mr. Obama was able to twist Mr. Wheeler’s arm and deviate from a section 706-based order to an order dripping with Title II ooze won’t amount to much of anything unless Congress decides to overhaul the disclosure procedure for all government agencies.

Jason Chaffetz, chairman of the oversight committee, echoed my sentiments during the hearing and hopefully Congress can write a rule that provides a 30-day comment period for draft rules before a final vote is taken. This would add credibility to a decisionmaking process where unelected bureaucrats are making policy impacting the decisionmaking process of entreprenuers.

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Net neutrality: An example of the progressive use of statism

Kevin Carson wrote a blog post on net neutrality for the Center for a Stateless Society last month where he describes the primary and secondary purposes of the state.

According to Mr. Carson, the state’s primary purpose is the organized political means to wealth exercised by and for the benefit of a particular class of people.

The state’s secondary role is to keep the barbarians from knocking on or knocking down the gates of the elite; to be a stabilizing or ameliorative force.

In carrying out its primary role, the state confers subsidies, special tax breaks, and other privileges upon corporate and other special interests via the political system.  Executing this role can have destabilizing impacts on society’s members who are not members of its economic or political elite, so the state may implement social welfare measures to ease the pain and keep the social contract between the elite and everyone else intact.

The state’s primary actions role increase the level of statism, the primacy of the rights of government over the rights of the individual, while its secondary action, according to Mr. Carson reduces statism.

So where does Mr. Carson see net neutrality?  Mr. Carson sees net neutrality as a bit of a shell game. All net neutrality does is place a restriction on the privileges and benefits that corporations receive from the state.  In this particular case, all the FCC has done is placed operational restrictions on broadband providers such as AT&T, Comcast, and Verizon.  The FCC’s action has not increased any welfare benefits for consumers nor has it extinguished the privileges received by broadband providers.  They still have, according to Mr. Carson, state-provided access to rights-of-ways, subsidies, and other privileges associated with operating as an oligopoly.

I would go one step further and say that as a statist primary action, the FCC intended to shift benefits not from corporation to consumer, but from corporation to corporation.  There was never intended for any benefits to accrue to consumers via a reduction in statism.  The four million commenters that the FCC and net neutrality proponents brag about never comprehended that the net neutrality argument was nothing but a “bill and keep” argument from the 1990s hyped up on 21st century steroids.  Content providers like Netflix, Facebook, and Google wanted a net neutrality world built on non-payment of traffic fees to broadband operators.  Hence the argument for a “free and open” #internet.

Net neutrality?  Nothing but a shell game played by progressives.

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Netflix, Tumblr wanted 1995 not 1934

Internet Innovation Alliance’s Bruce Mehlman wrote an insightful blog post last Friday about the second thoughts companies like Netflix are having about the Federal Communications Commission’s decision to reclassify broadband services as plain old telephone service.  Netflix’s befuddlement over the FCC’s decision to use Title II to drop the regulatory hammer on the internet ecosystem has me wondering how much on the same page were these net neutrality proponents?  The push for net neutrality may be an example of how dysfinctional the left can be when it sells a narrative to multiple classes within its big tent and has the manage the disappointment that ironically occurs when it gets what it wants.

Netflix’s insistence that heavy Ttle II regulation was not a part of its end game has me wondering if progressives had really settled down on a definition of a “fair and open” internet.  The left apparently has not.  To Netflix and other Silicon Valley giants, fair and open appears to mean an internet where they can interconnect in a pre-1996 manner; under some bill and keep methodology with any type of technology they deemed appropriate regardless of a broadband provider’s discomfort.

To the end-users, the four million confused members of the masses, “fair and open” was a rallying cry of the democratic wish; that a fair internet will respect their rights to communicate with whatever website of their choice and move data equally to the end-user no matter the source of the content.

Narrative managers like Public Knowledge and Free Press were successful in conflating the two narratives but were probably inept in educating their supporters, like Tumblr‘s David Karp, as to the downside of using Title II as a mechanism for reconciling the two narratives.  Title II, Mr. Karp and the rest of his Silicon Valley cohorts should have been told that their content operations, particularly the agreements that they enter into to connect to broadband networks, were not guaranteed to escape fees for the exchange of data nor was privacy from prying consumer or competitor eyes or noninterference from the government going to be avoidable.

The FCC may find itself a big loser resulting from its participation in a disingenuous conflation of varying narratives.  It must now deliver on a basket of promises to the consumer as it answers complaints from an an ill-informed electorate regarding every perceived slight in service practice and rate assessments.  It won’t be able to tell consumers or the markets that it never intended to regulate rates.  Consumers won’t stand for that because improving their consumer welfare calls for what they believe is a long awaited initiative to regulate rates.

You wanted 1995?  You may have to settle for 1934.

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Quick note on the Federal Communications Commission’s inconsistency on rate regulation

I just finished delivering a presentation before the National League of Cities infrormation technology committee.  Cities and towns are taking an interest in how the Federal Communication Commission’s reclassification of broadband may impact their decision to deploy commercial broadband facilities.  It’s one thing for the FCC to say that it will preempt state laws that prohibit a city from expanding broadband services from beyond its electric utility’s boundaries.  It is quite another to run the risk of having those services regulated by Tom Wheeler and Associates.

I pointed out to attendees that there is an inconsistency stemming from two sources.  First is the FCC’s proclamation that it will not apply public utility style rate regulation to broadband providers and that it will forbear from applying tariffing requirements to broadband carriers.  The problem is that the FCC is ready to apply “core requirements” of Title II.  Those core requirements, as found in sections 201 and 202 of the Communications Act, require that the rates charged by telecommunications firms be just and reasonable.  How will the FCC ensure just and reasonableness without a rate review?  In addition, “rate regulation” need not take the form of the traditional methodology where a regulatory body determines what the appropriate rate base is i.e. the assets needed for providing a service and, after applying a government-determined rate of return, calculating revenue and rates.

Rate regulation, as I shared with the committee, may take the form of determining rate bands, implementing price caps, or some other form of incentive regulation.  Also, while traditional tariff requirements might be foreborne, simple price schedules, as required for cable companies, may also be an option for making rates transparent and publicly on file with the FCC.  Simply sayng there will be no “public utility-style” rate regulation does not mean that broadband operator rates will not be regulated.

Second, the FCC and its net neutrality proponent allies sold consumers a level of expectation, a bill of goods, by arguing that need for regulating the internet was imperative to maintaining an open internet that would facilitate consumers’ abilities to freeluy express themselves on the printing press of the 21st century.  Notwithstanding a lack of any threat to the consumers’ ability to express themselves, the FCC, Free Press, Public Knowledge, and other groups insisted on Title II as a ready source of necessary consumer protections.  To the consumer, protection takes the form of rate and services regulation.  If the FCC is going to forbear from rate regulation, then what was the point of the net neutrality exercise?

As I relayed to the atendees, net neutrality was never about consumers and their rights to rant, vent, and watch videos.  Net neutrality is and always be a battle about content providers attempting to push their costs for transmitting content to a zero rate.  Uncertainty has been created by the FCC with its reclassification of broadband as a Title II, common carrier service.  That’s a quagmire that municipalities should stay out of.