Regulatory Authority, the FCC and Net Neutrality

      In March, 2017, President Trump announced that his administration was in favor of dismantling the “net neutrality” rules[i] placed into effect in 2015 by the Federal Communications Commission (FCC) at the behest of the Obama administration.[ii] This is not surprising as Democrats tend to favor regulation while Republicans tend to favor deregulation (when there has been previous regulation); in general, Republicans prefer free-market forces.[iii]

         Net neutrality is the principle that all data communicated over the Internet should be treated equally, in terms of priority level. In other words, net neutrality would prevent an Internet Service Provider ("ISP") from giving preference to certain data over others. For example, an ISP might make a deal with large corporate clients that would ensure that their data will be communicated with priority over data from other sources. This would be disallowed under a net neutrality policy. A classic example of such a scenario occurred in in the mid 2000’s when Comcast was shown to giving lower priority to peer-to-peer file sharing applications than to other data. This could be disallowed under a net neutrality policy.

“Net neutrality” has to do with whether the Internet operates more in the nature of a common carrier[iv] or more like a free-market enterprise[v] (the ramifications of this choice on Internet consumers and businesses are many). No matter how the net neutrality issue turns out, the Internet has been and will be affected by the President at the policy-making level, by Congress at the statutory level, and by the FCC, an independently-powered rules-making authority at the regulatory level.[vi] A little regulatory background is in order.

The first regulatory authority established by Congress was the Interstate Commerce Commission in 1887. It was established to regulate the railroad industry (and now motor carriers, inland waterways, and oil companies). Since that time, Congress has empowered dozens more federal agencies[vii] to promulgate rules and regulations — with each and every such rule or regulation having the force and effect of law, the same as though it had been enacted by Congress.[viii] Think of it this way. The original, unamended U.S. Constitution contains 4,543 words. Depending on the source of information and mode of measurement, the U.S. Internal Revenue Code (IRC), a statute, contains approximately three million words. Not to be outdone, the IRC regulations promulgated by the Internal Revenue Commission and further detailing ohe IRC are at least double that.[ix]

The idea behind this cascading detail is that while the Constitution states broad principles, statutes carry those principles into meaningful effect, and regulations flesh out the details that Congress does not have the time (or the political will) to do itself. The power of regulatory agencies to promulgate rules and regulations derives completely from laws enacted by Congress. The regulatory agency can act only in furtherance of the law itself.[x]

Over the years, the federal regulatory agencies have grown large and powerful. Congress created them, and Congress can limit them or abolish them (though to do so would be politically difficult in most cases); largely, Congress has allowed them to grow and flourish — to the point of being out of control, many people believe. While the members of these regulatory bodies are nominated by the President and approved (or not approved) by the Senate, once they begin to serve, they generally are outside the legal (but perhaps not political) reach of the President.[xi]

The FCC has five members, all appointed by the President with the advice and consent of the Senate. Three of its five members are of the party currently occupying the White House (including the chair) and the other two are of the other party.[xii] The FCC tends to vote for deregulation when a Republican is in the White House (3-2) and regulation when a Democrat is in the White House (3-2), though that is not always the case.[xiii]

The original law that created the FCC and that gives the FCC its authority to regulate is the Federal Communications Act of 1934 (FCA).[xiv] The FCA derives its authority, generally, from the federal constitutional power to regulate interstate commerce and from the idea that the radio frequencies used by electronic communicators belong to the public and, therefore, the public, through the government, has the right to regulate how they are used.[xv]

The FCA has been amended on a number of occasions,[xvi] and other related laws have been enacted, as well. Among many controversies the FCC has faced over the years is how to deal with regulating the telecommunications industry given the fact that technological change is rapid and law always lags behind technological change.[xvii] For example, the Internet and the world wide web were not even on the technological horizon when the FCC was created and imbued with regulatory authority in the 1930s.

As the Internet began to emerge in the 1980s, one of the more important developments was the creation of the world wide web.[xviii] Through it, the process of browsing websites became possible, practical, personally enjoyable, and commercially necessary. As demand for access to this new phenomenon increased, internet service providers (ISP)[xix] sprang into business to fill this void. When this occurred in the 1990s, one of the first questions concerned whether the ISPs should be regulated at all and, if so, whether they should be regulated as a common carrier or in a more free-enterprise way.[xx] By “regulated at all” is meant that early on, the FCC decided the Internet was an information provider only and that, as such, it did not fall under any federal law that would grant regulatory jurisdiction to the FCC, i.e., it was not a common carrier.[xxi]

Since the 1990s, Democrats in Congress have wanted to create net neutrality rules, insuring, in their view, that the ISPs could not offer big corporations preferences (to the benefit of those corporations and the ISPs in terms of how traffic on the world wide web would be treated). In this way, so progressive thinking goes, consumers would not be held hostage to corporate interests. Conservative Republicans, on the other hand, believe that tightly regulating an otherwise free marketplace would have significant negative impact on consumers and corporations in the form of higher prices to consumers and corporations not being able to compete in an expensive regulatory environment.[xxii]

In the new century, there have been numerous attempts to pass federal net neutrality legislation, but none of these efforts has proved successful.[xxiii] That all changed with the election of President Obama. With a 3-2 Democrat majority, the FCC decided to assert jurisdiction over the net neutrality issue by reclassifying the Internet as falling within the ambit of the FCA and its progeny.[xxiv] In 2014, the courts struck the FCC’s first set of net neutrality rules, citing a lack of FCC jurisdiction.[xxv] In 2015, the FCC promulgated a revised set of net neutrality rules,[xxvi] and this time the courts approved.[xxvii] With the election of President Trump, the FCC now has a 3-2 Republican majority; hence, the recent announcement of a proposed rollback of the 2015 net neutrality rules.

Once the FCC repeals (likely in 2017) what it put into place in 2015 under different political circumstances, net neutrality as envisioned by the Democrats likely will be dead until at least after the next election cycle. If the Republicans retain control of both houses of Congress after the 2018 elections, the issue likely will remain dead subject to the 2020 presidential election. Compromise could be possible, however, if the two combatants decide to recognize the middle-ground argument, which is that both extremes have significant downsides.

If the pendulum swings all the way to the common-carrier model, conservatives argue that, to the detriment of consumers, many Internet-based companies will go out of business while would-be start-ups, given the higher barrier to entry in a highly-regulated environment, won’t start up at all. Further, the argument states, with less competition, prices will be higher. If the pendulum swings all the way to the free-market model, progressives argue, big companies will have the upper hand and consumers will have less choice of what they can buy and higher prices for what they do buy.

The middle-ground argument is that in the middle of this regulatory morass is an idea called commercial reasonableness; reasonableness, after all, being the foundation of law. This idea is that the Internet should be reasonably free from corporate control and reasonably free from consumer control. Given the current political polarization, however, it would seem that the chances for compromised net neutrality rules are slim.