Creating effective broadband network regulation.

• Author: Brenner, Daniel L.

1. INTRODUCTION II. Is BROADBAND SUFFICIENTLY COMPETITIVE TO LEAVE NETWORK MANAGEMENT TO MARKET FORCES? A. The FCC and Communications Markets B. The Broadband Network Market Is Less Than Fully Competitive Nationwide III. THE FCC's EXPERIENCE WITH PRESCRIPTIVE RULES BODES POORLY FOR REGULATORY INTERVENTION A. The Origins of Prescriptive Rules--Radio Regulation B. The FCC's Success with Laissez Faire Regulation in Creating New Services 1. Open Skies 2. Direct Broadcast Satellites 3. Competitive Long-Distance and Local-Phone Competition 4. Broadband C. On the Other Hand." The Failure of Prescriptive Ex Ante Network Design 1. Video Dialtone 2. Open Video Systems 3. Advanced Instant Messaging D. Summary IV. DETERMINING "REASONABLE" NETWORK REGULATION Is HARD TO DO IF YOU DO NOT ACTUALLY CONTROL THE NETWORK A. The Problem of Sufficient Information B. The Problem of Devising Solutions to Perceived Network Problems 1. The Computer Inquiry Proceedings 2. Unbundled Network Elements C. The Problem of Technology as an Independent Variable 1. Loss of Innovation at the Physical Network Layer 2. Impeding Innovation at Other Layers V. THE OLD AND NEW INSTITUTIONAL PROBLEMS OF THE FCC A. The Internal and External FCC Resources 1. The Agency's Ability to Understand Networks 2. The Commissioners' Own Expertise B. The Political Economy of the FCC VI. THERE ARE BETTER ALTERNATIVES TO EX ANTE NETWORK REGULATION A. The Problem of Defining the Problem: Ex Ante Regulation and the Use of a Legal Standard B. Antitrust Law C. Standards-Setting and Self-Regulatory Organizations D. Wiki Law: Community Policing as Policy E. Contract Law and Disclosure VII. CONCLUSION I. INTRODUCTION

   Internet regulation, like the Interact itself, captures the cross currents of the government's decisive intervention and studied indifference. The Internet's early growth was financed with Department of Defense dollars. But before its explosive growth in the late 1990s, Washington cut its purse strings and apron strings from its innovative creation. Congress paid Delphic attention to the Internet in its 1996 rewrite of the nation's communications laws. Most of the Internet focus in that protracted legislation was keeping regulation from harming the growth of broadband, not authorizing regulators to fix what ailed it.

   FCC Internet regulation really began in 2005 with the Madison River case. (1) If hard cases make bad law, easy cases provide scant law. Such was the case when the FCC pounced on a decision by Madison River Communications, a yet-to-be-deregulated telephone broadband provider, which blocked a competing Voice over Internet Protocol (VoIP) provider because of the competitor's impact on its legacy wireline phone business. (2) But, for the most part, the FCC stayed away from substantive Internet regulation until its recent efforts to define unacceptable network management by a cable broadband provider, Comcast, and its network neutrality rulemaking. (3) The Federal Trade Commission (FTC) has been cautious on broad rules as well. (4)

   The Internet is only going to become more central to the business and pastimes of Americans, and the call for different types of regulation is ongoing, inevitable, and often justified, given the range of Internet protocol (IP), consumer protection, child safety, and anti-deception interests the Web involves. But behind these calls--to expand broadband availability and adoption, and to regulate broadband network providers, in particular-is the assumption that regulation will work well enough to outweigh its costs. Calls for "network neutrality" or "nondiscrimination" assume with little hesitation federal agency competence to give predictable and accurate meaning to these terms and create regulations to implement them. Advocates presuppose that, without the threat and reality of regulation to assure network neutrality, Interact consumer welfare will be substantially reduced. With sufficient expertise, careful fact gathering, and the protections of appellate review for arbitrary or unsupported outcomes, the system of regulation can and should be expected to work. Can it?

   Add to this assumption the natural regulatory appetite of those who get selected to serve on a regulatory agency like the FCC. FCC commissioners are called in to settle disputes among competitors and competing industries in furtherance of the public interest; to desire the job is to seek an opportunity to regulate, often actively. At the same time, deregulation in the face of sufficient competition is as much of an FCC mantra as regulating in the "public interest, convenience, or necessity." (5) But until a market is adequately competitive, a regulator regulates. As to the Internet, should the he or she?

   This Article's chief contribution to the Internet policy debate is to focus attention on the likelihood of successful FCC Internet regulation--a key assumption of some advocates (6)--and to measure the odds of success based on the agency's past performance over managing networks. Based on the analysis here, that likelihood is that the FCC will be unsuccessful in trying to manage networks directly.

   Those who advocate FCC involvement should recognize that resolution by administrative agency, as a first resort to solving often-legitimate questions about network behavior, is likely to produce worse public policies than nongovernmental forums. Ex ante network neutrality regulation of Internet network providers--like cable, wireline telephone, and wireless companies--poses risks for the continued development of the Internet that some network neutrality advocates minimize unrealistically. Indeed, the ever-increasing literature on enforcing network neutrality--starting with the end-to-end advocates of a "dumb pipe" in the middle (7) and continuing with critics of network management policies--assume regulators can get "nondiscrimination" rules just right. (8)

   Importantly, this Article does not abjure regulation because there is likely to be a sufficiently competitive market for broadband network services nationwide in the near term. It therefore departs from anti-regulation advocates who base their case against government network management on the existence of sufficient consumer choice among facilities-based wireline and wireless networks. (9) Were that the case, the competitive model, and its consequences, would apply: if a provider's network management rules are unsatisfactory, vote with your feet and switch providers.

   The conclusion rests, instead, on an analysis of three characteristics that hobble the FCC, the likeliest federal agency to provide prescriptive rules. First, the record for the agency, on a host of industry decisions where technology plays a pivotal role, tilts decidedly against counting on successful execution of regulation. Second, the technology here is unlike anything the FCC has successfully regulated before. The technical competence of the agency on some matters is that of a specialist and well worth the deference paid by appellate courts in affirming countless technical judgments. Judging networks, which are constructed and operated for maximum private gain and are not based on a government-approved rate of return model, isn't among them.

   Finally, the agency itself has yet to demonstrate that it is the best locus of power for deciding the fate of the Internet. The political economy of the FCC makes it less successful as an expert agency. There are other, better ways to resolve disputes besides the FCC's processes and the inevitable appellate review.

   What would work better? This Article agrees with those who argue that the nation's traditional antitrust statutes, network self-regulation, and the use of long-standing Internet working groups are better ways to resolve network-management disputes than relying on FCC enforcement. These three approaches are briefly reviewed here. This Article adds two interrelated approaches to the set of non-FCC solutions: (1) reliance on the shame/wiki/blog culture of the Internet and (2) disclosure of management practices by network providers, enforceable under contract. These approaches are congenial with the most basic Internet values of information transparency and sharing.

   Network neutrality is an evolving area with few verities. Broadband network conduct may be so offensive (think Madison River) and Congress' directive may become so clear (10) that regulatory rules of the road may become inevitable. But, given what we know of the FCC's successes and failures, that should be a last resort. Participants in the network neutrality debate ignore this history at their peril.

2. IS BROADBAND SUFFICIENTLY COMPETITIVE TO LEAVE NETWORK MANAGEMENT TO MARKET FORCES?

   1. The FCC and Communications Markets

      The FCC has changed its regulatory attention many times over its seventy-five years. The agency's activism from the 1930s through the 1960s mostly involved broadcasters, not communications networks, though. At its inception, the FCC played only a minor role in actually regulating networks like telephone and telegraph. These were monopoly services in most areas by 1934 and remained so, substantially, until the 1970s. (11) The FCC's objective was to hold the Bell Telephone Company and Western Union to their promise to provide affordable, widely available services. (12) Until competition came along from competitive long-distance providers and then others in the late 1960s, network infrastructure review was something of a backwater, eclipsed by the more colorful, better understood, often litigious radio and television-station businesses. (13) Competition finally spread to telephone service by the 1970s. Promoting competition seemed to consume the FCC's attention in trying to implement the 1996 Telecommunications Act for the ten years after enactment. (14)

      At the time the FCC was created (as a "modern" version of the Federal Radio Commission) in 1934, radio stations had been subject to licensing for less than a...