Ajit Pai, the Trump-appointed chairman of the Federal Communications Commission, is mightily ticked off at California’s effort to impose network neutrality rules on the internet after he worked so hard to kill them.
We know this thanks to a speech Pai delivered Friday to the right-wing Maine Heritage Policy Center. During the talk, he couldn’t resist taking potshots at the state’s initiative, which is currently on Gov. Jerry Brown’s desk awaiting his signature.
In his talk, Pai called the measure “a radical, anti-consumer internet regulation bill.” Referring to the Obama-era FCC regulations that he had overturned, he groused that the California measure would “impose restrictions even more burdensome than those adopted by the FCC in 2015.” He called the measure “illegal,” and promised to fight it if it’s signed into law.
The measure’s sponsor, state Sen. Scott Wiener (D-San Francisco), wasted little time striking back. “Pai can take whatever potshots at California he wants,” Wiener said. “The reality is that California is the world’s innovation capital, and unlike the crony capitalism promoted by the Trump administration, California understands exactly what it takes to foster an open innovation economy with a level playing field.”
A quick primer on network neutrality. It’s the principle that internet service providers, which own the "last mile" interconnection between the internet and your home or business, can't use their position to block content they don't like, charge content providers more for a "fast lane" into the home or stifle providers offering services that compete with the ISP’s services.
As ISPs have become bigger and broader, this principle has become more important as a safeguard of consumer rights, since the economic incentives for ISPs to favor content providers that belong to them or are willing to pay them a toll are greater. Among big ISPs, Comcast owns NBCUniversal and AT&T recently acquired Time Warner, the owner of Warner Bros., HBO and CNN. Nevertheless, Pai and his GOP majority on the FCC extinguished the 2015 rule enacted under his predecessor, Tom Wheeler, to place limits on ISPs’ anticompetitive behavior.
Pai’s action largely benefited the big ISPs. They’re his base. It inspired a great deal of pushback by states. Indeed, California’s proposed legislation isn’t the first. Washington state and Oregon earlier enacted net neutrality laws, and governors in at least five states — Hawaii, New Jersey, New York, Montana and Vermont — have signed executive orders upholding the principle.
But California obviously is the biggest dog in this fight, and Wiener’s legislation the most comprehensive proposal. It would place a short leash, for example, on zero-rating, through which a wireless internet service provider exempts certain content from the data caps on a user’s account. Some services such as Netflix might obtain that preference by paying a fee; others may have it because they’re subsidiaries of the wireless provider.
ISPs assert that these arrangements’ popularity proves that they’re consumer-friendly, but they’re anything but. They disadvantage providers without the connections or the capital to be on the inside. The FCC in its 2015 order didn’t ban zero-rating outright, but said it would examine the deals on a case-by-case basis. The commission eventually opened investigations of zero-rating arrangements promoted by AT&T and Verizon. Almost as soon as he became FCC chairman, Pai shut those investigations down.
Pai offered an especially withering assessment of California’s proposed zero-rating rules. He observed that the zero-rating programs are “enormously popular,” which may be true, but is merely an indicator of ISPs’ skills at bribing consumers to favor policies that aren’t really in their best interest. “Nanny-state California legislators apparently want to ban their constituents from having this choice,” he said. “They have met the enemy, and it is free data.” Of course, the idea in the back of ISPs’ minds is that consumers won’t know what they’re missing.
As part of his attack, Pai hauled out some hoary arguments against net neutrality rules. His favorite is the assertion that network neutrality hinders innovation. This is based on the claim that the broadband industry cut back its capital expenditures in response to the 2015 rule change. As we’ve reported before, this is a claim that comes directly from big broadband providers, through their lobbying arm, USTelecom.
It has been widely debunked, including by big telecom providers themselves. The overall decline in capital spending identified by USTelecom amounted to about 3%, bringing it to $74 billion in 2016 from the record $76.4 billion in 2014. Not even USTelecom was willing to attribute the decline to the effect of the net neutrality rule, acknowledging that “many factors affect capital spending, such as competition, financial markets, taxes, government mandates, project timelines, and regulation.”
Nor was the supposed decline industrywide. The nation’s second-biggest broadband provider, Comcast, raised its capital spending to $7.6 billion during 2016 from $6.2 billion in 2014, 22.6%. The USTelecom data also left out increased spending by Sprint, arguing dubiously that Sprint’s spending was merely due to an “accounting change.”
Pai labeled the purported slowdown in spending “predictable,” and, to an extent, he was correct. AT&T, one of the few providers to actually ratchet down its capital spending, had predicted it, but not because of the net neutrality rule. Rather, the company said in 2015 that it had “substantially completed” a network upgrade funded by higher spending, and therefore “going forward” it would “return to normal capital expenditure levels.”
Pai’s assertion that California’s measure is illegal and could be overturned as an infringement of the federal government’s preemption of internet regulation is questionable, experts say. When he nullified the 2015 FCC rule, Pai effectively took the government out of the business of regulating network neutrality; the states are merely stepping into a vacuum — legal experts say it may be hard for the government to argue that its regulations preempt the states’ if it doesn’t actually have regulations in place and has expressed the wish not to have any in the future.
As for Pai’s contention that hands-off regulation has “given the United States an internet economy that became the envy of the world,” it’s hard to imagine anyone envying American broadband service, except perhaps for bedouins living on the outskirts of Timbuktu. Across the developed world, broadband speeds put those of the United States to shame — and the services are typically cheaper. Even Greece has higher average speeds on its mobile internet network, and it’s hardly the epitome of an innovative economy.