Fact Checking Obama’s Internet Takeover

June 9, 2015

Katie McAuliffe

Digital Liberty

Deception:

“My agenda would be driven by the interests of people across America, not special interests in Washington.” – FCC Chairman Wheeler

Fact:

George Soros-funded groups have spent $200 million influencing the FCC’s new Internet regulations.

Details:

The Ford Foundation and Open Society Foundations (funded by billionaire George Soros) have spent close to $200 million to fund “public interest” groups like Public Knowledge, Free Press and Common Cause. Special interests are pulling the strings: In its Open Internet order, the FCC cited Soros- and Ford Foundation-funded groups 206 times.  Contrary to the FCC Chairman’s claims, special interest groups in Washington are exactly who strongly influenced the FCC’s imposition of Title II.

Deception:

“We can have both an Open Internet and continued investment in bigger and better broadband. We can have an Open Internet and light-touch regulation that encourages innovation and consumer choice.” – FCC Chairman Wheeler

Fact:

We can have that, but we won’t because the regulations the FCC has passed will discourage innovation.

Details:

When Wheeler says “open Internet,” that’s code for public utility regulation, which studies have shown would decrease investment in broadband. With its 1934 monopoly era rules and micromanagement practices, with many regulations yet to be determined, nothing about Title II is ‘light-touch’.  It is heavy-handed and onerous regulation of one of the most dynamic and innovative inventions in history.

Deception:

The new FCC rules have settled the internet regulation dispute “once and for all.”

Fact:

The dispute is just getting started, with years of lawsuits already piling up.

Deception:

The new order “is a positive … for network operators who now have regulatory certainty with no impact on their consumer revenue streams.”

Fact:

Uncertainty abounds.

Details:

An association and an ISP have already filed legal challenges against the order, and many more plaintiffs are likely to follow. This will lead to years of uncertainty in the court system. Also, by prohibiting all priority arrangements, the order limits ISPs to only those revenue streams approved by the government, greatly limiting the potential for business-model innovation.

The new order does not provide a clear picture of how new innovative services will be regulated.  Requiring advance FCC approval of new services will dissuade providers from offering new services in the first place and slow down the speed at which those services enter the marketplace.  This unnecessary overstep in authority by the FCC prevents providers and innovators from providing enhanced services for consumers.

Deception:

“The biggest broadband providers in the land have one objective – to operate free from control by their customers and free from oversight from government.” – FCC Chairman Wheeler

Fact:

Broadband providers are businesses whose models are centered precisely on how to keep their customers happy.  The very nature of a business is to provide the service, content and information consumers demand.

Details:

ISPs embraced the light-touch regulatory framework put in place by the Clinton Administration and have expressed no desire to engage in any harmful practices that would degrade services for consumers.  The 2015 open Internet order imposes excessive government authority over a system that has been working for years.

Contrary to these false assertions, demonizing American business is not only needlessly divisive rhetoric, but also misleading – these rules will now broadly apply to many other companies, including edge providers who will ultimately be caught in the vortex of further FCC regulation.  In addition, Title II now applies to hundreds of small ISPs, several of whom as well as municipal broadband providers have voiced their concern with the new rules.

Deception:

Without the new rules, “for the first time in America’s communications history, private gatekeepers will have unfettered power to control commerce and free expression.” – FCC Chairman Wheeler.

Fact:

From its very inception, the Internet has operated without the need for burdensome FCC regulation and micromanagement.

Details:

In fact, the Internet consumers all know and enjoy has arisen to where it is today precisely because of the ability for innovators to innovate, network providers to build networks and provide applications and services and edge providers to bring their latest business models to consumers.

The FCC cannot point to even one instance in which ISPs attempted to “control commerce and free expression”.  In fact, the  in the entire history of the Internet, the number of net neutrality violations can be counted on one hand, and none since 2010 when net neutrality hit the common lexicon.  Imaginary horribles don’t justify such strict rules.

Deception:

“The true choice is between protecting the gatekeepers or [sic] protecting consumers.” – FCC Chairman Wheeler

Fact:

This is a false dichotomy.

Details:

It’s possible for the government to protect the rights of consumers to access content of their choice via limited smart, light-touch rules that prohibit blocking; and to protect the rights of businesses to pursue innovative business arrangements – that, by the way, could help consumers and innovators.

Deception:

“About three-fourths of American households have zero or one choice for high-speed, wired broadband to their homes.” – FCC Chairman Wheeler

Fact:

By the end of 2013, 88% of households had a choice of two wired broadband providers or more.

Details:

This statistic understates the true amount of competition in the marketplace. According to USTelecom, citing National Telecommunications and Information Administration statistics, as of the end of 2013, 96 percent of U.S. households have at least one wired broadband provider and at least 88 percent have a choice of two or more.

Including wireless connections to high speed Internet consumers have even more choices.  According to the FCC’s own records, 97 percent of Americans have their choice of at least three mobile broadband providers, 93 percent of consumers can choose from among four and almost 81 percent can choose from different providers.

Deception:

“Consumers have few choices – wireless is not a full substitute.” – FCC Chairman Wheeler

Fact:

Robust consumer adoption of mobile and satellite broadband services is evidence that wireless networks are viewed today by consumers as a strong substitute for wired connections (159.2 million mobile connections as of the end of 2013; 1,255,000 satellite connections as of December 31, 2014.)

Details:

Even though the FCC decries mobile broadband as ‘not a full substitute’, consumers believe otherwise and are adopting mobile broadband technologies at a rapid rate.

According to wireless engineer Peter Rysavy, “Wireless can be a competitive form of broadband for many people.” Duke University’s Leslie M. Marx agrees: “… wireless broadband options… are likely to be viewed by consumers as viable substitutes for wireline broadband.”

Low-income communities rely on a wireless broadband connection rather than a wired: According to Pew, 63 percent of Caucasians and 64 percent of African Americans living in low income homes rely on mobile broadband for Internet access.

Deception:

“[A regulated] Internet would actually boost the incentive for network investment because consumer demand will increase when networks are [regulated].” – FCC Chairman Wheeler

Fact:

According to the Telecommunications Industry Association, “… the immediate uncertainty created by [the FCC’s net neutrality] plan will produce a slowdown in capital investment.”

Details:

Networks have been, are and will remain open. The nation’s leading broadband providers (AT&T, Comcast & Verizon) have pledged to uphold Open Internet principles.

Fitch Ratings believes the FCC’s net neutrality rules will affect telecom investment plans negatively: “… the most likely impact would be to lower investments by the major telecom and cable operators in potential new growth areas.”

According to the Telecommunications Industry Association, “… the immediate uncertainty created by [the FCC’s net neutrality] plan will produce a slowdown in capital investment.”

Americans who are waiting for faster broadband speeds will have to wait longer.  Many who still lack access to high-speed broadband will have to keep waiting.  A dollar spent on regulatory compliance is a dollar not invested in a network.

Leading progressive economists argue that switching to utility-style Title II rules “would drive down private investment and trap entrepreneurs and innovators in the quicksand of thousands of rules and regulations designed for another era.”

Analyst Craig Moffett says “[i]t would be naïve to suggest that the implication of Title II … doesn’t introduce a real risk of price regulation” and that “terminal growth rate assumptions need to be lowered. Multiples will have to come down.”

Deception:

“Even Comcast, AT&T and Verizon, who oppose what we did, continued to invest in their networks even knowing the rule was coming. In fact, AT&T and Verizon did so very dramatically in the Commission’s recent AWS-3 spectrum auction, which attracted more than $41 billion in net bidding, more than double the previous record.” – FCC Chairman Wheeler

Fact:

Mobile ISPs are strapped for spectrum: when it becomes available, they’ll bid in spite of the open Internet rules.

Details:

The success of the spectrum auction is unrelated to the open Internet rules. The argument can also be made that the mobile ISPs bid so much for this spectrum because it was the last spectrum auction before the FCC imposed its draconian rules.

Wireless providers invested over $175 billion in mobile data after the FCC classified wireless broadband Internet access as a light-touch information service.   Yet the Order turns an about face on this highly successful policy, bringing utility rules to this thriving sector for the first time and putting its vibrant investment and innovation at risk.

Both AT&T and Verizon, the two leading companies investing in America’s future from among any company in any sector of our economy, have repeatedly stated that the adoption of onerous government regulations will cause them to pull back investment.  With broadband comprising 1/6 of the nation’s economy, the FCC’s detrimental rules are set to negatively impact a major portion of our country’s future.

Deception:

“ISP share prices were not adversely affected by the contemplation and adoption of the regulations.” – FCC Chairman Wheeler

Fact:

According to a Capital Alpha Partners: “But we see a danger looming for cable/telecom in the new, broad and vague broadband jurisdiction the FCC grants itself that go beyond the explicit regulations — it is the ‘no unreasonable interference / disadvantage’ standard.”

Details:

We believe companies will have to contend with increasing regulatory investigation and intervention over issues not explicitly regulated and with little FCC guidance. The impact cannot be immediately quantified or modeled, but we see a “death by a thousand cuts” scenario, as political critics of the regulated companies avail themselves of the FCC’s new jurisdiction to file petitions at every opportunity.”

Deception:

“Net neutrality rules are needed to protect edge providers such as Netflix from anti-competitive ISP practices.” – FCC Chairman Wheeler

Fact:

Netflix was not pleased with the FCC’s decision to create new public utility Internet regulations.

Details:

Despite being one of the most vocal advocates for net neutrality rules, Netflix was unhappy with the FCC’s move to reclassify broadband under Title II regulations: “Were we pleased it pushed to Title II? Probably not. We were hoping there would be a non-regulated solution,” said Netflix Chief Financial Officer David Wells at a Morgan Stanley media and technology conference.  In reality, the FCC’s regulatory overreach is bound to catch edge providers in its web of regulation and innovation-diminishing micromanagement.

Netflix’s dispute with Comcast was misrepresented as a net neutrality issue when in fact it was a disagreement over renegotiating an interconnection business deal.  The 2010 net neutrality rules were sufficient in protecting the open internet and no ISP violated those rules like Netflix claimed.

Deception:

“The application of [public utility rules] to wireless voice services was followed by hundreds of billions of dollars of investment, great innovation and, of course, enormous benefits to consumers.” – FCC Chairman Wheeler

Fact:

The FCC applied a light-touch, mobile-specific approach to broadband in its Open Internet rules in 2010.  Not public utility regulation

Details:

The mobile industry emphatically supported the FCC’s move to regard broadband as an information service with its light touch approach once the FCC wisely rejected previous calls in 2007 and 2010 to regulate mobile broadband as a utility.

The FCC and Courts have repeatedly affirmed the initial finding that mobile broadband was not a public utility service. As the D.C. Circuit in its 2010 Verizon case put it: the “treatment of mobile broadband providers as common carriers would violate [the Communications Act.”  Thus the Order not only reverses prior FCC precedent but also violates the Communications Act itself.

According to CTIA, wireless providers invested over $284 billion in mobile in the decade after the FCC classified wireless broadband Internet access as a light-touch information service, twice as much invested as in the decade in which mobile voice was regulated under public utility regulations.

Wireless Association (CITA) President Meredith Attwell Baker says that the significant regulatory overhang of the FCC's public utility classification will definitely reduce the wireless industry's investment in their networks.

Deception:

“The FCC’s new rules will be upheld by the courts.” – FCC Chairman Wheeler

Fact:

It is far from certain that the FCC’s proposed rules will be upheld in court.

Details:

For years, and even before the US Supreme Court, the FCC has refused to classify broadband as a Title II service.  The new utility-rule Title II reclassification is a major policy U-turn that stands on a dubious legal footing and creates a risk the court will find this flip-flop “arbitrary and capricious” and therefore invalid.

Because the Order differs dramatically from the proposal that the FCC put out for comment in May 2014 (which focused primarily on Section 706 regulation, not Title II) many experts believe that the FCC could have violated the Administrative Procedures Act by failing to give adequate notice of the Internet rules it adopted.

If the Title II decision is rejected by the courts or a future Administration, consumers will be left with no net neutrality protection at all. Phoenix Center President Larry Spiwak believes the FCC’s rules will lead to “years of litigation, regulatory uncertainty and potential reductions in broadband investment.”

FCC Commissioner Pai believes the FCC’s net neutrality rules also violate the Communications Act for the following reasons:

  • Neither the text of the Act nor FCC precedent allows the agency to reclassify broadband Internet access service as a Title II telecommunications service. In 1996, President Clinton and Congress decided that “any” service that “provides access to the Internet” would be an information service. In turn, the FCC has never classified an Internet Service Provider as a telecommunications carrier. Instead, the FCC has determined each and every time since the Clinton Administration’s Stevens Report that Internet access always involves more than mere transmission—and thus is an information service.
  • Section 332 of the Communications Act independently bars the FCC from reclassifying mobile broadband Internet access service as a Title II telecommunications service.
  • The text, structure, and Congressional intent all make clear that section 706 of the Telecommunications Act does not give the FCC any independent authority.
  • The Order invents an entirely new method of forbearance analysis that doesn’t adhere to the forbearance criteria in the Act or the FCC’s precedents.

Deception:

“We are on the verge of a new reality for video- but it won’t happen without [new Internet regulations] these streaming ventures only work if the network is [regulated].” – FCC Chairman Wheeler

Fact:

HBO, Showtime, and Sony Corp. want their streaming content to be in a separate Internet traffic lane that would ensure their content gets delivered as viewers demand to see it.

Deception:

“We can have a cop on the beat to enforce common sense rules of the road that ensure Internet openness for consumers and innovators, without any retail rate regulation.” – FCC Chairman Wheeler

Fact:

The public utility reclassification allows the FCC to regulate rates.

Details:

Broadband reclassification as a Title II telecommunications service by definition equals rate regulation.  Under the FCC’s general Internet conduct standard, the FCC explicitly invited consumer rate complaints which upon receiving these complaints, the FCC welcomes the opportunity to engage in rate regulation to determine whether the rates charged are ‘just and reasonable’.

Deception:

The new public utility regulations will help ““America’s consumers and innovators and our economy as a whole.”  – FCC Chairman Wheeler

Fact:

The new regulations do absolutely nothing to incentivize consumer broadband networks build-out to increase high-speed Internet access.

Details:

Reclassifying broadband services under Title II will not achieve America’s goals of increased innovation and economic growth.  Title II does absolutely nothing to incentivize consumer broadband networks build-out to increase high-speed Internet access. In fact, given the tremendous uncertainty now associated with 1/6 of America’s economy, Title II instead discourages ISPs from investing in our country’s broadband infrastructure.

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