In a recent decision, the D.C. Court of Appeals vacated key elements of the Federal Communication Commission’s (FCC’s) 2010 Open Internet order. In doing so, it has revived discourse around the open Internet (commonly referred to as net neutrality), what it really means for consumers and the future of the Internet. We welcome the discussion, but one thing is for sure -- the open Internet experience that consumers have enjoyed for years will continue in the future. Nothing in the court’s decision will change the basic incentives of service providers to offer consumers capabilities that meet all of their ever-increasing needs.
But apart from the practical impact, what will happen now regarding the legal proceedings is a matter of some debate. Officially, the case has been remanded back to the FCC for further consideration, and parties to the case are weighing whether or not to appeal the D.C. Circuit’s decision. Some advocates are proposing that the FCC break with over 15 years of bipartisan restraint and treat Internet Service Providers (ISPs) as “common carriers.” To understand why such a shift would be harmful to innovation and the ongoing evolution of Internet technologies, it’s worth explaining exactly what the term “common carrier” means, why your ISP isn’t a common carrier, and why the court’s decision is a good thing for both broadband customers and for American innovation.
What are Common Carriers?
Put simply, common carriers are private companies that sell their services to everyone on the same terms, rather than companies that make more individualized decisions about who to serve and what to charge. The term originally applied to companies that carried goods or passengers (like railroads or shipping companies), but after the invention of the telephone, it also included phone companies. Congress created laws to make sure that phone companies provided basic phone service to all customers on a non-discriminatory basis and at reasonable prices, and created the FCC to regulate them. For phone companies, common carrier regulations included strict pricing rules that determined how much they can charge, while also ensuring that the companies made enough money to stay in business. These common carrier principles are also typically applied to utilities, such as electric and water companies that provide a basic service. But common carrier regulation discourages infrastructure investment and network enhancements. When a company’s return on investment is dictated by the government, there’s little incentive to re-invent or improve the system, which is why copper phone lines are still prevalent, water main breaks are an all-too-common occurrence, and the electric grid is in need of serious repair. Recognizing this problem, the FCC has over the years relaxed many of the requirements on traditional telephone companies, although they still remain subject to significant regulation.
Why Aren’t Broadband Providers Considered Common Carriers?
In the 1996 Telecom Act, Congress made a distinction between two types of services: “telecommunications services” and “information services.” “Telecommunications services” transmit a user’s information from one designated point to another without changing the form or content of that information. For example, a phone call transmits the user’s voice from one point to another without changing the content of the voice message, similar to the way a shipping company would deliver a package that you hand to it. “Information services,” on the other hand, offer a user the capability to create, store, or process information. Once that information is created, it might be transmitted via telecommunications, but the creation of the message would be done via information service. Telecommunications services, such as traditional phone service, were subject to common carrier rules. Information services were not. Based on the definitions in the 1996 Telecom Act, the FCC classified cable broadband as an “information service” and as a result it is not treated as a common carrier service and is largely exempt from regulation. This was to encourage innovation and investment in private infrastructure and preclude unnecessary government intervention. In hindsight, this was a wise decision. Since 1996, cable broadband companies have invested $210 billion in growing and improving their networks, leading to faster speeds and 93 percent cable broadband penetration in the U.S. This massive investment by cable spurred substantial broadband investment by our competitors, the traditional telephone companies, particularly after the FCC freed their Digital Subscriber Lines (DSL) broadband service from common carrier regulation.
Why Is It Good That ISPs Aren’t Classified As Common Carriers?
Common carrier laws were established nearly a century ago when the pace of innovation was measured in decades. In such a static environment, a regulatory regime in which the government grants a monopoly and micromanages the operations of a service provider was feasible and rational. We now live in a vastly different world and broadband is a very different service than any traditional utility service. The flexibility required by an ISP to effectively deliver increasingly fast broadband to more people requires a constant state of infrastructure updates fueled by capital investment. Classifying ISPs as common carriers would invariably stifle these investments by inserting the federal government into the operation of broadband networks and the provision of broadband services. Congress recognized this in the 1996 Act, where it stated: “It is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.” Part of what we need to do as a nation is to encourage innovation and vibrant marketplaces. Classifying the most technologically advanced communications network in human history as a common carrier is a terrible mistake. Time and time again both Democrats and Republicans have said this type of regulation delays innovation, creates uncertainty, and inhibits a lively marketplace.