The Real Reason ISPs Hate Net Neutrality Regulation

After years of speeches and protests, you probably have the gist of the arguments for net neutrality: Don’t mess with what I can read/watch/download/upload, either by blocking or slowing it down. But the current net neutrality fight is really a wide-ranging power struggle between internet service providers and internet activists, between Republicans and Democrats. The battle is only partly about the ends—a free internet—and much more about the means: potential heavy regulation of ISPs as monopolies.

Trump-appointed FCC chairman Ajit Pai wants to scrap his Democratic predecessor Tom Wheeler’s Open Internet Report and Order. The Order imposed strict net neutrality rules on landline and (for the first time) wireless internet service providers. In order to do that, Wheeler’s FCC had to invoke legal authority that allows it to regulate ISPs as monopolies. The response from companies like Comcast and Verizon has been less about the merits and mechanics of net neutrality and more a strident assertion that they are not monopolies.

Why? Classifying ISPs as “common carriers,” under Title II of the 1934 Communications Act, means they could be regulated like monopolies. That could go as far as setting rates for broadband, like public utilities commissions do for electricity, according to ISPs and other critics. Tom Wheeler’s FCC promised not to go this far, by forbearing, or refraining, from utilizing most of Title II. “In finding that broadband internet access service is subject to Title II, we simultaneously exercise the Commission’s forbearance authority to forbear from 30 statutory provisions and render over 700 codified rules inapplicable,” the Order reads.

ISPs aren’t buying it. “Even if the FCC decides to forbear from regulating [ISPs] from certain or many provisions of Title II in the near term, the fact that at any time it could implement additional rules under Title II jurisdiction creates uncertainty in the industry,” reads Comcast’s comments to the FCC.

Related: Ex-FCC Chair Tom Wheeler Dismantles The Case For Abandoning Net Neutrality

According to Susan Crawford at Backchannel, at least one ISP, Cable One, may be making itself vulnerable to monopoly regulation by taking advantage of its dominance over about 700,000 customers in low-income pockets of Mississippi, Louisiana, Arizona, Idaho, Kansas, and Nebraska. That’s based on a study by analyst Craig Moffett, who might as well be the voice of God in the telecom business. (Both sides of the net neutrality debate quote him to make their case.) Moffett found that Cable One is already jacking up rates and could continue to. “What matters is that there is very little competition in Cable One’s footprint,” he told Crawford. “If you want high-speed broadband, where else are you going to go?”

Smackdown In D.C.

Cable One’s customers aren’t the only people facing little or no choice for landline broadband. (Wireless is a different story that we’ll get to in a bit.) The FCC’s 2016 Annual Broadband Report found that only 38% of Americans had a choice of landline internet providers (and 10% had no providers at all). That’s based on the FCC’s 2015 definition of “broadband” as 25 Mbps download/3 Mbps upload speeds. Ajit Pai slammed the new benchmark, writing in a dissent that most people given the option to buy 25 Mbps service don’t, that Wheeler’s figures assume rare activities like 4K video streaming.

“But for some time now under this Administration, grounding the new benchmark for broadband in reality hasn’t been the point. No, the ultimate goal is to seize new, virtually limitless authority to regulate the broadband marketplace,” wrote Pai.

By making ISPs common carriers, the FCC is required to regulate customer privacy, using another part of the Communications Act, Section 222, which says that a telecom carrier can only use clients’ personal information for the mechanics of providing services. An ISP has to know your location, IP address, and the site you are accessing, for instance, so it needs to look at your data packets.

“Once the ISPs fall under Title II, the FCC has to do something here to spell out what the ISPs are supposed to be doing with respect to 222,” says Nick Feamster, a Princeton computer science professor who specializes in networking technology.

The Commission did that last October, with a set of rules to prevent ISPs from using customer information for things like targeted advertising. The rules didn’t last long. Congress nullified them with a resolution in March—without any votes from Democrats.

Republican Marsha Blackburn, who led the effort in the House, has proposed replacing the nixed regulations with a law on ISP privacy. ISPs, Republicans, and other Title II foes also want to codify net neutrality rules in legislation, rather than working with (or against) regulations that can change each time the President does. It sounds reasonable, but “reasonable” doesn’t describe what most Congressional debates have been lately.

Related: Congress Should Decide Net Neutrality. Too Bad It Doesn’t Have The Bandwidth

Even before Title II was being discussed, ISPs were panicked about monopoly regulation. In 2013, Verizon sued and, for the most part, won to block an earlier net neutrality policy. The FCC wasn’t using Title II then, but a weaker provision—Title I, Section 706—which does not classify ISPs as common carriers. (And it didn’t apply to wireless carriers.) Still, Verizon was afraid the FCC would try to impose monopoly regulation, the company told me in a recent conversation. Verizon’s lawsuit was essentially a redo of a 2010 Comcast suit before the same D.C. Court of Appeals that had struck down a similar net neutrality policy based on Section 706.

Ironically, both companies now advocate Section 706 regulations almost identical to what they fought against because they are so spooked by the prospect of Title II monopoly regulation—and perhaps because they know they can beat it in a lawsuit.

Wireless Doesn’t Come To The Rescue

Verizon is far from a monopoly in landline broadband. Its fiber-optic Fios service reaches 5.7 million, according to its 2016 annual report. Comcast reported 23.8 million broadband subscribers in April.

Verizon’s situation is different in wireless, where it had about 141 million connections in 2015 (the latest year for which FCC numbers are available). But it’s no monopoly. AT&T is nearly as big, at 129 million. T-Mobile and Sprint each have around 60 million, and there are some smaller networks, like U.S. Cellular with 4.9 million connections.

The networks compete viciously for customers, as evidenced by the churn rate, or the percentage of a carrier’s connections that get cancelled, usually because people jump to a competitor. In 2015, the average churn rate for wireless was 23.6%. Two-year contracts have all but disappeared, making it much easier to switch. 4G/LTE wireless is now available to 98% of Americans—a milestone the White House announced in 2015.

Even the FCC, although it placed wireless carriers under Title II, acknowledges plenty of competition. The best measure is that, as the number of subscribers has shot up, prices have fallen. From 2005 to 2015, the number of wireless connections in the U.S. nearly doubled to 378 million (yes, more than the country’s population, which is approximately 326 million). But, says the FCC’s 19th Mobile Wireless Competitive Report, revenue per user “has slightly declined, for the most part, over the last 10 years.” Wireless carriers are making more money by expanding service, not by raising prices.

But wireless is a lousy substitute for a cable modem at home. Will the family huddle around a 6-inch phone screen to stream Game of Thrones while the 50-inch smart TV screen is black? Will an Amazon Echo, a Nest thermostat, and Philips Hue bulbs all connect to the wireless hotspot function that only some smartphones even have? And does the entire smart home shut down when the phone leaves or just when the battery depletes or the 4G signal wanes? Providers like Verizon have offered wireless home routers, but with lots of caveats, like download speeds as low as 5Mbps (barely enough for streaming) and a dropdown to 3G speeds after using a mere 10GB of data. Lots of limitations come with the “unlimited” data plans for phones and phone hotspots, too.

Wireless is a competitive and ever cheaper way to get online from a mobile device. But it won’t rescue people stuck with crummy or price-gouging landline internet service when they are at home.

In arguing against the FCC’s net neutrality regulations, ISPs, Republicans in Congress, and the new chairman himself are saying that Title II is overkill. Wheeler’s goal was to set some standards for equal access to the internet. Those who oppose his decision say he went overboard by pulling out a big club used to smash 19th- and 20th-century monopolies, not to nurture and fine-tune modern tech providers. But what if those modern tech providers are, in fact, acting like monopolies from 100 years ago?