Net Neutrality: Title II Forbearance Is a Pig in a Poke

This is the third post in the CBIT net neutrality series. Previous posts in the series are available HERE and HERE.

The previous post in this series concluded that the gatekeeper theory of net neutrality regulation is radically over-broad under Title II and inconsistent with the competition theory of communications regulation set forth by Congress in the Communications Act. The proponents of Title II reclassification are trying to sell the FCC on the idea that forbearance is the solution to this over-breadth problem.

What they are really selling is a pig in a poke. It is unlikely that the FCC could grant forbearance from certain Title II tariffing requirements under the FCC’s current regulatory standard, and the net neutrality proponents who are selling forbearance as a solution haven’t indicated that they would actually support it. To the contrary, they have implied that reclassification would result in the regulation of broadband as a public utility.

What happens if net neutrality supporters oppose any form of forbearance after the FCC has already reclassified broadband services as telecommunications? A regulatory disaster of biblical proportions, that’s what.

The current legal standard for forbearance is extraordinarily difficult to meet

Some neutrality proponents claim that the standards for granting forbearance “are so low” that the D.C. Circuit Court of Appeals will affirm virtually any FCC forbearance order.

That may have been true once upon a time, but that story ended in 2010, when the FCC adopted a stringent new standard for evaluating forbearance from Title II regulations. The new standard requires a painstakingly detailed, static competitive analysis that does not account for the ways in which current regulations inhibit competition or create disincentives to investment and which assigns little weight to predictive judgments regarding competition in the future. As a result, the deferential forbearance decisions touted by net neutrality advocates no longer apply.

Under the current forbearance standard, it is unlikely that the FCC could forbear from certain tariffing requirements under Title II. For example, in its 2010 order adopting the new standard, the FCC relied on the gatekeeper theory to deny forbearance from tariffing requirements for “switched access services” (i.e., access charges paid by long distance carriers to terminate traffic on local telephone exchanges). The FCC concluded that, because long distance carriers “face a bottleneck monopoly” from local telephone exchanges, irrespective of the availability of competitive options for end users, “carriers’ carrier charges . . . never will be subject to competition.” To the extent this precedent means that it would never be appropriate for the FCC to forbear from regulating prices charged for access to gatekeeper services, reclassification would require the FCC to regulate prices throughout the Internet ecosystem, from peering to the price Apple charges app developers for access to the end users of its iOS operating system.

In theory, the FCC could attempt to change its approach to forbearance with respect to broadband services, but another shift in policy could be difficult for the FCC to justify so soon after its new standard was upheld by the 10th Circuit Court of Appeals. The 10th Circuit affirmed the new standard in 2012, because (1) the agency had given notice of its intention to shift policy and (2) offered a reasonable explanation for its decision. But, the court did not foreclose the possibility that such shifts may be arbitrary and capricious in other circumstances. In particular, the court chided the FCC for engaging “in some goalpost-moving” that “does not reflect an optimal mode of administrative decisionmaking.”

The 10th Circuit decision indicates that, even if the FCC could come up with a reasonable justification for moving the forbearance goalposts yet again, it couldn’t do so without providing notice of the impending change. To date, the FCC hasn’t given any indication that it intends to make additional changes to its current forbearance approach.

The broadband forbearance argument is a pig in a poke

In addition to the enormous regulatory uncertainty regarding the FCC’s ability to forbear under the current legal standard, the unwillingness of net neutrality proponents to support the exercise of such authority makes forbearance a pig in a poke. Public Knowledge, one of the proponents of forbearance as a solution to the over-breadth of Title II with respect to broadband, led a coalition that filed a fifty page report opposing forbearance from pricing regulation in the very FCC proceeding that produced the new standard. These groups haven’t provided any reason to believe that they are more supportive of forbearance today than they were four years ago.

If the FCC were to reclassify based on the belief that forbearance would blunt the negative impact of Title II on broadband services, the best course would be for the FCC to decide the forbearance issues in the reclassification order. Deciding forbearance issues simultaneously with reclassification would prevent unnecessary uncertainty regarding the obligations of broadband providers under Title II and allow Internet participants to move forward with their business plans immediately. If the scope of forbearance were instead left for another day, business and investment plans would likely be put on hold until the FCC could resolve the issues, which could cause substantial harm to all participants in the Internet ecosystem.

Net neutrality proponents should have no objection to addressing reclassification and forbearance issues simultaneously. If net neutrality proponents really believe that forbearance should be used to limit the scope of Title II to the core net neutrality concerns addressed by the FCC in 2010, they should be ready to specify which Title II regulations they believe the FCC should forbear from enforcing. They should also explain how the FCC could forbear from price regulation of Internet gatekeepers in light of its 2010 precedent indicating that gatekeeper services can never be granted forbearance from tariffing requirements. Otherwise, their forbearance argument is nothing more than meaningless rhetoric they don’t intend to stand behind once the FCC is left holding the Title II bag.

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