As Federalists of good standing, it may seem odd that we would argue against “states rights” and for a national – some would say, Federalist – regime for communications regulation. But, as good Hamiltonians and Madisonians, respectively, the Federal Communications Commission (FCC) action to repeal the previous national regime of net neutrality is to be welcomed.
The Federalist premises of the national net neutrality regime are apparent. The Internet is an inherently global network. A user who logs on in one state is almost sure to exchange information with computers and servers in numerous other states, and probably many other countries, as well. The Internet Service Providers (ISPs) that serve the majority of American consumers – including cable companies such as Comcast and Charter, traditional telephone carriers like Verizon and AT&T, and mobile wireless providers such as Sprint and T-Mobile – operate networks that span many states. For these reasons, Republican and Democratic FCC majorities have both found that broadband Internet access is a jurisdictionally interstate service, and that state and local requirements that undercut federal policy are preempted and thus unlawful. Indeed, in the 2015 decision, under a Democratic regime, the FCC announced its “firm intention to exercise [its] preemption authority to preclude states from imposing obligations on broadband service that are inconsistent with the carefully tailored regulatory scheme we adopt in this Order.”
States, particularly #resistance eager states and politicians, have raced to the fore in recent months to override the FCC’s decision to repeal Obama-era regulations on broadband Internet access. As symbolic expressive politics, it is a winner; legally, it is a dead-bang loser.
To reset what has happened in the thickets of FCC regulatory esoterica, in December the agency voted to reverse a 2015 FCC decision that treated broadband the same way as old-style telephone service. Among other things, the FCC rescinded so-called “net neutrality” rules, emphasizing that the Federal Trade Commission (FTC) retained authority to police ISPs’ practices. The FCC also exercised its constitutional power to “preempt” state and local mandates to the extent they conflicted with federal policy. It held that “[a]llowing state and local governments to adopt their own separate requirements, which could impose far greater burdens than the federal regulatory regime, could significantly disrupt the balance” the agency had worked to strike. The FCC therefore preempted “any state or local measures that would effectively impose rules or requirements that we have repealed or decided to refrain from imposing in this order or that would impose more stringent requirements for any aspect of broadband service that we address in this order,” including “economic” and “public utility-type” regulations.
Numerous states are appealing the FCC’s decision. Several have taken steps to impose net neutrality mandates on their own, either ignoring or flatly rebuffing the FCC’s claims of preemption.
As political-regulatory disagreements go, the state and local attempts to impose their own net neutrality regulation may have political benefits. But, it is bad news for states and consumers alike.
State net neutrality regulations are almost certainly unlawful. The Constitution’s Supremacy Clause allows the federal government to supersede state and local law in areas where it has jurisdiction. It’s called the Supremacy Clause for a reason. There is no question that broadband Internet access is an “interstate” offering, over which the federal government has authority. The FCC has held that state and local laws reinstituting net neutrality are preempted. End of story.
Some states have attempted to obscure the obvious conflict between their measures and the FCC’s holdings by imposing net neutrality obligations via contracts between the state and the ISP. But this approach is similarly flawed. A long line of cases prohibits states from imposing regulation via their procurement powers that they would be forbidden from imposing directly. Other approaches – for example, attempts by states to withhold preexisting government subsidies for providers serving high-cost areas – are similarly unlawful. States seeking to resuscitate the overturned net neutrality regime are very likely to lose in all but the most politicized courts and during the interim the uncertain regulatory environment will deter investment in next generation infrastructure.
Second, there is no need for requirements of the type the states have begun to enact. Although the FCC has rescinded its net neutrality rules, broadband consumers continue to enjoy a robust web of protections. The marketplace is competitive in most areas and becoming more so all the time. The FCC left in place core transparency requirements that will help ensure the workings of market forces, and that allow the agency to punish any ISP that fails to disclose relevant information. The FCC’s action restored substantial powers to the FTC, which has jurisdiction to police ISP behavior and to take action in the face of unfair, deceptive, or anticompetitive practices. Moreover, the FCC emphasized that traditional antitrust laws would continue to apply to ISPs, and that generally applicable state consumer protection laws – those that apply to all entities engaged in commerce – will continue to govern broadband providers. Thus, those who claim the FCC has left consumers without protections and without recourse are simply misinformed.
Third, even apart from these legal problems, state net neutrality regulation is a bad – and unworkable – idea that will harm the very consumers states claim to be protecting. The elimination of the “digital divide” has been the top goal of communications policy-makers for more than a decade, and achievement of this goal requires substantial private-sector investment. But companies have limited funds available for infrastructure deployment and must make difficult choices as to where and when to invest. A state that imposes its own net neutrality requirements necessarily raises the costs of deployment for ISPs. The uncertainties associated with untested mandates and the increased costs triggered by unique service offerings for each state delay and deter investments. Opportunity costs are real. Thus, faced with a choice between assuming these costs and investing in a state that does not impose its own net neutrality requirements, rational businesses will choose the latter.
Net neutrality has been something of a revelation to obscure (former) regulators like us. As a federal and state regulator, respectively, we would have never imagined the weekly incantations over the imperative of net neutrality would break into a mainstream political discussion. Now that it has, the merits oftentimes seem secondary to the political benefit to be gained. However, Federalism, economics, and regulatory policy properly understood all counsel in favor of the FCC’s recent repeal and the continued light regulation of broadband.