Tomorrow, the sordid tale of net neutrality heads back to court at the D.C. Circuit with oral arguments in Mozilla v. FCC.
To this end, I would like to call your attention to a new op-ed I wrote in Bloomberg Law this morning entitled Net Neutrality Goes Back to Court, but Will the Economics Hold Up?
As I explain, the Federal Communications Commission will argue that under the U.S. Supreme Court’s 2005 ruling in National Cable & Telecommunications Ass’n v. Brand X Internet Services, reinforced by the D.C. Circuit’s 2016 ruling in US Telecom Ass’n v. FCC, the agency is legally entitled to define broadband internet access as an “information” service as it has in the past. To justify this return to the “light-touch” of Title I, the FCC contends that the economics “reinforce that conclusion.”
Rejecting simplistic calculations of capital expenditures made by both sides of the dispute, the FCC properly focused on the “counterfactual”—that is, what would investment had been “but for” reclassification?
In particular, the Commission placed heavy reliance on the empirical analysis performed by Phoenix Center Chief Economist Dr. George Ford. According to George's counterfactual analysis, between 2011 and 2015 (the last year data were available), telecommunications investment differed from the counterfactual by between 20 percent and 30 percent, or about $30 to $40 billion annually. George's counterfactual analysis indicated that the U.S. was due an investment boom in telecommunications following the recession of 2008, but that was apparently foreclosed by the FCC’s proposals to impose Title II regulation on broadband services. George also found no decline in investment following the release of the FCC’s “Four Principles” to promote an Open Internet in 2005, suggesting it is reclassification—and not Net Neutrality principles—that reduced investment.
The Commission was impressed. Dedicating a full two pages in the Restoring Internet Freedom Order to discussing George's empirical analysis, the FCC took great pains both to examine George's methodology and to consider numerous challenges to his findings. The Commission found those critiques baseless and found George’s counterfactual analysis to be a “reliable indicator of the direction of the change in investment” and, “[a]t the very least, the study suggests that news of impending Title II regulation is associated with a reduction in ISP investment over a multi-year period.” If anything, noted the Commission, “Ford’s negative result for investment was understated.” Materially, unlike the simplistic comparisons of capital expenditures appropriately rejected by the Commission, George's sophisticated empirical analysis was subsequently published in a peer-reviewed economics journal, indicating that it satisfied modern professional standards.
The FCC’s heavy reliance on George's study is now a major question on appeal. But will the court buy the FCC’s policy justification that Title II deterred investment? If the court follows precedent, it should.
As I explain, the same court deferred to the agency’s judgment when it upheld the 2015 Open Internet Order—a decision the Commission’s own Chief Economist at the time both described as being crafted in an “economics-free zone” and conceded lacked a shred of empirical or theoretical support. So if the flawed economic analysis contained in the FCC’s 2015 Open Internet Order is entitled to deference, then the Commission’s Restoring Internet Freedom Order—which carefully parsed the empirical evidence on capital spending and properly referenced some 35 peer-reviewed journal articles from the economics literature—is entitled to the same, if not greater, deference.
After all, a regulatory agency should face no hurdle in rectifying the poor decisions of its past.
For those interested, a full copy of my op-ed, Insight: Net Neutrality Goes Back to Court, but Will the Economics Hold Up? may be viewed on Bloomberg Law's webpage by clicking here.