Federal Trade Commission member Joshua Wright made a speech almost two weeks ago laying out an argument for a different framework for regulating the market for broadband services. Not only did he present a different framework, but also made the argument for having the FTC assume the role of lead regulator, unseating current lead cop on the beat, the Federal Communications Commission.
Specifically, Mr. Wright describes the FCC’s December 2010 net neutrality order as “strikingly poor policy” when analyzed from a consumer welfare perspective. Mr. Wright finds it ironic that proponents of net neutrality believe that the best way to preserve the Internet as an open and competitive platform is by “imposing a set far reaching regulations never before imposed …” on broadband.. Mr. Wright goes on to say that net neutrality goes on to apply a set of blunt, rigid rules that, given the legal and technological complexity of broadband, may dampen investment in broadband networks and the innovation the Internet provides.
Rather than continue with net neutrality rules based on the premise of the FCC’s claimed ancillary jurisdiction over broadband, Mr. Wright proposes an anti-trust regime, one based on the rule of reason framework. The test under the rule of reason framework is whether a challenged agreement is one that promotes or suppresses competition. This regulatory approach, as I understand Mr. Wright’s comments and the findings of the U.S. Supreme Court, would enhance consumer welfare and is not a blanket approach, but one that should be applied on a case-by-case basis.
As Pepperdine University College of Law professor Babette Boliek phrases it, “the contest that will have the most sweeping ramifications for the future of the Internet is the turf war waged between the FCC on the one hand, and the FTC and the Department of Justice, on the other.” Professor Babette’s analysis of the antitrust versus regulatory debate, provided below, buttresses Commissioner Wright’s position:
“Antitrust law preserves the process of competition across all industries by condemning anti-competitive conduct when it occurs. In contrast, industrial regulation by its nature is a public declaration that, in a given industry, market forces are too weak or underdeveloped to produce the consumer benefits that are realized in competitive markets. . . .7 Not surprisingly, regulatory agencies were historically created as substitutes for market forces in the few markets that, by the nature of the product or technology, were natural monopolies, or severely prone to monopoly.8 Therefore, the threshold determination of which industries are to be singled out for industry-specific regulation, and to what degree, is of vital importance. . .”
The more certainty in the regulatory and public policy ecosystem that surrounds broadband companies, the better it is for shareholder wealth and the flow of investment to the industry. As a regulatory framework, net neutrality takes away from that certainty. It does not take into account the collaborative realities of business where strategic partnerships, especially in the world of technology, are essential to success.
While I think that both agencies put too much emphasis on the number of providers in a market and that a re-imagining of what is competition is in order, the one regulator of the broadband market should be a FTC applying the rule of reason framework. It’s flexibility allows for the realities of the market place and acknowledges to a greater extent that strategic partnerships and collaboration are a good thing and can work to create growth. The FCC should focus on maximizing carrier access to spectrum.