Will net neutrality keep the FCC politicized and will investors pay for it?

Yesterday, Federal Communications Chairman Ajit Pai issued a statement regarding an investigation by the agency’s inspector general into last year’s claims that the Commission’s website was attacked during the comment period on the Commission’s net neutrality rules. Mr. Pai asserted that he was told by the Commission’s former chief information officer that external parties attempted to overload the Commission’s electronic comment portal with high traffic. It appears that the disruption to the comment system was not the result of third-party bad actors but the result of the system not being able to accommodate a high number of respondents attempting to comment at the same time. Mr. Pai went as far to say that allegations that he was aware that the former CIO’s comments were false or hid the true reasons for political reasons were incorrect.

Commissioner Jessica Rosenworcel was more pointed in her statement, stating that the inspector general’s findings were not a surprise; that the meltdown in the system was a reflection of how serious millions of citizens took the issue of net neutrality.

Commissioner Rosenworcel’s response, short and biting, was not surprising given the political polarization I have observed on the Commission going back to the beginning of the Tom Wheeler era. The debate over net neutrality has been the focal point for political rift, a debate that I find at odds with the Commission’s core mission which is to ensure the maintenance and availability of a universal communications network.

The debate has come down to two schools of thought. On the one hand is the comedian John Oliver view, where net neutrality rules are needed to ensure that the internet is “democratized”; that all voices can be heard and that consumers have access to the content that they choose without fear that their internet service provider is favoring its content over another provider’s content.

On the other hand, there is the original “internetwork” view of Professor Tim Wu who in his 2002 proposal for net neutrality focused on the negative externalities that could impact all networks if a broadband access provider where to extend otherwise legitimate local network management into the shared areas of the internet by discriminating against traffic coming from certain internet protocol addresses, TCP ports, or domain names.

Democracy as a narrative can lend itself to justifying invasiveness as is the case of the John Oliver model. This argument creates overreach by asserting that a broadband access provider must be transparent regarding how it manages its network. Professor Wu made clear in his proposal that a broadband access provider is expected to manage its local network in a manner that keeps it operational and efficient. It is at the internetwork level (Level 3 through Level 7 in open system interconnection parlance) that could get a broadband provider in trouble where the provider can program its network to block applications, IP addresses, or domain names.

Proponents of the Oliver School haven’t made the argument why broadband access providers could not make certain economic discrimination rules regarding bandwidth within a provider’s local network. They appear willing to avoid the initial slipping on the slope and appear willing to dive right in by allegedly protecting consumers by promoting rules that may require regulating internal aspects of local network management.

For the investor, the Oliver School can be expensive as a broadband provider, especially a smaller provider, faces the risk of having to litigate an increased number of consumer complaints about the amount of bandwidth they believe that are not receiving as a result of a perceived net neutrality slight.

For the local and state governments that are tasked with investigating consumer complaints, there cost of regulation will rise in order to address complaints regarding local network management when resources should be reserved for complaints regarding violations “on the edge.”

Investors should not expect the net neutrality debate to fade away anytime soon. The politics at he Commission may intensify once another Democratic commissioner is appointed to fill the seat left vacant by Mignon Clyburn. Should the Democratic Party win the U.S. House this fall, I expect the Progressive caucus to add to the “Democracy Under Attack” narrative the failure of the Commission to implement strong net neutrality rules thereby protecting freedom of expression and a “democratized” open internet.

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