One small step for the FCC ...

And one giant leap for the ISPs? Changes in the wake of the proposed Title II regulations may take longer than you think

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In the excitement following FCC chairman Tom Wheeler’s announcement that he would propose Title II classification for Internet service providers, it’s important that we understand a few things. First, this is not a done deal yet, though it looks likely to pass. Second, this is only the first step in a long and arduous journey.

One of the issues I’ve read about lately is that the proposal does not officially classify Internet service as a utility. Wheeler’s own comments that the FCC would use forbearance and not pursue utility regulations such as rate setting, tariffs, and unbundling lend credence to that stance, but the fact remains: Once Internet service is reclassified, the FCC could impose further regulations such as rate settings and unbundling if the industry at large continues in its bad behavior.

On the one hand, you have Net neutrality opponents complaining that this would classify Internet service as a utility and make the government responsible for everyone’s service, which would be terrible (quite the straw man argument). On the other hand, you have Net neutrality proponents cheering that this classifies broadband Internet as a utility because it will end at least some of the noxious behavior by the big ISPs and lead to reasonable costs for reasonable service -- currently lacking in the majority of the country.

In reading articles such as this one at TechDirt, I’m a bit surprised at the hand-waving over this distinction. This author and others point out there are many common carriers that aren’t utilities -- for example, buses, taxis, and even UPS. Sure, those are not utilities; also, they generally face active competition, or they're publicly funded services. But you cannot reasonably compare a taxi service to wired broadband Internet, nor would anyone ever confuse UPS with a utility such as an electricity provider.

Wired broadband Internet service is much closer in form and function to telephone service than it is to a taxi. It rides on wires connected to the home and provides the means to contact other humans. Of course ISPs should be classified as common carriers, and they should've been at least a decade ago. But in the minds of many, ISPs are also a utility, synonymous with good ol’ Ma Bell.

I believe that Wheeler’s stated approach is sound. Although his use of forbearance will limit the initial impact of Title II regulations, it will also help the smaller ISPs yanked in alongside the behemoths. For those smaller ISPs, which are often the only source of Internet access in rural communities, Title II may indeed be a new hurdle for them to leap. If there’s anyone to blame for that, look no further than Verizon, Time Warner Cable, and Comcast.

Wheeler’s proposal accomplishes two feats. It provides the means for the FCC to impose strict regulations on an industry that is out of control, but stops short of actually imposing those regulations -- for now. It’s a wake-up call to the ISPs that if they don’t stop playing fast and loose with their comfortable monopolies and oligopolies, they will lose them.

There are only two ways to deal with monopolies and oligopolies. You either impose strict regulation and control, or you introduce competition in the market. The threat of unbundling may be enough to bring the big ISPs to heel, but if not, the regulatory imposition of unbundling would absolutely do so. In that event, we would see the number of ISPs in a given area increase dramatically, creating actual competition. Obviously this is the last thing the big ISPs want, so the threat may be enough. Time will tell.

As far as last-mile unbundling goes, I don’t believe that the comparison of broadband Internet to cellular phone service is accurate. The rationale for not imposing unbundling on ISPs is that cellular service was classified as common carrier, unbundling was not enforced, yet the cellular market has thrived. There’s no doubt the cellular voice and data market is vastly more competitive than the wired broadband market, but the comparison falls flat when you look at the nature of the technologies.

For a wireless provider to participate in a market, it must provide its own infrastructure, which means it must add its own hardware to (usually existing) towers and provide the backhaul. The number of potential customers reached with that infrastructure investment is very high as compared to wired broadband.

You can’t meaningfully compare running or leasing fiber to a tower site and putting up cells to stringing new fiber or copper from pole to pole, house to house. You don’t have multiple wires run to your home for every potential phone and electricity service provider, nor should you for broadband Internet. As I’ve said many times in the past, the ultimate answer to the last mile is a major national infrastructure project to light up every house with fiber exactly as we do with power, and let all services ride over that, unbundling to allow for choice at every level. Only then will we have a truly competitive market.

To get there, we need to take baby steps. Wheeler’s proposal is essentially that. One hopes that the big ISPs will get the memo and behave. I’m not holding my breath.

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