FTC's Majoras Discusses Network Neutrality

August 21, 2006. Deborah Majoras, Chairman of the Federal Trade Commission (FTC), gave a speech [21 pages in PDF] regarding network neutrality at a conference hosted by the Progress and Freedom Foundation (PFF) in Aspen, Colorado.

She discussed recent and ongoing FTC activities related to the internet, announced the formation of an Internet Access Task Force, offered comments on the net neutrality debate, and asserted FTC jurisdiction over broadband internet access services.

Majoras was a keynote luncheon speaker at the PFF conference. However, the complete underlying text of her speech is an extensively footnoted paper. See also, FTC release.

Creation of Internet Access Task Force. She announced the creation of an "Internet Access Task Force", to be headed by the FTC's Maureen Ohlhausen, and staffed by FTC economists and attorneys. She said that it "will address important issues that are being raised by converging technologies and regulatory developments", and that its purpose "is to educate the Commission on the relevant issues and to inform our enforcement, advocacy, and education initiatives."

She added that members of this task force are already drafting a paper regarding "municipalities offering wireless Internet services", that will be publicly released "this Fall".

She also said that this new task force will study the network neutrality issue.

Majoras' Comments on Network Neutrality. Majoras spoke in detail about the possibility of imposing a net neutrality regulatory scheme. She offered a summary of the debate, but rendered no conclusions. She said that the new task force "is looking carefully at the issues". She also listed commented upon four principles that should be considered "before enactment of a comprehensive scheme".

She also expressed her "surprise at how quickly so many of our nation's successful firms have jumped in to urge the government to regulate. I rarely meet a person in business who does not profess support for a free market, who does not long for the government to keep its nose out of the business. But nonetheless, when fear of marketplace disadvantage arises, there is a tendency to quickly turn to government to seek protection or help. I do not dispute the sincerity of the concerns here. I, too, support a highly competitive Internet environment. I just question the starting assumption that government regulation, rather than the market itself under existing laws, will provide the best solution to a problem."

Majoras (at right) said that "``Network neutrality´´ has been variously defined and may mean different things to different people. On one level, it appears to mean that Internet users should have the freedom to access and use it as they choose, without any restriction by network providers. On another but related level, it means, at a minimum, the right of content providers to unfettered access to the many privately owned networks that comprise the Internet and may also mean that all data transmissions are assigned equal priority as they are passed along from network to network in cyberspace."

She continued that "Fear of restrictions or discrimination in access has led proponents of ``net neutrality´´ to seek legislation that would, for example, prohibit broadband providers from discriminating against any person’s ability to use a service to access or provide lawful content, from refusing to interconnect facilities with another service provider on reasonable and non-discriminatory terms, or from charging a fee for prioritizing transmission of particular types of data. Opposing such measures are major telecommunications firms, among others.

She elaborated that "The proposals address concerns, first, that a firm controlling both broadband transmission facilities and Internet access may discriminate against nonproprietary ISPs or unaffiliated providers of applications or content for competitive advantage. Such discrimination might take the form of hampered or blocked transmission aimed at gaining an advantage over competitors in either the horizontal ISP market or the complementary markets for applications and content.

In addition, she said that "the proposals apparently are designed to address a concern that network operators will charge providers of applications or content for network access, particularly access to higher-speed "lanes" on the Internet. One fear, apparently, is that larger, established firms will be able to pay for prioritized transport, while small, developing firms may not, leading to diminished innovation in applications and content. Implicit in this fear is the assumption that the creation of such fast lanes necessarily will hamper the remainder of the available "lanes" on the Internet."

She also offered four principles that should be considered "before enactment of a comprehensive scheme", and offered some hints as to her views as to how each of these principles might affect her conclusions regarding any proposed net neutrality scheme.

First, she said that "absent clear evidence of market failure or consumer harm, policymakers should not enact blanket prohibitions of particular forms of business conduct or business models or place requirements on how business is conducted." She also commented that while network neutrality proponents cite the FCC's Madison River proceeding, "we should be careful before using the actions of a single broadband provider, apparently facing little competition, as a sufficient basis to impose across-the-board regulation." (Footnote omitted.)

Second, she said that "No industry-wide regulatory scheme should be imposed without first carefully weighing the costs, determining whether the greater harm occurs with or without regulation, and evaluating whether a lesser approach than regulatory constraints would be a better way to address the potential harm." She also commented that "we should look at whether any net neutrality or similar legislation could have the effect of entrenching existing broadband platforms and market positions, as well as adversely affecting the levels and areas of future innovation and investment in this industry. The end result could be a diminution, rather than an increase, in competition, to the detriment of consumers."

Third, she said that "we should start by acknowledging that competition generally produces the best results for consumers over time." She also commented that "I further ask why network providers would not continue to compete for consumers’ dollars by offering more choices, not fewer. We make a mistake when we think about market scenarios simply as dealings between and among companies; let us not forget who reigns supreme: the consumer."

Fourth, she said that "we should not forget that we already have in place an existing law enforcement and regulatory structure."

FTC Jurisdiction Over Broadband Services. Majoras also addressed whether the "FTC has jurisdiction over broadband Internet access services". She said that "``common carriers´´ that provide telecommunications services and are subject to the Communications Act are exempt from the FTC Act."

She continued that "broadband Internet access services are within the FTC’s jurisdiction. Certain types of Internet access services have long been treated as non-common carrier services subject to FTC jurisdiction. These include digital subscriber line (DSL) Internet access provided by ISPs that do not themselves own the transmission facilities used to provide Internet access, as well as dial-up or narrowband Internet access."

She also said that "Recent developments in the courts and at the FCC have clarified that certain other means of providing Internet access -- specifically, cable modem services and facilities-based broadband wireline services offered on a non-common carrier basis -- are information services rather than telecommunications services. In the Brand X decision, the Supreme Court upheld the FCC’s determination that cable modem Internet access service is an ``information service´´ and not a telecommunications service under the Communications Act. Subsequently, the FCC released its Wireline Broadband Internet Access Order, in which the agency reclassified wireline broadband Internet access service by facilities-based carriers as an information, rather than a telecommunications, service." (Footnotes omitted.)

Reaction. Gigi Sohn, head of the Public Knowledge, a Washington DC based interest group that advocates a legislatively imposed network neutrality mandate, responded in a release that since "98 percent of customers receive their service from either the telephone company or the cable company ... There are no market forces at work here, much as Chairman Majoras wishes there to be." Sohn added that network neutrality is essentially the same principles that "were in existence for telecommunications services".