The Irony of Proposed ISP Title II Common Carrier Rules: Paid Prioritization Would be Lawful

It is not surprising at all that AT&T resists common carrier regulation of broadband access services. Nor is it surprising that some Internet app providers call for imposing such rules. As always, for every public purpose there are corresponding private interests.

AT&T believes its business will be restricted if common carrier rules were applied to Internet access services, while the app providers believe their financial interests would be helped.

AT&T says “calls for reclassification of broadband Internet access services as a Title II telecommunications service would cause risks and harms that dwarf any putative benefits, all but scuttle the administration’s ambitious broadband agenda, and would not, in all events, preclude the paid prioritization arrangements that seem to be the singular focus of reclassification proponents.”

In large part, AT&T argues that common carrier regulation would limit access provider revenue enough that rapid investment in faster networks would be hampered. To be sure, opponents often say that is just posturing.

But widespread experience in the European market, and arguably some evidence in the U.S. market, suggests there is a clear trade-off between the goals of competition and investment.

In that regard, the trade off is similar to that for minimum wage laws, which trade off the number of jobs (raising minimum wages results in some shrinkage of jobs) for higher wages earned by workers who have jobs.

European policymakers successfully have encouraged widespread competition, at the cost of retarding investment in faster Internet services. In the U.S. market, Verizon moved ahead with its FiOS deployments only after it was made clear that mandatory wholesale access rules would not be applied to such deployments.

If the U.S. National Broadband Plan really does require $350 billion in additional investment, then discouraging investment is not helpful, in that regard.

Common carrier regulation not only would likely lead to price controls, but also mandate wholesale access rules that would effectively lower expected return from investment in faster access facilities.

Ironically, common carrier regulation might actually impose costs on content providers, especially providers of video content, since Title II regulation would require reciprocal compensation payments whenever one network delivers far more traffic than it accepts.

That means app providers such as Netflix, Amazon Prime, Hulu and others would be required to pay terminating compensation to “eyeball networks,” especially consumer Internet access provider networks.

End user retail prices for Internet access also would grow by the amount of universal service taxes imposed on Title II services.

In a supreme ironic twist, imposition of Title II rules on ISPs also would make lawful quality of service mechanisms of the sort network neutrality proponents desire.