Trump FCC's Net Neutrality Argument Rests on a Weak Foundation

The fight to save the internet is heating up as millions of people around the nation mobilize for real Net Neutrality — but FCC Chairman Ajit Pai is still clinging to his worn-out industry talking points.

Pai claims that protecting Net Neutrality and grounding the FCC’s rules in Title II have stifled broadband investment. And he couldn’t be more wrong.

Free Press released the comprehensive report It’s Working: How the Internet Access and Online Video Markets Are Thriving in the Title II Era, and now we’re publishing a four-part blog series to drill down and expose Pai’s lies on every level.

So far we’ve debunked his false aggregate investment figures and called him out for using the wrong tools to measure broadband-industry growth.

What else is Pai wrong about? The fundamental claim behind his absurd allegation.

Even if Pai’s industry-wide numbers were correct (they're not), and even if there were evidence to support his claim of dampened investment (there isn't), his assumption that any such change in investment is the result of Title II reclassification is completely unfounded.

The false rationale in play here is that just the possibility of future FCC regulatory intervention — beyond the Net Neutrality rules themselves, which double-talking ISPs now mostly claim to support — is itself dampening investment.

Chairman Pai would have us believe that the mere potential of using Title II authority, some day in the future, would overcome all other positive market forces in place today and prompt a decline in capital investment.

Specifically, he suggests that ISPs fear that the FCC will use Title II not just to enforce Net Neutrality, but also to regulate the rates ISPs are allowed to charge for their services or to restrict interconnection agreements.

Such an intervention is implausible.

The FCC has applied Title II authority with a “light-touch” approach to several industry sectors for decades now.

It never regulated the retail rates of cellular services, even after Congress instructed the FCC to keep the core of Title II in place for wireless services in 1993. It didn’t regulate DSL service prices, even though all DSL offerings were classified under Title II prior to 2005, and even though DSL remained under Title II for more than 1,000 rural providers that opted to keep offering it as a Title II service after 2005.

The FCC also applies a light-touch version of Title II to so-called “enterprise broadband services” such as business-grade Ethernet connections sold to big business customers.

The agency has removed more and more regulations for these kinds of services over the past two decades without changing their Title II classification. And the FCC adopted this same light-touch approach in the 2015 Open Internet Order, as it forbore from applying numerous provisions of Title II to retail ISPs.

This is standard operating procedure at the FCC. Properly classifying internet access and other data-transmission services as Title II telecommunications service does not guarantee heavy regulation, or even make such regulation particularly likely if the last two decades of deregulation are any guide.

So why would ISPs be so afraid? And how could such an irrational fear of a hypothetical future intervention kill off investment in an otherwise booming sector of the economy?

The only true answers are that they aren’t, and it doesn’t.

Many factors impact investment decisions: Consumer demand for services, competition levels, interest rates, technological developments that lower costs, and, yes, sometimes regulation.

But the regulatory environment is just one small piece of a much larger puzzle. Demand for essential internet access, and the almost limitless internet content it brings us, is skyrocketing. Digital technology is rapidly evolving. ISPs typically face minimal competition from other providers.

In other words, ISPs are offering a service people crave, and in many cases they’re the only game in town. That’s a recipe for huge financial rewards.

No rational business would pass up the opportunity to take advantage of these incredible growth prospects because of dubious speculation about a phantom Title II regulatory threat.

Pai’s assumption isn’t rooted in rationality, and the data don’t support his claim.

Still, the chairman keeps citing data manufactured by ISP lobbyists and shills — as well as cherry-picking vague and out-of-context comments from complicit ISPs bemoaning the theoretical damage Title II could have on their businesses.

There’s just one problem: These same ISPs already told investors that Title II has had zero impact on their investments.

While actions speak louder than words (and ISPs’ continued investments after the Title II vote are clear across the board), it’s worth noting that not a single publicly traded ISP ever told its investors or the Securities and Exchange Commission that Title II negatively impacted its own investments.

In fact, the topic of Title II’s impact on investment disappeared almost completely from all ISP-investor calls following reclassification, at least until the November 2016 election changed the political calculus.

When shareholders did ask about the FCC’s decision to protect Net Neutrality under Title II, ISP executives’ responses were distinctly … meh.

On Feb. 19, 2015, T-Mobile CEO John Legere addressed the impending Title II reclassification by stating, “I’m comfortable that if passed as we understand it, it will have no impact. … And relative to our competitors, I think we would continue to drive forward with our business as it is.”

Also on Feb. 19, 2015, DSL provider Frontier’s then-CEO Maggie Wilderotter reminded investors that, “We have also been under a Title II regulatory framework for years. So we understand how to operate in that environment.”

On May 4, 2015, Comcast Cable CEO Neil Smit told investors, “On Title II, it really hasn’t affected the way we have been doing our business or will do our business.”

On Aug. 4, 2016, Cincinnati Bell CFO Leigh Fox said, “There is really no impact on how we think about pricing in Net Neutrality right now … [it] is a non-issue, non-event.”

On Oct. 24, 2016, AT&T CEO Randall Stephenson responded to a question regarding Title II’s impact on the company’s potential acquisition of Time Warner by acknowledging, “when Title II was discussed, [former FCC Chairman Tom Wheeler and then-President Obama] said that they had no intention to regulate prices of broadband. So hopefully that will be the case as we move forward.”

On Dec. 6, 2016, Charter CEO Tom Rutledge explained at a conference, “I mean, Title II, it didn't really hurt us; it hasn't hurt us.” In 2015, Rutledge recounted a conversation he had with then-FCC Chairman Tom Wheeler, who asked him directly “Are you not going to invest?” Rutledge responded, “Obviously I’m investing.”

On Dec. 7, 2016, Mediacom CEO Rocco Commisso said, “Substantial investments in our rural markets were made despite the heavy-handed and unfair regulatory burdens.” (One has to wonder how heavy these “burdens” really were when Commisso announced such dramatic investment success.)

For an in-depth look at each provider’s statements on Title II, click here and scroll to Part III of It’s Working.

These are not the words of companies paralyzed by imaginary regulatory threats.

Broadband providers, like all publicly traded companies, are legally bound to tell their investors the truth. Their lobbyists aren’t obligated to treat the public with any such courtesy. As a result, we’ve seen the resurgence of insidious lies aimed at convincing policymakers of the theoretical danger of Title II.

But the truth is right there for all to see.

ISPs continue to invest in building next-generation networks to serve rapidly growing demand. Most ISPs are investing more than they did prior to Title II reclassification. And each company that saw investment declines after reclassification explained them as a natural part of an investment cycle laid out long before the FCC vote.

Not a single provider blamed Title II.

Chairman Pai’s claims rely on a rationale that flies in the face of ISPs’ real investment actions, broadband executives’ legally binding assurances and logic itself.

That leaves us two options: Pai is either ignorant of how utterly wrong he is about Net Neutrality and Title II, or he’s cloaking his industry-fueled agenda with flimsy lies and hoping you won’t ask to see the reasoning behind the curtain.

Either way, it’s time to throw his irrational investment theories out with the trash.

To learn more, click here for the full Free Press report It’s Working: How the Internet Access and Online Video Markets Are Thriving in the Title II Era.