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Louisiana State Univ.

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Tuesday, March 22, 2011

Regulating the Internet Marketplace

Rob Friedan, Pennsylvania State University, has published Legislative and Regulatory Strategies for Providing Consumer Safeguards in a Convergent Information and Communications Marketplace in the Hastings Communications and Entertainment Law Journal, volume 33. Here is the abstract.

Many ventures involved in information, communications and entertainment (“ICE”) industries have begun to expand their array of offered services. Technological convergence, digitization and the ability of the Internet to handle many different service types within a single bitstream make it possible for companies to offer “quadruple play” bundles of wireless and wireline telephony, video, and Internet access services. Financial and efficiency gains from vertical integration, and the search for new revenues to replace declining margins from maturing and newly competitive services, combine to create robust incentives for carriers to diversify.

Diversification by ventures typically results in a single company providing services that fit within more than one regulatory classification. This frustrates the FCC’s desire to apply a single regulatory classification to services and service providers, a process the Commission could achieve when ventures concentrated on one function, e.g., operating a conduit for content created by others, and offered one readily identifiable service, e.g., telephony. Diversification also obscures the specific reach of the FCC’s regulatory wingspan, both in terms of what regulatory classification applies to which services and what regulatory safeguards the Commission can lawfully apply. For example, an appellate court recently reversed the FCC’s attempt to subject Internet Service Providers (“ISPs”) to regulatory safeguards identified in Title II of the Communications Act, as amended, but which the Commission wanted to apply using the concept of “ancillary jurisdiction” based on Title I of the Act. The D.C. Circuit Court of Appeals rejected the FCC’s attempt to apply such safeguards on ventures classified as information service providers, a status that qualifies for a largely unregulated “safe harbor.”

In light of an appellate court reversal, the FCC must rethink how it can serve the public interest and safeguard consumers, despite having broadly applied the information service classification to all Internet services and ISPs. Already the FCC has had to find ways to impose Title II-type regulatory safeguards on providers of Voice over the Internet Protocol (“VoIP”) service. Additionally the Commission has avoided making necessary regulatory classifications as to which category new services such as VoIP and Internet Protocol Television fit.

Absent a legislative remedy the FCC must find a way that will pass muster with reviewing court, but also provide necessary safeguards. FCC Chairman Julius Genachowski has proposed to reclassify Internet access as Title II regulated service subject to extensive forbearance from applying many regulatory safeguards he considers unnecessary. Such a re-classification, coming on the heels of court reversal, appears as after the fact scrambling to re-arrange the wingspan of Title II jurisdiction without statutory authority.

This paper will explain how the FCC has backed itself into a corner in light of its predisposition to apply the information service classification indiscriminately and its perceived duty to make either/or determinations about services, i.e., to apply either the telecommunications service classification singularly, or the information service singularly to a convergent service that combines both elements. The paper also will provide recommendations on how the Commission might recognize that convergent services, such as Internet access, combine both components in much the same way as wireless cellular telephone companies offer both regulated common carrier telecommunications services, subject to forbearance, and unregulated information services via the same conduit. The paper recommends that in light of the ascending importance of Internet access and the lack of sustainable competition that would favor self-regulation, Congress should amend the Communications Act to authorize the FCC to apply limited elements of Title II safeguards as already exists for wireless telephony. In light of the failure of Congress to reach consensus, the paper suggests that the FCC safeguard consumers when information service providers cause harm as the Commission did when a DSL service provider blocked access to competing VoIP services.

Download a draft of the article from SSRN at the link.

 

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