The selection of Ajit Pai to serve as the chairman of the Federal Communications Commission (FCC) may spell major changes in, or perhaps the end of, Net Neutrality, broadband consumer privacy rights, and other recent measures that have added new and controversial regulations to telecommunications and internet infrastructure. Pai, a Republican member of the FCC, was appointed by the current president to chair the commission after the resignation of Democrat Tom Wheeler. The appointment was expected, as a change in the political party of a new administration is nearly always accompanied by similar changes in the political makeup of administrative agencies and commissions such as the FCC.
A Short History of Net Neutrality
The issue of Net Neutrality has been controversial since the beginning. Also known as the Open Internet initiative, it provides that all traffic over the internet should be treated the same, regardless of content type or provider. Advocates in favor of Net Neutrality argue that it represents the best model to ensure that all internet traffic is treated fairly and that users won’t be required to pay higher fees or deal with slower download times to access their favorite content. Net Neutrality opponents argue that the internet has changed dramatically over the last 20 years and that bandwidth-intensive content such as streaming video, videoconferencing, and large-file downloading has strained the existing model to the point at which speed and quality are suffering. The ability to prioritize certain content, potentially with higher fees, provides both bandwidth providers and consumers with more flexible options.
Net Neutrality has been part of the FCC’s agenda for more than 15 years, with several attempts to impose Net Neutrality rules in some form or other. Early efforts were blocked by lawsuits filed by broadband providers, for which the courts found that the ISPs had previously been classified as enhanced service providers and that the FCC had limited authority to regulate enhanced service providers. However, it had been earlier rulings made in the modem and DSL days that had characterized ISPs as enhanced service providers, and the FCC had the authority to change that characterization.
In February 2015, the FCC approved sweeping changes in how ISPs, particularly broadband providers, are regulated. The changes characterized ISPs as common carriers: services that simply carry information from point A to point B, such as telephone companies. The FCC has much more authority over common carriers, and it used this new authority to implement Net Neutrality through a series of new requirements. These included rules to prevent blocking of access to legal content, applications, and services; to prevent throttling of services by impairing or degrading lawful internet content; and to ban prioritization of some internet traffic over other lawful traffic. Using the same authority it now had to regulate broadband service providers as common carriers, in October 2016, the FCC implemented rules governing how ISPs can collect and share personally identifying information about their customers.
At the time these changes were implemented, there was a three-to-two Democratic majority on the FCC, with a Democrat as the chairman. This is in keeping with standard practice for most such commissions—that the party in the White House holds the majority on and chairs most of them. Pai was one of the two Republicans on the FCC at the time and had voted in opposition to the February 2015 changes, stating that they represented “a radical departure from the bipartisan, market-oriented policies that have served us so well for the last two decades.”
Who Is Ajit Pai?
Pai has a varied background that is a mix of government service and work in the telecommunications industry. A lawyer by training, Pai worked for the Department of Justice (DOJ) early in his career, but then left to take a position as an associate general counsel for Verizon. He was with Verizon for 2 years, then returned to government practice, working first as a staff counsel to the Senate Committee on the Judiciary, then at the DOJ again, then at the FCC as part of its Office of General Counsel. He left the FCC to return to private practice, but stayed only a year before being appointed by President Barack Obama as an FCC commissioner. (While the president’s party is expected to represent a majority of the commission, no more than three of its five seats can be held by those of the same party. This often requires a Democratic president to appoint a Republican and vice versa.)
TheStreet describes Pai as “mild-mannered, a good listener and [one who] believes very strongly in open, vigorous debate.” However, he is also well-known for his long-term opposition to Net Neutrality. Following the presidential election, but prior to his appointment as chairman, Pai gave a speech in which he asserted that Net Neutrality’s “days are numbered.” He went on to say, “I’m hopeful that beginning [in 2017], our general regulatory approach will be a more sober one that is guided by evidence, sound economic analysis, and a good dose of humility.”
The FCC Now …
Some early moves of the Pai-led FCC indicate a path of more limited regulation by the agency. On Feb. 23, it approved a 5-year waiver on the broadband transparency requirements for ISPs with fewer than 250,000 subscribers. The original exemption had been for ISPs with fewer than 100,000 subscribers and had been in effect through the end of 2016. Pai describes the move as one that reflects that the “FCC should be sensitive to the impact regulations can have on [small] businesses.”
More significantly, the FCC recently suspended a series of inquiries into “zero-ratings programs” implemented by several broadband providers, including Verizon, AT&T, and T-Mobile. Zero-ratings programs are services for which broadband providers exempt selected data from subscription data limits. Examples of such programs are AT&T allowing subscribers to stream data from its partner DirecTV, Verizon’s similar exemption for its go90 service, and T-Mobile’s Binge On streaming platform. Each service requires additional subscription fees for access, but does not count against users’ monthly data caps. Previously, the FCC asserted that the programs may violate the February 2015 Net Neutrality rules, but under Pai, it reversed course. In a statement, Pai said, “These free-data plans have proven to be popular among consumers. … [The FCC] will not focus on denying Americans free data. Instead, we will concentrate on expanding broadband deployment and encouraging innovative service offerings.”
In a late-breaking development last week, the FCC issued a statement announcing Pai’s intention to roll back one of the October 2016 broadband privacy rules before it takes effect on March 2. The FCC asserts that its rules, which apply to broadband service providers, differ from other less stringent rules issued by the Federal Trade Commission, which apply to websites such as Google and Amazon. “All actors in the online space should be subject to the same rules,” according to Pai.
… And in the Future
Going forward, there is a growing assumption that significant changes will be coming for Net Neutrality, but exactly what form those changes will take is speculative. The FCC can act on its own by issuing new rules that reverse the 2015 Net Neutrality and 2016 broadband privacy ones. It would take several months to a year to craft the rules, approve them, submit them for public comment, and then issue final rules. The risk is that any future administration could reverse the reversal, which presents the industry with uncertainty. As a lesser step, the FCC could limit its enforcement of the existing policy to only the most egregious situations. Tory Newmyer suggests in FORTUNE that such a step would “leave some barebones protections in place,” and while this strategy would “satisfy nobody … it may be the best, or even only, practicable” solution.
Another option, of course, is Congress. It can step in at any time with legislation to address Net Neutrality, broadband privacy, and related issues. According to The Hill, Senate Republicans are prepared to work on legislation to retain rules against paid prioritization, blocking, and throttling, while giving more flexibility to ISPs and broadband providers by limiting the FCC’s regulatory authority.
Democrats, not surprisingly, have spoken out in support of maintaining the existing rules and blocking any legislative or FCC changes. According to Bloomberg Law (registration required), a group of six Democratic leaders recently announced that Net Neutrality is “working,” and they plan to “spearhead public opposition” to any changes, noting that the “vast majority” of more than 3.7 million comments submitted to the FCC in 2015 supported Net Neutrality.
Pai’s appointment signals significant changes in the political and regulatory posture of the FCC, in the same way that the Republican administration and Republican Congress have signaled significant policy changes in many areas. While Net Neutrality is likely to be swept up one way or another in those changes, the outcome is far from clear.