How can we balance net neutrality regulation and competition law in the US?
The role of the internet is increasingly important for US citizens and it has delivered considerable economic growth and consumer welfare since its generalization in the 1980s. The internet helps strengthen democracy and its values, provides access to resources of public interest, such as health and education, empowers consumers and has allowed unprecedented innovation due to the low barriers to entry that characterized the market and favoured initiatives such as Etsy, Google or Wikipedia. However, the generalization of internet connections in US homes and the skyrocketing market of content and applications providers (including highly-demanding platforms in terms of broadband such as YouTube or Netflix) have led to congestion problems.
In spite of the huge investments in research and of the improved infrastructures, congestion issues persist. Empowered by new technologies such as DPI, ISPs (Internet Service Providers) can manage this congestion by discriminating traffic in their networks. Traffic management is necessary in order to ensure the good functioning of services that are essential for consumers or to block illegal content. This is the reason why a strict interpretation of the net neutrality principle (i.e. the prohibition of any kind of discrimination on the basis of the data packets’ content), will not be in favour of end-users, nor of content and applications providers.
However, the problems arise when ISPs unreasonably use traffic management to exclude competitors from the market or to exploit other businesses and consumers, abusing their dominance. What is just a concern in some EU countries, has proven to be the daily bread of US content and applications providers and end-users. Almost every major ISP has been investigated by the FCC in the last 10 years regarding allegedly anticompetitive practices such as blocking or throttling traffic. In the EU, if a consumer sees his traffic unreasonably degraded or blocked, there are other ISPs in the market, so he can ‘punish’ this conduct by changing to another one. While market failures in the EU are generally remedied through competition, in the US more than 10% of the population lives in areas that are monopolized by one ISP and more that 70% lives in a duopoly area, so regulatory initiatives to enhance competition that may work in the EU, such as increased consumer transparency, are simply not enough in the US. Due to these market failures and to the limitations of antitrust rules alone to address them, sector-specific regulation has been adopted by the FCC since the mid-2000s, within the context of its mandate to promote competition in the field.
Proponents of establishing rules to avoid unreasonable traffic restrictions argue that the end of Net neutrality will impact freedom of speech, access to services that are essential for consumers and innovation. In a market with little or no competition such as the US one, abuses by dominant ISPs occur (involving mainly throttling traffic in order to overcharge content providers and prioritizing ISPs’ own content), and they are likely to negatively shape the future internet. On the other side of this highly polarized debate, ISPs argue that their incentives to innovate and improve their infrastructures will be reduced with blanket net neutrality provisions that will hamper the monetization of their investments. But in a competitive market, this is not likely to happen; indeed, in such environment, if an ISP is not able to offer good quality services at a competitive price the customers will just change to another ISP, which obliges them to keep investing and improving their services in order to be able to compete with the rest of the broadband providers.
Ex-ante regulation is better adapted to markets where an enduring and clear dominant position can be established, which is not easy to prove in a market as fast-evolving internet services. So even if the objectives pursued by regulators and policy-makers when addressing net neutrality may constitute reasons of overriding public interest (i.e. access to health and education services, protection of democratic values, enhancing innovation…etc.), and their concerns about ISPs abusing their market power justified by the several cases reported in the last few years, issuing a new set of rules is not adapted to the market structure. Furthermore, adopting regulations without a careful, independent cost-benefit analysis and a study of its prospective impact may lead to regulatory burdens that will make the situation even more complicated for the non-dominant market players. Even if regulation can be necessary (for example, under the form of transparency rules to ensure that consumers are informed enough to be able to change ISPs if they want to do so, or to acquire the services that fit them the best), it should be limited when possible. For instance, the problem of traffic management could be addressed through the imposition of a minimum quality of service as it has been done in other jurisdictions, instead of banning any form of unreasonable prioritization.
From the ex-post remedies point of view, there is a case for the intervention of antitrust enforcers, as unreasonable content discrimination hampers competition in the market by excluding actual competitors and preventing the entry of potential market-players. Antitrust rules provide enforcers with a vast array of tools to remedy market failures that are specially adapted to situations that, because of its complexity, require an analysis on a case-by-case basis. The fast-evolving character of the internet services market and the fact that establishing dominance and predicting the effects of remedies in the long-run are not always easy tasks make competition rules especially suited to address market failures in a two-sided market such as the internet services one. In order to effectively address failures in the internet services market, a thorough legal and economic analysis with an emphasis made on the effects of the anticompetitive conducts should be the approach to adopt by the FTC, the DoJ and the FCC.
A further limitation of ex-post remedies is that the internet services market is not competitive enough in the US. A number of possible solutions have been proposed by scholars, jurists and other actors concerned. One of them is to issue a set of rules imposing unbundling obligations to ISPs, which the FCC would be able to do thanks to the “common carrier” status ISPs have after the promulgation of the 2015 Order. While opponents argue that it can affect investments, in practice it has led to enhanced competition in other jurisdictions. Further alternatives that have been proposed include public investments in order to create “open municipal-level fibre networks”, but it does not look like the best option for a country that has traditionally preferred to have its infrastructures in private hands.
Market failures in the internet and broadband services market in the US cannot be successfully addressed by competition laws alone. However, a balanced combination of ex-ante (ideally, limited to unbundling obligations to ensure an open market and transparency rules that would protect consumers) and ex-post measures (applied after a thorough effects-based economic and legal analysis) is a plausible solution that will ensure market openness and economic growth, delivering benefits to consumers.
