The Burdens of Federal Deregulation: Is Net Neutrality Becoming a Matter of State Law?

On Friday, August 31, the California state legislature passed a net neutrality bill, which now awaits Governor Brown’s signature to become law. If enacted, the bill would become the fourth state law protecting net neutrality, but would provide more comprehensive protection than the net neutrality laws passed in other states. California’s bill prohibits Internet Service Providers (ISPs) from blocking or slowing consumer access to websites, while also prohibiting deals that can persuade consumers to use certain websites over others.

“California’s net neutrality legislation restores critical consumer protections that will ensure the internet returns to what we have known it to be for years – an open marketplace where companies large and small can compete. This bill would set a tremendous precedent, with the power to shape the internet market not just in California, but across the country, for the betterment of consumers.” –Jonathan Schwantes, senior policy counsel for Consumers Union

The broad state opposition (30 state legislatures have seen net neutrality bills introduced, while 6 state governors have signed executive orders protecting net neutrality) to Federal Communications Commission (FCC) Chairman Ajit Pai’s repeal of Obama-era net neutrality regulations provides an interesting example of the burdens of federal deregulation. While ostensibly designed to reduce the costs of compliance and increase competition, deregulation can have the opposite effect. Consumers are displeased with the deregulation of ISPs, while ISPs are faced with the prospective replacement of one uniform federal regulatory system for a plethora of state alternatives. Under this scenario, no one wins.

A brief overview of net neutrality is helpful in understanding the scope and impact of the current debate over how to approach ISP regulation. In general, net neutrality means equal access to websites on the internet, as opposed to preferential treatment of some websites or services over others. Thus, net neutrality prevents ISPs from treating websites like cable channels: an ISP could not charge a consumer to access certain websites while blocking others without violating net neutrality. Additionally, a corporation could not pay an ISP for preferential treatment (such as faster access for their website) without violating the principle of net neutrality. In 2015, the FCC enacted broad standards to protect net neutrality, in part by reclassifying ISPs as Title II common carriers, which may be more heavily regulated than other forms of communications services. These consumer protections were repealed under current FCC Chairman Pai in December 2017 and took effect in June 2018, meaning that the FCC’s current rules do not prohibit ISPs from blocking or slowing webpage access. Instead, the order merely requires ISPs to disclose how they manage content and subjects ISPs to the significantly less restrictive Federal Trade Commission standards, representing a major step backwards for an open internet.

According to FCC Chairman Pai, deregulating net neutrality gives ISPs more room to compete, while allowing consumers to choose the service that best suits their needs. However, neither of these classic rationales for federal deregulation of a market seem to hold up under scrutiny, especially in the context of net neutrality.

First, consumers oppose efforts to undermine net neutrality: remember comedian John Oliver’s recommendation that viewers voice opposition to the FCC’s negative treatment of net neutrality by commenting on the FCC’s webpage in 2014 and again in 2017, both times causing the page to crash? While Oliver’s commentary is humorous, it also highlights the way that net neutrality strongly resonates with consumers.

Considering the broad consumer support for net neutrality, it is not surprising that states are rapidly acting to protect the rights of their citizens to use a free and open internet. This raises the second issue: will ISPs really fair better under the FCC’s current deregulatory approach? This seems unlikely given state action in the area. With states moving to protect their citizens from the worst-case scenario of bundled internet packages, ISPs face the prospect of trading a unified federal approach to open internet access for a mixture of state laws that regulate net neutrality to varying degrees. Assuming that state legislatures follow California’s example and pass robust net neutrality bills of their own, the alleged benefits to ISPs of federal deregulation would surely be outweighed by the costs of adapting to different state regulatory systems.

Although a potential patchwork of 50 state laws protecting net neutrality is better (from a consumer protection standpoint) than no federal or state law protection (which ISPs would prefer), deregulating federal net neutrality protections appears to be more of a costly ideological exercise than a benefit to consumers or ISPs, leaving states to protect what should be a federal prerogative. Ideally, the FCC would reverse course and reinstate the broad 2015 net neutrality protections. However, given the long odds of this reversal happening under Chairman Pai, other states should move to replicate California’s bill in an effort to minimize discrepancies in net neutrality enforcement among states while providing the broadest possible consumer protections.