Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FCC net neutrality regulations may be “over the top”: Commissioner Wright, (Feb 26, 2015)

By Greg Hammond, J.D.

On the eve of the Federal Communications Commission’s February 26 vote to adopt an Open Internet Order containing no blocking, no throttling, and no paid prioritization rules, FTC Commissioner Joshua D. Wright presented a keynote address at the Federalist Society Media and Telecommunications Practice Group event in Washington, D.C.: “The Future of Media—Is Government Regulation in Today’s Media Landscape ‘Over-The-Top’?” In his prepared remarks, entitled “Net Neutrality Meets Regulatory Economics 101,” Commissioner Wright proposed that existing antitrust law and regulation is better suited to protect consumer welfare in the broadband industry, as opposed to the Federal Communications Commission’s (FCC) proposed net neutrality regulations.

In particular, Commissioner Wright focused on why and whether broadband needs to be regulated. “My thesis is that the two major reasons for regulating an industry—the presence of natural monopoly conditions or significant externalities—are not present in the broadband industry,” Wright said. “For that reason, we do not need to develop a new regulatory regime for broadband.”

Nevertheless, the FCC adopted its Open Internet Order today. Chairman Tom Wheeler rationalized the FCC’s decision to adopt the net neutrality regulations, stating that, “We know from the history of previous networks that both human nature and economic opportunism act to encourage network owners to become gatekeepers that prioritize their interests above the interests of their users. As the D.C. Circuit observed in the Verizon decision and as the public record affirms, broadband providers have both the economic incentive and the technological capability to abuse their gatekeeper position.”

Commissioner Wright disagrees with FCC Chairman Wheeler, declaring that “the ‘gatekeeper’ justification for broad-sweeping net neutrality regulation cannot possibly justify those regulations because no broadband provider can be viewed as a gatekeeper to anything when there is viable competition from other broadband providers.” Instead, Wright suggests that we have a legal regime specifically designed to address the anticompetitive issues that the FCC raised—antitrust law.

Wright specifically discussed net neutrality in the context of the economics of vertical restraints, noting that while vertical contracts can occasionally be anticompetitive, they have long been understood to be part of the regular competitive process and can generate significant efficiencies that enhance consumer welfare. Efficiencies—such as reducing double marginalization, preventing free riding on manufacturer-supplied investments, and aligning incentives of manufacturers and distributors—are partially passed on to consumers in the form of lower prices, increased output, higher quality, and greater innovation, according to Wright.

However, the FCC’s proposed regulations would place an outright ban on “paid prioritization” and “the blocking and throttling of lawful content,” which is a categorical prohibition on particular kinds of vertical contracts in the broadband industry, Commissioner Wright noted. “But, as I have explained, the best available evidence points in precisely the opposite direction: vertical contracts are far more likely to benefit consumers than to harm them,” Wright stated. Instead, Commissioner Wright suggested that antitrust’s rule of reason is far more likely to maximize consumer welfare in the broadband industry, because it adjudicates various types of vertical arrangements on a case-by-case basis.

“The FCC using its authority under Title II of an 81 year old statute to regulate competition in the broadband market is sort of like Intel using a hammer and a sickle to manufacture semiconductors,” Commissioner Wright said. “One might even call the FCC’s approach ‘over the top.’”

News: Antitrust FederalTradeCommissionNews