Republicans Question FCC’s Net Neutrality Law

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The Federal Communications Commission (FCC) approved chairman’s Tom Wheeler’s proposed net neutrality rules recently. [1] The new set of rules seek to regulate broadband providers along the lines of the regulations imposed on traditional phone companies or other utilities. These stringent rules have been criticized by Internet service providers such as Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), AT&T (NYSE:T) and Verizon (NYSE: VZ) with these companies threatening possible litigation. [2] Now the Republicans are also joining in the opposition and are seeking alternatives to the FCC’c proposals, which they feel are an “overreach” on the part of the FCC. [3] It will be interesting to see how this situation evolves on both regulatory and legislative fronts.

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The Republican Stand On The FCC Ruling

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FCC chairman Tom Wheeler is currently in the midst of a two week period during which he will testify on the net neutrality regulations in as many as five hearings on Capitol Hill. However, the republicans have launched a staunch opposition to these regulations. The Net neutrality vote within the FCC went 3-2 along party lines with Republican Commissioners Ajit Pai and Michael O’Rielly voting against it. The dissenting commissioners have led a month long campaign against the ruling with Rai commenting,” The Internet has become a powerful force for freedom, both at home and abroad. So it is sad to witness the FCC’s unprecedented attempt to replace that freedom with government control.” [4] Other GOP representatives have also condemned the regulation as a significant overreach. Many believe that this order could potentially destroy market competition and bog down investment in Internet infrastructure. South Dakota Republican Senator John Thune has also been a vocal critic and he proposed a bill in January that would prohibit service providers from throttling Internet speeds or establishing prioritized fast lanes without reclassifying Internet as a public utility, checking the FCC overreach. [5]

Even though the FCC has promised to refrain from using heavy handed tactics such as directly regulating prices, the opposition believes that the current order might lead to such regulation as a future commission might not share the current one’s approach. [6] There are also allegations that the FCC was unduly and illegally swayed by political interference from  the White House following President Obama’s call for the strictest regulation. ((Rep. Jason Chaffetz Grills FCC Chairman On Net Neutrality: We’re Supposed To Believe This Didn’t Come Up At The WH, March 19, 2015, realclearpolitics.com)) This theory is lent credence by the fact that the rules were originally not so stringent but were tightened after Obama said he preferred tougher rules. The FCC chairman even acknowledged during a recent hearing that Obama’s statement was one of his influences during the rule-setting process.

Why The Internet Service Providers Would Want The Opposition To Continue

High speed Internet has remained the leading growth factor for companies such as Comcast and Time Warner Cable for quite some time now. There is a boom in demand for broadband in the U.S., due to a growing need for speed and connectivity. The use of multiple devices and the higher penetration of smartphones are also boosting the overall demand. On the other hand, pay-TV business has been on the decline for quite some time, continuously bleeding customers year after year as it concedes ground to alternative platforms such as Netflix (NASDAQ:NFLX) and Hulu. In such a scenario, the companies have consistently raised subscription fees for their Internet services in order to compensate for the loss of revenue from the pay-TV business.

If the FCC’s decision to regulate the Internet like a utility ultimately leads to the commission deciding the tariffs charged to the end user, the companies will lose their pricing power and will not be able to raise subscription fees. As the pay-TV revenues are already declining, a potential stagnation in the Internet revenues will be immensely damaging. This is the reason the Internet service providers support efforts in congress to dilute the rules and reign in the FCC.

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Notes:
  1. FCC Approves Net Neutrality Rules, Setting Stage For Legal Battle, February 26, 2015, Wall Street Journal []
  2. Reactions to FCC’s net neutrality vote: Celebrations, legal threats and Morse code, February 26, 2015, Fortune []
  3. IN WAKE OF NET NEUTRALITY, REPUBLICANS TAKE AIM AT FCC’S BUDGET, nextgov.com []
  4. The FCC Has FINALLY Released Its Net Neutrality Internet Regulations, March 12, 2015, The Daily Caller []
  5. Congress: What The FCC Did In 300 Pages, We Could Do In Six — ‘Without The Overreach’, March 12, 2015, The Daily Caller []
  6. FCC Chairman Says Obama’s Net Neutrality Statement Influenced Rule, March 17, 2015, Wall Street Journal []