The Future Openness of the Internet Should Not Turn on the Decision of a Particular Company
On Tuesday, April 17, the House Commerce Committee’s Subcommittee on Communications and Technology will hold a hearing – entitled “From Core to Edge: Perspective on Internet Prioritization” – to better understanding of how network operators manage data flows over the Internet and how data is prioritized from the network core to the edge.
The hearing seems to set up to address seven questions:
- How is data prioritized over the Internet and private networks to ensure that the Internet works for everyone?
- Is the concern about paid prioritization actually about affiliate content? Are there other ways to address that aspect other than blocking such avenues?
- When we discuss the optimization of data transfer rate, does this necessarily mean that some data is “slowed down” to make a “fast lane”?
- What are the implications for prioritization over wireline vs. wireless broadband networks?
- How do we make sure that the rural service gap does not widen as content caching is focused on urban and suburban areas?
- What separates healthy prioritization from anti-competitive forms of prioritization?
- Where could helpful or harmful forms of prioritization exist on the network or on the edge?
In its 2015 Open Internet Order, the Federal Communications Commission banned broadband internet access service providers from engaging in paid prioritization of internet traffic over their networks. At the time, many broadband providers promised they were not engaging in paid prioritization and did not plan to in the future. Below is what the FCC found in 2015 – more or less in the FCC’s own words.
The FCC concluded that paid prioritization network practices harm consumers, competition, and innovation, as well as create disincentives to promote broadband deployment and, as such, adopt a bright-line rule against such practices.
The FCC banned arrangements in which the broadband service provider accepts consideration (monetary or otherwise) from a third party to manage the network in a manner that benefits particular content, applications, services, or devices. The FCC also banned arrangements where a provider manages its network in a manner that favors the content, applications, services or devices of an affiliated entity. Any broadband provider that engages in such practices will be subject to enforcement action, including forfeitures and other penalties. The FCC adopted the following rule banning paid prioritization arrangements:
A person engaged in the provision of broadband Internet access service, insofar as such person is so engaged, shall not engage in paid prioritization.
“Paid prioritization” refers to the management of a broadband provider’s network to directly or indirectly favor some traffic over other traffic, including through use of techniques such as traffic shaping, prioritization, resource reservation, or other forms of preferential traffic management, either (a) in exchange for consideration (monetary or otherwise) from a third party, or (b) to benefit an affiliated entity.
The paid prioritization ban was enacted because the record was rife with commenter concerns regarding preferential treatment arrangements, with many advocating a flat ban on paid prioritization. Commenters asserted that permitting paid prioritization will result in the bifurcating of the Internet into a “fast” lane for those willing and able to pay and a “slow” lane for everyone else. As several commenters observed, allowing for the purchase of priority treatment can lead to degraded performance—in the form of higher latency, increased risk of packet loss, or, in aggregate, lower bandwidth—for traffic that is not covered by such an arrangement. Commenters further argued that paid prioritization would introduce artificial barriers to entry, distort the market, harm competition, harm consumers, discourage innovation, undermine public safety and universal service, and harm free expression. Vimeo, for instance, argued that paid prioritization “would disadvantage user-generated video and independent filmmakers” that lack the resources of major film studios to pay priority rates for dissemination of content. Engine Advocacy asserted that “[s]ome unfunded early startups may not be able to afford [to pay for priority treatment] (particularly if the product would be data-intensive) and will not start a company,” resulting in “reduce[d] entrepreneurship.” Commenters also asserted that if paid prioritization became widespread, it would make reliance on consumers’ ordinary, non-prioritized access to the Internet an increasingly unattractive and competitively nonviable option. The FCC’s conclusion was supported by a well-established body of economic literature, including FCC staff working papers.
Broadband providers have both the incentive and ability to engage in paid prioritization. The United States Court of Appeals for the District of Columbia Circuit, while overturning a previous version of FCC net neutrality rules, noted that broadband providers “have powerful incentives to accept fees from edge providers, either in return for excluding their competitors or for granting them prioritized access to end users.” Indeed, at oral argument Verizon’s counsel announced that “but for [the 2010 Open Internet Order] rules we would be exploring [such] commercial arrangements.” While several broadband providers have claimed that they do not engage in paid prioritization or that they have no plans to do so, such statements do not have the force of a legal rule that prevents them from doing so in the future. The future openness of the Internet should not turn on the decision of a particular company. The FCC was concerned that if paid prioritization practices were to become widespread, the damage to Internet openness could be difficult to reverse. The Center for Democracy and Technology warned, and the FCC agreed, that “[u]nraveling a web of discriminatory deals after significant investments have been made, business plans have been built, and technologies have been deployed would be a complicated undertaking both logistically and politically.” Further, documenting the harms could prove challenging, as it is impossible to identify small businesses and new applications that are stifled before they become commercially viable.
Prioritizing some traffic over others based on payment or other consideration from an edge provider could fundamentally alter the Internet as a whole by creating artificial motivations and constraints on its use, damaging the web of relationships and interactions that define the value of the Internet for both end users and edge providers, and posing a risk of harm to consumers, competition, and innovation. Thus, because of the very real concerns about the chilling effects that preferential treatment arrangements could have on the virtuous cycle of innovation, consumer demand, and investment, the FCC adopted a bright-line rule banning paid prioritization arrangements.
At the time, the FCC clarified that it did not seek to disrupt the legitimate benefits that may accrue to edge providers that have invested in enhancing the delivery of their services to end users. On the contrary, such investments could contribute to the virtuous cycle by stimulating further competition and innovation among edge providers, to the ultimate benefit of consumers. The FCC also clarified that the ban on paid prioritization does not restrict the ability of a broadband provider and content delivery network (CD to interconnect.
The FCC found that a flat ban on paid prioritization has advantages over alternative approaches identified in the record. Prohibiting this practice outright helps to foster broadband network investment by setting clear boundaries of acceptable and unacceptable behavior. It also protected consumers against a harmful practice that may be difficult to understand, even if disclosed. In addition, this approach relieves small edge providers, innovators, and consumers of the burden of detecting and challenging instances of harmful paid prioritization. Given the potential harms to the virtuous cycle, the FCC believed it is more appropriate to impose an ex ante ban on such practices, while entertaining waiver requests under exceptional circumstances.
Under the FCC’s longstanding waiver rule, it may waive any rule “in whole or in part, for good cause shown.” General waiver of the FCC’s rules is appropriate only if special circumstances warrant a deviation from the general rule, and such a deviation will serve the public interest. In some cases, however, the FCC adopts specific rules concerning the factors that will be used to examine a waiver or exemption request. In the 2015 rules, the FCC made clear the very limited circumstances in which it would be willing to allow paid prioritization. Accordingly, it adopted a rule concerning waiver of the paid prioritization ban that establishes a balancing test, as follows:
The Commission may waive the ban on paid prioritization only if the petitioner demonstrates that the practice would provide some significant public interest benefit and would not harm the open nature of the Internet.
In support of any waiver request, the applicant therefore must make two related showings. First, the applicant must demonstrate that the practice will have some significant public interest benefit, such as providing evidence that the practice furthers competition, innovation, consumer demand, or investment. Second, the applicant must demonstrate that the practice does not harm the nature of the open Internet, including, but not limited to, providing evidence that the practice does not:
- Materially degrade or threaten to materially degrade the broadband Internet access service of the general public;
- Hinder consumer choice;
- Impair competition, innovation, consumer demand, or investment; and
- Impede any forms of expressions, types of service, or points of view.
An applicant seeking waiver relief under this rule faces a high bar. The FCC anticipated granting such relief only in exceptional cases.
 The considered arrangements of this kind to be paid prioritization, even when there is no exchange of payment or other consideration between the broadband Internet access service provider and the affiliated entity.
 Other forms of traffic prioritization, including practices that serve a public safety purpose, may be acceptable under FCC rules as reasonable network management.
 The access provided by the core network is an intermediate input into the myriad of final products produced by edge providers. While it is granted that for a firm selling final goods, price discrimination can be both profitable and enhance welfare, it has been argued that the reverse is also true when intermediate goods are considered. See Michael L. Katz, Price Discrimination and Monopolistic Competition , 52 Econometrica 1453, 1453-71 (1984); Michael L. Katz, Non-Uniform Pricing, Output and Welfare under Monopoly, 50 Rev. of Economic Studies 37, 37-56 (1983); Michael L. Katz, The Welfare Effects of Third-Degree Price Discrimination in Intermediate Good Markets, 77 American Economic Rev. 154, 154-167 (1987); and Yoshihiro Yoshida, Third Degree Price Discrimination in Input Markets: Output and Welfare, 90 American Economic Rev. 240, 240-246 (2000).
 Gerald W. Brock, Telephone Pricing to Promote Universal Service and Economic Freedom, OPP Working Paper Series No. 18 (1986); Jay M. Atkinson and Christopher C. Barnekov, A Competitively Neutral Approach to Network Interconnection, OPP Working Paper Series, No. 34 (2000).
 Verizon, 740 F.3d at 645-46 (holding that the Commission has adequately supported and explained its conclusions that absent open Internet protections, broadband providers “represent a threat to Internet openness and could act in ways that would ultimately inhibit the speed and extent of future broadband deployment”).
 Verizon Oral Arg. Tr. at 31 (“I’m authorized to state by my client [Verizon] today that but for these rules we would be exploring those commercial arrangements, but this order prohibits those, and in fact would shrink the types of services that will be available on the Internet.”).