Will the FCC Decide How Much You Pay for Internet?

The agency insists net neutrality won't lead to price controls, but the industry is skeptical.

March 15, 2015

The Federal Communications Commission has a new way to oversee how much companies can charge for Internet access, but swears it won't use it. Can it be trusted?

That's the potential billion-dollar question. Internet providers already don't like last month's FCC net neutrality decision, saying it will lead to intrusive government meddling in their businesses. But as they raise the alarm about the FCC's action, they are pointing to language they say could result in government price controls.

"The plain language of the order definitely opens the door to rate regulation," said Brian Dietz, a spokesman for the National Cable and Telecommunications Association, which lobbies for Comcast and other major cable providers. Price controls are, he said, a "glaring example" of where the FCC's new regulatory regime "goes far beyond the reasonable net neutrality protections that have widespread support."

FCC Chairman Tom Wheeler has repeatedly insisted that his agency won't set Internet prices. When the commission met last month to approve the regulations, he promised that the FCC would not impose "utility-style" requirements or anything that would "pose a meaningful threat to network investment."

"That means no rate regulation," he vowed.

The FCC even went as far as to release a list of "myths" and "facts" last week to try to clear up the issue. "The Order doesn't regulate retail broadband rates," the commission emphasized. "Broadband providers will be able to adjust retail rates without Commission approval and without having to wait even a minute."

The controversy stems from the fact that the new rules classify the Internet as a "telecommunications service" under Title II of the Communications Act, which the commission has used to regulate landline phones for 80 years. The section, which was created during an era of a nationwide telephone monopoly, includes extensive provisions for government price controls.

Although Internet service is now covered by Title II, the commission explicitly waived most of the section's regulations, including the requirement that companies get FCC approval before setting new prices. Wheeler said his plan would "modernize Title II, tailoring it for the 21st century."

But one of the provisions that the FCC is applying requires that all of a provider's "charges, practices, [and] classifications" be "just and reasonable." That section is critical for the overall net neutrality rules. The FCC is using the "just and reasonable" standard as the legal basis for its ban on Internet providers blocking or manipulating Internet traffic.

So even though providers won't need permission to set prices, the rules allow consumers to file complaints to the FCC, including ones if they believe that some "charges" aren't "just and reasonable." And it's not just the FCC that could rule on prices. The language, the critics say, also paves the way for consumers to file class action lawsuits, letting a federal court decide if a company's rates are "just and reasonable."

Ahead of the FCC's vote last month, Craig Moffett, an industry analyst for MoffettNathanson, lowered his outlook for major cable stocks. "At its core, Title II is about price regulation," he wrote in a note to investors. "It would be naïve to believe that the imposition of a regime that is fundamentally about price regulation, in an industry that the FCC has now repeatedly declared to be non-competitive, wouldn't introduce risk to future pricing power."

Harold Feld, the senior vice president of Public Knowledge, a consumer advocacy group that supports the rules, said that most investors don't share Moffett's fears. The stocks of the major cable and telecom companies have mostly held steady in the wake of the FCC's decision. The whole price control debate is just a scare tactic, according to Feld.

Voice service on cell phones has been regulated under the same Title II authority for 20 years, and the FCC has never tried to control prices, he said. And even under the old legal classification for Internet service, the FCC had the authority to implement "price caps," but never did.

"The only people who believe that there will be rate regulation are those who have an interest in saying there will be rate regulation," Feld said. "Actual investors do not believe there will be rate regulation."

Feld acknowledged that the FCC and the courts will be able to stop some abusive price gouging—but he argued that's not the same thing as the expansive government control over pricing that exists for landline phones. For example, the FCC could punish a cable company that tries to charge a customer $2,000 for losing her modem when her house is destroyed in a hurricane, he said. But that sort of authority, Feld explained, already existed under standard consumer protection laws before the net neutrality decision.

Even the most vocal advocates for FCC regulation aren't calling for broad Internet price controls. Matt Wood, the policy director of activist group Free Press, wouldn't promise that his group would never push for price regulation in the future, but he argued that other policies designed to encourage competition will almost certainly be better options.

"As a consumer advocate, I'm not going to say the prices are really reasonable," he said. "That doesn't mean that we think the best way to make those rates reasonable is straight-out rate regulation."

For the critics of the net neutrality decision, however, price controls are not only a hypothetical fear—they explicitly exist in the new regulations.

The FCC included a "general conduct" rule to address a range of potential abuses by Internet providers. The rule states that Internet providers cannot "unreasonably interfere with or unreasonably disadvantage" the ability of users to access online content.

FCC officials have explained that the rule gives the agency the authority to step in if Internet providers are using monthly data caps in an abusive way. The agency will also keep a close eye on providers that exempt certain sites or services from data caps. T-Mobile, for example, has a "Music Freedom" program that exempts music streaming apps from a customer's monthly data usage. Some net neutrality advocates are skeptical of any programs that allow Internet providers to pick and choose which online services succeed.

For the FCC's critics, that kind of oversight of a carrier's data plans is the essence of price control. "To me, it's just a distortion of the English language to say that's not rate regulation," said Randy May, the president of the Free State Foundation, which opposes the rules.

"This Order not only opens the door to rate regulation—it applies it from the get-go," said Jonathan Spalter, the chairman of Mobile Future, a lobbying group for Verizon, AT&T, and other cellular companies. "As the saying goes—if it walks like rate regulation, quacks like rate regulation, it must be rate regulation. So the FCC can't make this duck anything other than what it is."

But for the FCC's supporters, the general conduct standard isn't some massive power grab. It's just a way to ensure that some clever industry lawyers don't find a way to undermine the core net neutrality protections.

"I refer to the general conduct standard as the John Oliver rule," Public Knowledge's Feld said, referring to the comedian's popular rant on net neutrality. "It's basically just 'stop cable company f—kery.' "

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Will the FCC Decide How Much You Pay for Internet?