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The FCC’s Digital-Discrimination Rules

TL;DR tl;dr Background: Section 60506 of 2021’s Infrastructure Investment and Jobs Act (IIJA) mandated that the Federal Communications Commission (FCC) adopt rules to prevent discrimination in . . .

tl;dr

Background: Section 60506 of 2021’s Infrastructure Investment and Jobs Act (IIJA) mandated that the Federal Communications Commission (FCC) adopt rules to prevent discrimination in the deployment of broadband internet access “based on income level, race, ethnicity, color, religion, or national origin.” FCC Chair Jessica Rosenworcel recently outlined that the rules the commission intends to promulgate would define such digital discrimination “to include both disparate treatment and disparate impact.”

But… This approach conflicts with U.S. Supreme Court precedent on when a statute calls for disparate-impact analysis. The commission’s rulemaking will therefore likely invite lawsuits that challenge the agency’s authority to adopt these rules under the statute. 

This is particularly true under the Supreme Court’s emerging “major questions” doctrine, which requires that Congress speak clearly if it wants to delegate authority over questions of major economic or political significance to executive agencies.

The FCC’s broad interpretation of its mandate to promulgate digital-discrimination rules under the IIJA faces significant risk of being vacated by the courts, particularly if a challenge were to reach the Supreme Court.

KEY TAKEAWAYS

DISPARATE TREATMENT, DISPARATE IMPACT 

In discrimination law, disparate treatment refers to conduct intended to discriminate against one or more protected groups. In contrast, disparate impact is a finding that one or more protected groups is observed to experience different outcomes.

For example, disparate-impact analysis might find that low-income households have lower rates of internet adoption, and infer this was due to discrimination. Disparate-treatment analysis would evaluate whether the lower rate of adoption was due to provider policies or practices that were intended to stifle adoption by low-income households. 

In general, the bar to demonstrate a claim of discrimination is much lower under disparate impact than disparate treatment. But the FCC decided to incorporate both standards. In other words, a plaintiff would need to show disparate impact or disparate treatment in order to prove discrimination. 

But Section 60506’s language mandating the FCC prevent digital discrimination “based on” protected characteristics arguably indicates that Congress intended the FCC adopt a disparate-treatment approach. The Supreme Court has found that a statute must include “results-oriented language” to justify a disparate-impact approach to discrimination, which Section 60506 lacks.

MAJOR QUESTIONS AND CHEVRON

The so-called “major questions” doctrine affects how courts interpret congressional delegations of authority to federal agencies. The courts could find, for example, that if Congress intended the FCC to use a disparate-impact standard, it needed to say so clearly. The terse wording of Section 60506 does not appear to meet this level of clarity.

Even under longstanding Chevron analysis, an executive agency’s interpretation of a statute does not receive deference unless there is ambiguity in the enabling statute. Given the precedent, Section 60506 does not appear ambiguous in calling for a disparate-treatment standard.

TECHNICAL AND ECONOMIC FEASIBILITY

The IIJA requires that the FCC “tak[e] into account the issues of technical and economic feasibility” in crafting its digital-discrimination rules. Among the universe of potentially profitable broadband projects, firms will give priority to those that promise greater returns on investment. Such returns depend on factors like population density, terrain, regulations, and taxes, as well as a given consumer population’s willingness to adopt and pay for broadband. Many of these factors are, in turn, correlated with protected characteristics under the IIJA. A disparate-impact standard could thus incorrectly deem it to be improper discrimination when a firm responds to purely economic factors in its deployment decisions.

THE INCOME CONUNDRUM 

Congress’ inclusion of income level as a protected class in the IIJA made the FCC’s job much more difficult. Because income level is highly correlated with various protected (e.g., race and national origin) and unprotected (e.g., education level and home-computer ownership) characteristics, evaluations of income-based discrimination claims face a high likelihood of false positives, especially under a disparate-impact standard. Adoption of digital-discrimination rules that fail to recognize this “income conundrum” will invite costly and time-consuming litigation, both where no such discrimination exists and where it should be excused by considerations of economic feasibility. 

SLOUCHING TOWARD RATE REGULATION

Though the FCC has for years explicitly denied that it intends to impose direct rate regulation on broadband-internet providers, the National Telecommunications and Information Administration (NTIA) recently advised the FCC that: “Without addressing pricing as a possible source of discrimination, the Commission will be hard pressed to meet its statutory mandate to prevent digital discrimination of access.”

Any attempt to impose rate regulation under the language of Section 60506 would similarly face legal challenges under the major questions doctrine and Chevron.

For more on this issue, see “ICLE Ex Parte on Digital Discrimination.”

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Telecommunications & Regulated Utilities

All Aboard! The Title II Express Is Leaving the Station

TOTM At lunch last week, I handed out the first of my new business cards with the title “Director, Hootenanny Division.” My lunchmate looked down and . . .

At lunch last week, I handed out the first of my new business cards with the title “Director, Hootenanny Division.” My lunchmate looked down and said, “Sounds fun, what do you do?”

Then, I had to explain that part of the job involves watching open meetings of the Federal Communications Commission (FCC) and reporting on what our federal government has in store for us next. It’s a bit like being a passenger on a steam train. No matter how much fuss you make in the coach cars, the engineer can’t hear you, and wouldn’t care if he could. The engineer’s got places to go, and nothing is going hold him back.

That’s like the FCC and its latest efforts to impose Title II regulation on much of the internet—nothing’s going to hold ‘em back.

Read the full piece here.

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Telecommunications & Regulated Utilities

Kristian Stout on Title II Net Neutrality

Presentations & Interviews ICLE Director of Innovation Policy Kristian Stout appeared as a guest on Minnesota Public Radio’s Marketplace in a segment on the Federal Communications Commission’s decision to . . .

ICLE Director of Innovation Policy Kristian Stout appeared as a guest on Minnesota Public Radio’s Marketplace in a segment on the Federal Communications Commission’s decision to reinstate so-called “net neutrality” for broadband providers.

But Kristian Stout, director of innovation policy at the International Center for Law and Economics, argues that we don’t need net neutrality as much as we once did because most of us are already online now. So how do we ensure access for every last American?

“You don’t do that by upending or frustrating the investment incentives that have made this work really well for 90 to 95% of the country. What you do is try to figure out targeted solutions,” Stout said.

Audio of the full segment is embedded below.

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Telecommunications & Regulated Utilities

Net Neutrality Is a Solution in Search of a Hypothetical Problem

Popular Media The Federal Communications Commission (FCC) has issued a new proposed rule that would impose far-reaching regulations on large internet service providers like AT&T, Comcast, and . . .

The Federal Communications Commission (FCC) has issued a new proposed rule that would impose far-reaching regulations on large internet service providers like AT&T, Comcast, and Verizon. These “net neutrality” rules would reclassify broadband internet access as a telecommunications service subject to common-carrier regulations under Title II of the Communications Act.

Read the full piece here.

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Telecommunications & Regulated Utilities

NTIA Tries to Call the Tune on Digital Discrimination

TOTM We’ve all been there. You’re enjoying a hootenanny, and someone tries to change the tune. Kind of like yelling “Free Bird” at a Taylor Swift . . .

We’ve all been there. You’re enjoying a hootenanny, and someone tries to change the tune. Kind of like yelling “Free Bird” at a Taylor Swift concert or asking a wedding DJ to play the chicken dance.

Well, the National Telecommunications and Information Administration (NTIA) has jumped into the digital-discrimination hootenanny and put in some requests.

Read the full piece here.

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Telecommunications & Regulated Utilities

ICLE Ex Parte on Digital Discrimination

Regulatory Comments We write to offer our thoughts in response to the National Telecommunications and Information Administration’s (NTIA) recently submitted comments to the Federal Communications Commission (FCC) . . .

We write to offer our thoughts in response to the National Telecommunications and Information Administration’s (NTIA) recently submitted comments to the Federal Communications Commission (FCC) in response to the notice of proposed rulemaking (NPRM) in this matter. Among its recommendations, the NTIA proposes that the FCC:[1]

  1. Adopt a disparate-impact standard to define “digital discrimination of access;” and
  2. Subject a “broad range” of service characteristics to digital-discrimination rules, including pricing, promotional conditions, terms of service, and quality of service.

We urge the FCC to reject both of these recommendations. As we note in a recent International Center for Law & Economics (ICLE) issue brief, a disparate-impact approach would likely run afoul of the U.S. Supreme Court’s tests for when such an approach is appropriate.[2] In addition, the NTIA’s recommendation to use digital-discrimination rules to regulate prices and quality of service would subject broadband-internet providers to rate regulation that the FCC has historically said it eschews.

A.      Section 60506 Does Not Support Disparate Impact Analysis

Section 60506 of the Infrastructure Investment and Jobs Act (IIJA) requires the FCC to adopt final rules facilitating equal access to broadband internet:

[T]he Commission shall adopt final rules to facilitate equal access to broadband internet access service, taking into account the issues of technical and economic feasibility presented by that objective, including … preventing digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin; and… identifying necessary steps for the Commissions to take to eliminate discrimination …[3]

The U.S. Supreme Court has established tests governing when it is appropriate to conduct an effects-based “disparate impact” analysis in the context of discrimination law. First, the presence of language like “otherwise make unavailable” is critical to construing a statute as demanding an effects-based analysis.[4] Such phrases, the Court found, “refer[] to the consequences of an action rather than the actor’s intent.” Second, the structure of a statute’s language matters:

The relevant statutory phrases … play an identical role in the structure common to all three statutes: Located at the end of lengthy sentences that begin with prohibitions on disparate treatment, they serve as catchall phrases looking to consequences, not intent. And all [of these] statutes use the word “otherwise” to introduce the results-oriented phrase. “Otherwise” means “in a different way or manner,” thus signaling a shift in emphasis from an actor’s intent to the consequences of his actions.[5]

Thus, as Section 60506 was drafted without “results-oriented language” and instead frames the prohibition against digital discrimination as “based on income level, race, ethnicity, color, religion, or national origin,” this would put the rule squarely within the realm of prohibitions on intentional discrimination. That is, to be discriminatory, the conduct in question must have been made intentionally because of the protected characteristic. Mere statistical correlation between outcomes and protected characteristics is insufficient to demonstrate discrimination under Section 60506.

B.      Broadband Rate Regulation Is at Odds With Longstanding FCC Policy

The FCC has for years been explicit about its apprehension to impose direct rate regulation on broadband-internet providers. Obama-era FCC Chair Tom Wheeler promised to forebear from rate regulation under the 2015 Open Internet Order (OIO), declaring “we are not trying to regulate rates.”[6] Last month, in a speech announcing the FCC’s proposal to regulate broadband internet under Title II of the Communications Act, Chair Jessica Rosenworcel was emphatic: “They say this is a stalking horse for rate regulation. Nope. No how, no way.”[7]

And yet, the NTIA recommends precisely that: a stalking horse for rate regulation under the guise of preventing digital discrimination: “Without addressing pricing as a possible source of discrimination, the Commission will be hard pressed to meet its statutory mandate to prevent digital discrimination of access.”[8] Indeed, in addition to prices, the NTIA recommends addressing promotions, as well as terms of service and quality of service—both of which are inextricably intertwined with pricing. Section 60506 is explicit that the FCC must “tak[e] into account the issues of technical and economic feasibility” in addressing digital discrimination. The NTIA, however, appears to suggest ignoring that mandate.[9]

C.      The Problem With De Facto Rate Regulation

In a competitive market, prices allow for the successful coordination of supply and demand, and the market price reflects both consumer demand and the costs of production. Of course, for those on the demand side of the equation, the price of a good or service is a cost to them, and they would prefer falling prices to rising prices. For suppliers, the price represents the revenue from selling the good or service, and they would prefer rising prices to falling prices.

Due to this inherent tension, there is a natural inclination on the part of both consumers and producers to seek government intervention in the competitive process to either halt or slow price changes. The most obvious way the government can intervene is through rate regulation, such as price controls. It is well known and widely accepted that price controls can make both consumers and sellers worse off.[10] Consequently, policymakers often pitch policies to control prices under another name (e.g., “second-generation rent relief” instead of “rent control”) or introduce policies that are not explicit price controls. These de facto rate regulations  (e.g., quality-of-service mandates)  have substantially the same effects as direct price controls.

For example, some agricultural products are subject to “marketing orders,” which are legal cartels than can dictate the price and quality of produce.[11] Consider an apple market subject to a marketing order that specifies fresh apples must be of a certain shape and size, such that only large, round apples can be sold as fresh produce.

Consumers presumably prefer large apples to small apples and prefer round apples to misshapen apples. Thus, the order that only large, round apples can be sold as fresh has the effect of increasing/shifting the demand curve. Consumers would be willing to pay more for the seemingly better fruit, and they’d be willing to buy more. But the order also increases the cost to apple growers. They have to find a way to dispose of their smaller or misshapen apples, perhaps by making apple sauce or juicing the fruit. They also incur higher costs of managing their crop to produce more of the higher-quality fruit. This has the effect of decreasing/shifting the supply curve for fresh fruit. Growers will supply less fruit at a higher cost.

Combining the effects from both the shift in supply and the shift in demand shows that the marketing order unambiguously results in a higher price for apples. What is not known, however, is whether more or fewer apples are sold. That will depend on the elasticities of demand and supply. Because the order results in a higher price, however, it has created a de facto price floor without explicitly setting one. Consumers are not aware that they are paying a higher price, because they do not know what type of fruit would otherwise be available, and at what price, absent the quality restrictions.

Similarly, broadband quality-of-service mandates simultaneously increase demand while increasing costs. Were all other things held constant, the result would be a higher price for broadband. What is not known, however, is whether more or fewer households will subscribe to broadband. That will depend on the elasticities of demand and supply. Because the mandate results in a higher price, however, it has created a de facto price floor without explicitly setting one. Consumers are not aware that they are paying a higher price because they do not know what quality of service would otherwise be available—and at what price—absent the quality-of-service mandate.

A recent ICLE issue brief explores in detail how these sorts of  terms-of-service and quality-of-service mandates often amount to de facto rate regulation.[12] Sadly, we have seen many recent attempts—including by the NTIA itself—to introduce these sorts of de facto rate regulations:

  • The NTIA’s notice of funding opportunity (NOFO) under the Broadband Equity, Access, and Deployment (BEAD) program requires each participating U.S. state or territory to include a “middle-class affordability plan to ensure that all consumers have access to affordable high-speed internet” (emphasis in original).[13] The NOFO specifies a price (“affordable”); a quantity (“all middle-class households”); and imposes a quality mandate (“high-speed”).
  • In its third and fourth funding rounds, the U.S. Department of Agriculture’s ReConnect Loan and Grant Program included provision of a “low-cost option” as a point criteria in award decisions. It also included a requirement that projects must provide broadband access at speeds of at least 100/100 Mbps (e., 100 Mbps symmetrical speed).
  • The FCC’s 2015 Open Internet Order outright prohibited “paid prioritization”—that is, seeking payments for network utilization from edge providers like Google, Facebook, and Netflix—while casting suspicion on other pricing schemes under its Internet Conduct Standard.

Moreover, as we note in our Income Conundrum issue brief, the evaluation of digital-discrimination claims based on income level can yield highly complicated analyses due to income’s correlation with a host of factors, both protected (e.g., race and national origin) and unprotected (e.g., home-computer ownership).  Adoption of Section 60506 rules that do not recognize this “income conundrum” will invite costly and time-consuming disparate-impact litigation that alleges digital discrimination, both where no such discrimination exists and where it is excused by economic-feasibility considerations. Even worse, regulatory interventions on price, quality of service, and terms of service would extend this damage further by creating de facto utility regulation on providers that completely distorts investment incentives.

D.     Conclusion

The FCC must be cautious when promulgating rules under Section 60506. In particular, the commission should adopt an intent-based discriminatory-treatment standard, rather than one that opens the doors to disparate-impact claims. And FCC rules should articulate a presumption of nondiscrimination, in which allegations of digital discrimination must be demonstrated, rather than a presumption of discrimination that must be rebutted for each deployment, service, and pricing decision.

If the commission has good evidence of intentional discrimination in the deployment of broadband, it has a role to play in preventing it. But without strong, compelling evidence of intentional discrimination, the FCC will run the risk of a constitutional challenge to its rules and waste scarce resources chasing bogeymen.

Above all, the FCC should resist calls to engage in rate regulation, either through direct intervention on broadband prices or through interventions on quality of service or terms of service. The longstanding policy to avoid rate regulation has been an important factor leading to increased broadband deployment in the United States.

[1] Ex Parte Comments of the National Telecommunications and Information Administration, In the Matter of Implementing the Infrastructure Investment and Jobs Act: Prevention and Elimination of Digital Discrimination, GN Docket No. 22-69 (Oct. 6, 2023), available at  https://www.ntia.gov/sites/default/files/publications/ntia_digital_discrimination_ex_parte_comment_10.6.23.pdf at 3 and 8.

[2] Eric Fruits & Kristian Stout, The Income Conundrum: Intent and Effects Analysis of Digital Discrimination, Int’l. Ctr. for L. & Econ. (Nov. 14, 2022), available at https://laweconcenter.org/wp-content/uploads/2022/11/The-Income-Conundrum-Intent-and-Effects-Analysis-of-Digital-Discrimination.pdf; see also Eric Fruits, Kristian Stout, & Ben Sperry, ICLE Reply Comments on Prevention and Elimination of Digital Discrimination, Notice of Proposed Rulemaking, In the Matter of Implementing the Infrastructure, Investment, and Jobs Act: Prevention and Elimination of Digital Discrimination, No. 22-69, at Part III (Apr. 20, 2023), https://laweconcenter.org/resources/icle-reply-comments-on-prevention-and-elimination-of-digital-discrimination.

[3] 47 U.S.C. § 1754 (emphasis added).

[4] Texas Dep’t of Hous. & Cmty. Affs., 576 U.S. at 534.

[5] Id. at 534-535 [emphasis added].

[6] Tom Wheeler, Hearing on FCC Reauthorization: Oversight of the Commission, U.S. House Energy and Commerce Subcommittee on Communications and Technology, (Mar. 19, 2015), https://www.govinfo.gov/content/pkg/CHRG-114hhrg95817/html/CHRG-114hhrg95817.htm.

[7] FCC Chair Rosenworcel on Reinstating Net Neutrality Rules, C-Span (Sep. 26, 2023), https://www.c-span.org/video/?530731-1/fcc-chair-rosenworcel-reinstating-net-neutrality-rule.

[8] Supra note 1, at 10.

[9] Id. (“Congress set out a specific list of demographic groups protected by this statute, including … racial and ethnic minorities (who as previously noted are disproportionately likely to live in environments where networks are costlier to maintain, among other challenges).”) [emphasis added].

[10] See, e.g., N. Gregory Mankiw, Principles of Microeconomics, 4th ed., Thomson South-Western (2007); Paul Krugman & Robin Wells, Economics, 6th ed., MacMillan (2021); Steven A. Greenlaw & David Shapiro, Principles of Microeconomics 2nd ed., OpenStax (2017).

[11] See Darren Filson, Edward Keen, Eric Fruits, & Thomas Borcherding, Market Power and Cartel Formation: Theory and an Empirical Test, 44 J. L. & ECON. 465 (2001).

[12] Eric Fruits & Geoffrey A. Manne, Quack Attack: De Facto Rate Regulation in Telecommunications, Int’l. Ctr. for L. & Econ. (Mar. 30, 2023), available at https://laweconcenter.org/wp-content/uploads/2023/03/De-Facto-Rate-Reg-Final-1.pdf.

[13] Notice of Funding Opportunity, Broadband Equity, Access, and Deployment Program, NTIA-BEAD-2022, NTIA (May 2022), available at https://broadbandusa.ntia.doc.gov/sites/default/files/2022-05/BEAD%20NOFO.pdf (note that the IIJA itself did not include this requirement, but it was added by NTIA as part of the NOFO process; thus, it is unclear the extent to which this represents a valid requirement by NTIA under the BEAD program).

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Telecommunications & Regulated Utilities

Competition in the Low-Earth-Orbit Satellite Industry

TOTM Amazon on Friday launched its first two prototype satellites for its planned Project Kuiper internet-satellite network. It was the latest milestone in the rapid evolution of the . . .

Amazon on Friday launched its first two prototype satellites for its planned Project Kuiper internet-satellite network. It was the latest milestone in the rapid evolution of the low-Earth-orbit (LEO) satellite industry, with companies like SpaceX and OneWeb joining Project Kuiper in launching thousands of satellites to provide broadband internet access globally.

As this nascent industry takes shape, it is important that U.S. policymakers understand its competitive dynamics. With the number of LEO satellites set to increase in the coming years, establishing a regulatory framework that spurs innovation and investment while fostering a competitive marketplace will be essential to ensure the industry’s growth benefits consumers. In this post, we will examine some of the most urgent public-policy issues that directly impact competitiveness in the LEO industry.

Read the full piece here.

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Telecommunications & Regulated Utilities

How ETNO’s ‘Fair Share’ Proposal Threatens Europe’s Digital Future:

TOTM The digital transformation of Europe—and, indeed, the world—has been a defining theme of the 21st century. As with all significant shifts, it has also come . . .

The digital transformation of Europe—and, indeed, the world—has been a defining theme of the 21st century. As with all significant shifts, it has also come with its share of challenges, opportunities, and controversies. 

One such controversy that has recently reemerged is the so-called “fair share” proposal for network traffic—championed most recently in a statement from the European Telecommunications Network Operators’ Association (ETNO)—under which the major tech platforms would be made to finance improvements to EU telecom networks. While ostensibly a call for regulatory change, the deeper one delves, the more evident it becomes that ETNO’s proposal is less about fairness and more a strategic play for legacy telecoms to tap into the vast revenues of major content producers.

Read the full piece here.

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Telecommunications & Regulated Utilities

Net Neutrality Is Dead, Long Live National Security

TOTM Federal Communications Commission (FCC) Chair Jessica Rosenworcel announced plans last week for the commission to vote Oct. 19 on whether to take the first steps toward . . .

Federal Communications Commission (FCC) Chair Jessica Rosenworcel announced plans last week for the commission to vote Oct. 19 on whether to take the first steps toward reinstating Title II regulations on broadband providers. Two days later, the FCC issued a notice of proposed rulemaking (NPRM) for the Safeguarding and Securing the Open Internet (SSOI) order.

If adopted, the new rules would revive much of the Open Internet Order (OIO) the commission passed in 2015 under former FCC Chairman Tom Wheeler. That order classified broadband-internet service as a Title II telecommunications service under the Communications Act, treating many broadband services as public utilities. This allowed the FCC to impose common-carrier obligations on internet service providers (ISPs), including bans on blocking or throttling lawful content, paid prioritization of content, and other practices seen as contrary to so-called “net neutrality” principles.

Read the full piece here.

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Telecommunications & Regulated Utilities