The Federal Communications Commission will vote to eliminate net neutrality rules this week. Despite concerns about the integrity of the comment period, FCC chairman Ajit Pai told us the vote will happen Dec. 14. The net neutrality rules, created under the Obama administration, prevent internet service providers like Verizon or Comcast from favoring certain content by charging different rates for it or slowing down data.
Net neutrality rules have allowed internet service providers to be regulated by the government like public utilities. Pai instead supports allowing high-speed internet service providers to have more freedom to police themselves and has said that these rules are harmful to business. In a previous conversation with Marketplace Tech, he suggested that ultimately "Congress would be well-positioned to take hold of this issue and just figure out what the rules of the road are going to be long-term."
Marketplace Tech host Molly Wood spoke with Pai ahead of the vote. Below is an edited transcript of a portion of their conversation.
Molly Wood: In every policy change there are winners and losers. The expectation is that this will pass. Who are the potential losers here?
Ajit Pai: Those who have peddled hysteria and misinformation over the last three weeks suggesting for example that the internet as we know it is about to end, that democracy is threatened, that free speech and expression online are at risk. And when folks wake up on Dec. 15 and the internet is the same and we have returned to the free market framework that has governed the internet for most of its existence, hopefully we can return to a more rational discourse about the future of this terrific online platform that has delivered so much digital opportunity to Americans and to people around the world.
Wood: But what does this change actually mean for consumers?
Pai: I think it means better, faster, cheaper internet access. If you talk to smaller providers in particular, and I've spoken to many of them from Minnesota to Montana over the past week, they have said that these heavy handed regulations stand in the way of them building a business case for deploying internet infrastructure, especially in rural and low income urban areas. So, I think for those consumers who want better access to the Internet and more competition these rules promise a brighter future.
Wood: You talk about hysteria and misinformation and the concern that the Internet is dying. Nevertheless, a majority of people in a fairly broad swath of polls across political lines are in favor of some net neutrality regulation. How do you answer to them?
Pai: Well, I think there is a broad consensus in favor of a free and open internet. But I think the problem is that when you have elected officials and others saying that the internet is about to be destroyed, are you in favor of that or not, there's no surprise, I think, that the polls seem to suggest that there is a level of concern. But I think when you step back and look at the situation with somewhat of a dispassionate view, and you recognize that we're simply returning to the light touch framework that we have starting with President Clinton in 1996, and that went through until 2015, and that's served the entire internet economy, including consumers very well, then I think folks will come to recognize that that light touch framework is best calibrated to preserve the free and open internet, and to promote more infrastructure investment, which at the end of the day produces a great amount of consumer value.
Wood: I want to ask you about the opposition. Are they just wrong? We're talking about a lot of smart people, a lot of lawyers, Vint Cerf. Are they just wrong?Pai: Reasonable people fall on both sides of this issue. There are some folks like the ones you mentioned. There are others like Marc Andreessen and Ben Thompson and Mark Cuban on the other side. At the end of the day, I think if we come to the table and recognize that reasonable people can disagree, and that the framework that we had from 1996 till 2015 isn't crazy, then I think it's simply a question of which approach is best calibrated to preserve a free and open internet and infrastructure investment going forward. And based on the evidence in the record, we have found at the FCC, and I'm confident that the court will sustain, as the public will over time, that the light touch approach that started under President Clinton is ultimately the right one for the American people.
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Wood: And do you think you've made that argument in a way that people are going to accept, or do you think that some of this "anger and hysteria" as you've described it is going to keep going after the vote?
Pai: I know the people are very passionate about all things having to do with the internet. And I would hope that they would focus on the facts, and to the maximum extent possible, ignore some of the hysteria about the internet ending. When they wake up on December 15 and they realize the internet actually does work and they're able to tweet and e-mail and surf and do all the great things that people are able do on the internet, they'll recognize that they should put the hysteria aside and focus on the facts. And the facts are that this regulatory framework we are about to adopt is the one that has proven to work for the American people and will continue to benefit them in the exciting times to come.
Wood: There has since 1996 been a lot of consolidation of internet service providers buying content companies. Why do you trust internet service providers to deliver content at fair prices to all people when there is an inherent interest?
Pai: Two different points on that. Number one, we don't trust any particular company or sector of the industry to regulate itself, and that is precisely why under my plan, we require very robust transparency, that internet service providers have to disclose the particulars of their business practices, and service offerings and the like. That's also why we empower the Federal Trade Commission to take targeted action against any company that engages in anti-competitive conduct or engages in an unfair or deceptive trade practice, point number one. Point number two, it's also amusing to hear this criticism from those who in the previous administration OKed over a quarter trillion dollars of consolidation, including among companies that sought to combine network operations and content. And so I think if that was the real concern that they had, they should have spoken up over the previous eight years.
Wood: Well with all due respect, I think consumers had those concerns all along. But felt then and feel now that those concerns are not being represented — we are talking about after all some of the most hated companies in America.
Pai: Well again, this is why we require FCC transparency and Federal Trade Commission enforcement. My point is simply that those who OKed a lot of these transactions in the previous administration can't come back and criticize the very predicate that those transactions were founded upon.
Wood: In the U.S., 55 percent of consumers have only one major broadband provider. Most of the remaining 45 percent have only two. Does transparency help them if there is no option?
Pai: Two different points. Number one, this is why I have consistently said that it is competition, not preemptive regulation from the FCC, that will solve the problems that consumers are most concerned about. And that's exactly what this FCC has done under my leadership over the past year, promoting much more fixed wireless competition, satellite competition, and small company competition in terms of wireline and cable infrastructure in rural areas. And these are the ways to incentivize much more competition. Number two, if you look at where some of the smaller companies are that are struggling under these regulations, they are the ones who say, "if you relieve us of this regulatory burden we are going to invest in rural America in other parts of the country where there isn't sufficient competition."
Wood: So your order doesn't just remove Title II classification and the Open Internet Order. It also rolls back bans as far back as 2005 on throttling and blocking certain types of content. Is there evidence that those rules were harming innovation?
Pai: There is no such ban. The ban we are talking about — all of these regulations dated to 2015. I know some have peddled the misinformation again that these regulations are older than that. But there were no such rules prior to 2015. And secondly, what we want to do is empower the Federal Trade Commission, once again, to be an effective cop on the beat for competition and for consumer protection. Prior to 2015, the FTC itself instituted a number of different actions against internet service providers, including on the issue of throttling. They took action against AT&T, for example, and another wireless company called TracFone. And so I think the FTC is a very effective cop on the beat, if the FCC allows it to be.
Wood: Even if the if the FTC is enforcing the law, won't that happen after the fact, after some violations have already occurred or consumers have already been harmed?
Pai: Here I would comment for your listeners attention to a blog post by a Silicon Valley entrepreneur named Ben Thompson who writes a blog called Stratechery. And he said, and I quote, "Why Ajit Pai is right," and he explained that the question was before the fact regulation at the FCC vs. after the fact regulation at the FTC. And his argument was that the more careful targeted scalpel of FTC enforcement is appropriate. That is the best way to ensure that any competitive conduct is deterred, and to make sure that companies have the strongest possible incentive to deploy infrastructure. And as he put it, the preemptive regulation of the FCC might seem appealing, but it has very serious unintended consequences. When you preemptively declare every single company in the United States a monopolist and regulate them like a slow moving utility, unsurprisingly, a slow moving utility and an oligopoly in some markets is what you're going to get. And so I think that the FTC enforcement is a much better way, the scalpel of the FTC, as opposed to the sledgehammer at the FCC.
Wood: But even if some regulations go away, to make it easier for new competition to enter the broadband market, starting an ISP is still breathtakingly expensive and difficult. How long might it be before consumers benefit from increased competition?
Pai: Well, two different points. I think these heavy handed regulations make that business case even more difficult, and so it takes us in the opposite direction of getting more competition. Secondly, if you look at a lot of the initiatives we've engaged in over the past year in terms of directing federal subsidies to unserved areas to modernizing our rules to get consumers from copper to fiber, those are initiatives that are actively underway, and I would say in the coming years we are going to see massive investments in infrastructure, not just as a result of these internet regulations being removed, but because of those initiatives. And over time consumers will see the bang for the buck when it comes to broadband deployment.
Wood: What are the regulations? What is the biggest thing holding back ISPs right now?
Pai: I think the biggest thing is simply the regulatory barriers that stand in the way of broadband deployment. For example, if you want to lay fiber over a federal highway out in the west, first of all, you have to get approval from the requisite federal agency that might have title to the land. There might be state and local regulations that stand in your way. If you want access to the utility poles to string that fiber, you might have to get an agreement from the utility on reasonable rates and time for the attachment. And that's just for fiber companies. For wireless companies, there are other barriers that stand in the way. Satellite companies have to also negotiate the rights to the spectrum that is used. So I think it's very difficult in a lot of cases to get some of these regulatory barriers streamlined, such that we can preserve the public interest, but also to give these companies a chance to promote more access in parts of the country that often find themselves on the wrong side of the digital divide. And the FCC, a lot of the work that we have done, I would say the lion's share of the work this year, has been focused on closing that divide by modernizing our rules.
Wood: So one other argument that critics have raised is that investment, at least by big ISPs, is up. Comcast spent $7.6 billion on capital expenditures in cable during 2016, that's the most they've ever invested in a single year. Census data seems to show that investment during 2015 by telecoms were up more than $500 million from 2014. Where's the disconnect there?
Pai: If you look at our order, and for the first time, I have directed that these orders be made public to the American people to read it for themselves, you will see detailed analysis about how infrastructure investment is lower than it would have been because of these regulations. We point to the 5.6 percent decline in overall infrastructure investment. And we also observe that those studies purporting to show that there has been an increase actually count things like AT&T investment of billions of dollars in Mexico to upgrade its wireless networks. They also account for accounting changes by companies like Sprint moving handsets from operating expenses to capital expenses. None of those activities has anything to do with building an actual network in the United States. When you actually look at apples to apples comparison, you find that infrastructure investment is lower. That's part of the reason why I have argued that what consumers are most concerned about, which is getting access in the first place or getting more competition, those preferences are disserved by the heavy handed regulation. Let's focus on where we all agree, which is on the need for more infrastructure investment, and leave the sort of 1930s paradigm of utility style regulation behind.
Wood: Let’s just game plan some things in the short term in the next year — say, what if Comcast starts offering packages that include free streaming of NBC Universal programs, but they charge double or triple to add YouTube or Netflix?
Pai: And there again the Federal Trade Commission is directly empowered to take action against any conduct that is either anti-competitive under competition laws, or that it finds is an unfair or deceptive trade practice under Section 5 of the FTC Act. And they have a long history of doing this. They've instituted over 500 enforcement actions in history against some of these companies for certain practices they found to be hurting consumers and or competition. And that's exactly what they would do going forward.
Wood: And then I have to ask you about the comment period, this period of public comment where people have been able to weigh in on the rules. Many of those comments seem to have come from bots. What procedure do you have to evaluate the millions of comments you've received? And does this comment period matter?
Pai: It does matter. We received more commentary on this proceeding than any one that we've ever had in the past. And we have erred on the side of open participation. We want as many Americans to participate as possible. And if you look at the order again, every single proposition we make is footnoted, we include citations to the comments that we relied upon, and we sussed out in the record all of the comments that were touching on some of the issues that we raised back in May, when we kicked off this proceeding. So I'm confident that at the end of the day, when a court looks that this, or when the public looks at it, they will recognize that we relied on facts that are in the record and that are well substantiated and not on some of the other commentary that you referenced.
Wood: So are you saying you feel like you were able to differentiate the fake comments from the real comments?
Pai: Absolutely. We do not rely, for example, on the 400,000 comments purported to be from Russia and were in support of these internet regulations. We focused on the comments in the record that meaningfully grappled with some of the proposals that we teed up this past spring.
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