FCC Made Mistake in 2015 Net Neutrality Order, Pai Tells MWC; Wheeler Disagrees

Pai said in an interview with Bloomberg that it will be difficult to get companies to invest in unserved areas of the U.S. In a second interview for Bloomberg, ex-Chairman Tom Wheeler said the FCC must make sure “the pipes are open,” and overturning the net neutrality order will be a long process subject to judicial review.

“The key to realizing our 5G future is to set rules that will maximize investment in broadband,” Pai said, according to written remarks. “If we don’t, the price could be steep. After all, networks don’t have to be built. Risks don’t have to be taken. Capital doesn’t have to be spent in the communications sector.”

In the U.S. “we are in the process of returning to the light-touch approach to regulation that produced tremendous investment and innovation throughout our entire Internet ecosystem,” Pai said. He sought a vote last week on staying parts of ISP privacy rules set to take effect Thursday(see 1702240055). He's expected to move soon to reverse the Wheeler FCC’s reclassification of broadband under Title II of the Communications Act. “Rules developed to tame a 1930s monopoly were imported into the 21st century to regulate the Internet,” Pai said. “This reversal wasn’t necessary to solve any problem; we were not living in a digital dystopia.” Reclassification proved to be a mistake, he said. “Our new approach injected tremendous uncertainty into the broadband market,” he said. “Uncertainty is the enemy of growth.” Since 2015 and reclassification, the U.S. had the first-ever decline in investment in broadband absent a recession, Pai charged.

The regulator said he wants the FCC to return to policies that worked, including facilities-based competition. Pai said he also supports flexible-use spectrum and recognizes the need to get more spectrum for wireless broadband. The FCC authorized carriers to launch 5G trials at cell sites across the U.S., Pai said. “They will be starting those trials by the middle of this year.” The agency is also considering “whether to open up even more spectrum in the millimeter wave bands for 5G and other uses,” he said.

Wheeler Responds

Wheeler said that it's “highly dangerous” to let a few major ISPs determine who will get on their networks and who the winners and losers will be. “We will not have the kind of economic growth, we will not have the kind of innovation that is necessary, if we don’t have networks that are fast, fair and open,” Wheeler said in a streamed interview. Wheeler keynoted a session at MWC last year.

Europe’s open internet plan followed the launch of the FCC 2015 order and was based on that order, Wheeler said. “I actually came over several times and sat down and helped them work through it,” he said. “You’ve got to make sure the pipes are open,” he said. “We can’t be sitting in a situation where somebody who owns the pipes is determining what’s going on, what’s going over those pipes,” he said. “Two guys and a dog in a garage are working on something right now that you and I have never thought about, that is going to be transformational. … They need to be able to get on the network without permission.” Wheeler also said it was unfortunate that his successor “shut down” his regime’s look at zero rating (see 1702030070).

The ex-FCC chairman said he hasn’t given up hope that the net neutrality order will survive. The Administrative Procedure Act stipulates how regulatory agencies have to act and the need to build a record, and provides for judicial review, Wheeler said. “When we put out our open internet rules, we built an extensive record and it was reviewed and affirmed strongly by the court.” The Pai FCC will have to make the case things have “changed so dramatically” in just a few years it's reversing those rules, he said. “This is going to be a long process,” he said. “We’ll see what the record is. We’ll see what the court appeal is and then we’ll see where we end up.”

Pai said the extent of new communications dealmaking is up to the private sector. “My job is a very humble, and frankly boring one, which is simply to review the papers that are put before me, take a look at the facts, and make a decision based on the law and the precedents that are long established,” he said. Pai said he can't “opine in the abstract” about any transaction.

The regulator declined to say whether three, rather than four, national wireless carriers is enough to guarantee competition. Pai said he specifically couldn’t weigh in on a possible Sprint and T-Mobile deal absent a filing by them. “The current wireless marketplace in the United States is extremely competitive,” he said. After the FCC dropped its zero-rating investigations, all four national wireless carriers unveiled unlimited data plans, he said. “That’s a good thing for consumers.”

There's consensus about the need for a free and open internet, Pai said. “The only question is what regulatory framework can we adopt that both protects that core value and preserves a massive incentive to invest in infrastructure across the United States.” Pai said the FCC will do what it can to spur investment in rural markets and he hopes broadband will be part of an administration infrastructure plan. “It’s a hard issue,” he said. The parts of the U.S. without broadband “are harder to serve for a reason,” with lower population density and a lower return on investment, he said.

Former Commissioner Robert McDowell defended Pai. "This is Ajit's first detailed and eloquent outline of his vision for America's broadband future as chairman,” McDowell, now at Cooley, told us. “None of the substance should come as a surprise because he has been saying these types of things since 2012. His tone is inclusive, optimistic and inspiring and that will serve him well as he advances his policy agenda."

Critic Unloads

Public interest groups slammed the speech.

“Chairman Pai wants people to believe that he’s a champion for more open and affordable broadband,” said Matt Wood, Free Press policy director, in a news release. “The actions he’s taken since becoming chairman last month show he’s anything but. Using the exact same kind of unilateral power plays he previously decried in other chairmen, he’s made it far more difficult for low-income families to take advantage of a program that makes broadband access more affordable.”

The chair “rightly emphasized how FCC efforts to free up more spectrum with flexible rules, both licensed and unlicensed, has facilitated U.S. leadership in 4G deployment and 5G development,” said Michael Calabrese, director of the Wireless Future Program at New America. “He raised some eyebrows, however, when he seemed to suggest that his unexplained reversal of the Wheeler FCC’s position on zero rating last month led U.S. carriers to adopt ‘unlimited’ data plans. Given that European carriers at Mobile World Congress are calling for greater industry consolidation, it would have been helpful if he had correctly explained that unlimited data has been a competitive tactic resulting from maintaining a four-carrier U.S. market, particularly T-Mobile’s uncarrier campaign unleashed by FCC rejection of its acquisition by AT&T.”

"Claims or implications that reclassification or the FCC's net neutrality rules have led to reduced investments in broadband networks are unsupported by the evidence and contradicted by the statements of ISP executives to shareholders and investors,” said Phillip Berenbroick, senior counsel at Public Knowledge. “Broadband remains an enormously lucrative business, and the FCC's efforts to protect the open internet have done nothing to change the economics of broadband deployment or expected return on investor capital.”