Is Broadband Internet A Public Utility?

With the FCC nearing a vote about proposed net neutrality regulations, Chairman Tom Wheeler issued a series of revisions to the proposal this week. The most interesting revision that Wheeler offers is an examination of whether or not net neutrality is the jurisdiction of the FCC at all. He invited public comments as to whether broadband Internet service could actually be a public utility, similar to gas, water, sewage treatment, and electricity. If broadband Internet is reclassified as a public utility, Internet service providers would be subject to stricter and more developed regulation, far beyond the scope of what the FCC can manage.

While a reclassification has not yet been made, the proposal does open the door to a discussion about the future of the Internet and what role it plays in our lives.

What's the argument?

There are two fundamental schools of thought when it comes to regulation: those who believe broadband should become a public utility, and those who believe broadband providers should be regulated via antitrust and consumer-protection laws. Neither approach is without flaws, but it is really too late to say which is the better approach: Broadband is arguably already a public utility, even if it may not be considered as such by the law. 

Why should it be a public utility?

On the side of the "public utility" argument are those who believe that broadband influences life and industry as we know it to such a degree that it needs to be regulated carefully and strictly by a government entity. They believe this is the most direct way to ensure net neutrality, as under the supervision of the FCC, paid prioritization cannot be properly regulated. 

But aren't all public utilities really monopolies

The greatest issue with deeming broadband Internet a public utility is the inherent monopolization in this space; both natural monopoly and regulated private monopoly. While some may distinguish between the two, they are truly the same in many ways — and there lies the problem of deeming Internet a public utility.

As Forbes' Tim Worstall artfully describes: "In the U.S. a utility is usually made up of two things, power generation and power distribution. It is true that, to a very large extent...power distribution is a natural monopoly." A natural monopoly can be created when one service is far above and beyond the others in efficiency and size, or far more reasonable in cost. However, regulated private monopolies become natural monopolies because of the power distribution channels. There is not enough to be gained, both monetarily and in the sense of power, to have two competing distribution channels. In the end, the companies congeal, forming monopolies. 

So is broadband already a monopoly?

These distribution channels are already limited in the broadband space. There are only a handful of key players nationwide: AT&T, Comcast, Verizon, and a few other regional companies. Broadband providers have found a way around the monopolization issue, by dividing the country up into regions and cities that one company controls, rather than trying to compete for the nation as a whole. In most areas, when it comes to providers, you really have one choice. Sometimes a second may be available, but it is vastly less popular than the first. Others are free to enter the market, but rarely do. This way, the company can argue they are not a monopoly because they have "competition," but only one continues to dominate the marketplace. Standard Oil did something similar. 

"Competition" also has not evolved for about fifteen years. As Tim Wu, Columbia Law School professor, notes, "For 15 years, consumers have been waiting for serious competition to arrive, yet there is now less competition than ever. It's time to face facts: Broadband is a utility and ought to be treated as such by the Federal Communications Commission."

What's more, during those past fifteen years, the existing companies have had the opportunity to build relationships which mutually benefit one another. These major providers already dominate the space and mostly work together to secure that; seeing one another as members in a flexible monopoly rather than as competitors. Susan Crawford, a tech policy expert and professor at Cardozo Law School, made this point by noting that Verizon sells Comcast's cable service and Comcast sells Verizon’s wireless service. "Fierce competitors don’t offer to sell each other’s products."  In this sense, broadband has become a natural monopoly over time. 

There is also the case of pricing. The cost of broadband to providers is about $5 per month. It is sold, on average, for $50 a month. Inflated pricing is one of the most common features of a monopoly, both natural and privately regulated. 

So if broadband is monopoly, why isn't it a public utility?

Wu, who coined the term "net neutrality," makes the simpler argument that broadband is a public utility simply because it is already used as such: "It is hard to live or do business without the Internet, and the degree to which we take it for granted suggests broadband is an essential part of the U.S. infrastructure." If it walks like a duck, and talks like a duck, it's a public utility. 

Ultimately, the key point in determining if broadband is an existing public utility is the providers' use of their power. As Wu points out, "Broadband operators today own the effective bridges to the American home, and they have shown an inclination to use that power." Broadband providers have already bullied, so to speak, Netflix into paying a premium to ensure high quality streaming.

But it's not legally recognized as a public utility, yet 

The formal reclassification has not occurred, and perhaps broadband will never be legally recognized as a public utility. Berin Szoka, president of TechFreedom, a tech policy think tank, believes this official recognition should never occur as it would quash innovation. Broadband providers naturally agree with his take. They have opposed becoming a legally recognized public utility because they believe it will cause "innovation and investment to collapse." 

Szoka argues that public utility regulation, which as we said is very strict and highly enforced, operates under the assumption that "competition is impossible — and keeps it that way." Utility regulation keeps legacy powers in place and prevents new challengers from arising. 

However, even without that regulation, competition in broadband has been relatively impossible to come by. A new company has not emerged on the market in years, and consolidation, like the recent Comcast purchase of Time Warner, continues. Even FiOS, the main alternative to broadband cable, only has an 8 percent market share.

So what do we do now? 

As it stands, broadband providers have been having their cake and eating it too: they receive the gains of a market monopoly; the ability to innovate that comes without strict regulations; and freedom to operate without heavy oversight. Considering how turbulent the debate over modest FCC proposals have been, and the lawsuits the providers would certainly wield over reclassification, it seems Wheeler's encouragement of discourse around the public utility option is a strategic move rather than a call to action. Some believe Wheeler is wielding reclassification as the ultimate threat to broadband providers to behave and refrain from breaking the paid prioritization regulations he has set forth for the FCC to review.

Even if the FCC pushes for a reclassification of broadband as public utility, the providers have the right to a legal fight. While they battle in court (a fight that would take years to resolve) status quo will remain, allowing the sort-of monopoly to continue to exist and profit while the legality is debated. It would become one of the most important "what should we call me" battles in recent history, but in practice, that battle is already over.

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