President Joe Biden’s big plans for the Federal Communications Commission, including the reimposition of so-called “net neutrality” rules that were rolled back during the Trump years, may finally move forward if the U.S. Senate agrees to confirm Biden’s recent nominee Anna Gomez to be the commission’s fifth member and decisive vote.
A history of support for net neutrality was one of the things that ultimately doomed the confirmation prospects for prior nominee Gigi Sohn, who withdrew her name in February, 16 months after Biden originally nominated her. Senators are sure to press Gomez for her thoughts on the same issue, as they should, but it’s not the only matter deserving of scrutiny. As policymakers continue to explore ways to expand affordable internet access, they should also determine where Gomez stands on the key issue of rate regulation.
The price of internet service in the United States has increased by less than 1% annually, or less than half the rate of overall inflation. Nonetheless, an almost irresistible urge to impose rate regulation lurks around many broadband policies.
Rate regulation can take many forms. The most obvious are overt price controls, such as price ceilings, price floors, and quality mandates. Some of these rules provide short-run benefits to certain groups, but they often result in shortages or surpluses that hurt consumer welfare overall. In the long run, rate regulation tends to distort the allocation of resources, leading to underinvestment or overinvestment.
Direct rate regulation generally has fallen out of favor across most sectors of the economy since the late 1970s, although there are some exceptions. Because the costs of overt rate regulations are so well-known, price controls are often buried under layers of bureaucracy or wrapped in with other policies and programs that amount to de facto rate regulation.
For example, the FCC’s 2015 Open Internet Order that created the commission’s net-neutrality regime explicitly put off direct rate regulation, but it imposed many of the same effects. The order introduced the Internet Conduct Standard, a vague rule that prohibited broadband providers from “unreasonably interfering or disadvantaging” major consumers of broadband capacity, such as Netflix and YouTube.
When AT&T acquired DirecTV in 2015, it announced that use of DirecTV wouldn’t count against AT&T mobile customers’ data caps, a practice known as “zero rating.” AT&T didn’t block Netflix or YouTube, but use of these services would count against the data caps. The FCC told AT&T that the company’s use of zero rating likely violated the Internet Conduct Standard, effectively walking right up to the line of explicit rate regulation in the form of a price floor.
More recently, the National Telecommunications and Information Administration, where Gomez was deputy administrator during the Obama administration, told states and territories looking to access grants from the $42 billion Broadband Equity, Access, and Deployment program that they would need to include a “middle-class affordability plan” that ensures consumers have access to “affordable high-speed internet.” While the infrastructure bill that created the BEAD program explicitly prohibits price regulation, the NTIA’s approval process appears to envision exactly this.
The U.S. Department of Agriculture similarly gives preference to applicants to the USDA’s ReConnect Loan and Grant Program for rural broadband deployment who agree to abide by net-neutrality rules, including awarding additional points to applicants who provide a “low-cost option.” Recent rounds of the grant program have required projects to provide broadband access with upload and download speeds of at least 100 Mbps. This amounts to a kind of back-door rate regulation, with both a quality mandate and an informal price cap.
To be sure, it’s appropriate for policymakers to focus on improving internet affordability. About one-third of households without at-home internet claim that price is a factor. And it’s not just low-income households. Approximately 17% of people with incomes above $100,000 say they can’t afford at-home internet, according to the U.S. Census Bureau.
But rate regulation is likely the worst way to achieve the goal of greater broadband access and affordability. The public deserves to hear from the nominee how she would approach such issues.