The Biggest Threat to US Internet Companies Now – Fortune

The decade-long debate over network neutrality reached a moment of truth earlier this month when a federal appeals court in Washington, D.C., heard oral arguments in the judicial challenge to the open Internet rules adopted by the Federal Communications Commission (FCC) in February. Admittedly, the questions that judges ask often provide little guidance as to what they will eventually decide. But both proponents and opponents of network neutrality agree that the FCC had a tough day.

The court focused attention on three aspects of the FCC’s order. First, the judges questioned the agency’s authority to regulate the handling of traffic within fixed-line networks, such as cable modem or DSL systems. Second, they challenged the propriety of the rules mandating network neutrality within wireless networks. Third, they scrutinized the rules governing interconnection, which is how networks exchange traffic with each other.

Read more: Like It or Not, Net Neutrality is Here to Stay

The judges seemed to challenge the agency hard on the second and third issues, the ones regarding mobile networks and interconnection. Their primary concern focused on certain last-minute changes to the order. Specifically, the judges questioned whether the public was given proper notice of those changes and whether the changes were properly integrated into the overall regulatory scheme. The FCC fared the best on the first issue, but even then it faced tough questions about why the scheme differed so much from the way the rules were initially proposed.

What might these questions signal for the future? Losing on any of these three issues would risk leaving the regulatory scheme incoherent. As one of the judges noted, striking down part of the rules would lead to the strange result subjecting people to one set of rules when using a cell phone connected to a cellular network and to another set of rules when the same phone is connected via WiFi, an occurrence common when users use phones in different parts of the same house. Similarly, rules that regulated how traffic is treated within a network would likely prove ineffective in preventing differential treatment if they could not also address the ways traffic gets to a network. The agency had to run the table if it was going to accomplish its goals, and it appears to have fallen short.

Many of these problems stem from the somewhat surprising decision to fold the Internet into the regime designed to regulate the traditional telephone system. This change represents a sharp break with a decades-long, bipartisan consensus that has created a vibrant online industry that is the envy of other countries and instead falls in line the approach followed by every other country in the world.

The change in approach represents substantial risk to the ethos of innovation that has created Internet companies that are the envy of the rest of the world. The approach followed by U.S. policymakers until February of this year left innovators free to experiment with new products and business models unless the new practice is shown to be harmful. In short, the default answer for innovation has been yes, allowing new services to emerge without asking anyone’s permission.

Allowing the Open Internet Order to stand in its current form risks reversing this presumption, changing the default answer from yes to no. As the judge presiding at oral argument noted, the FCC abandoned the blueprint for continuing the tradition of light-touch regulation that the court provided in its prior decision. Congress has long considered enacting new legislation instead of forcing the Internet into the old regulatory regime designed for the telephone system, but such a step seems unlikely in the current political climate. In the meantime, a judicial decision overturning the Open Internet Order in whole or in part might provide the first step to returning to the approach that has proven so successful.

Christopher S. Yoo is the John H. Chestnut Professor of Law, Communication, and Computer & Information Science and Founding Director of the Center for Technology, Innovation and Competition at the University of Pennsylvania.


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