FCC Ruling Gives States More Power to Regulate Internet

A couple of weeks ago, a relatively quiet vote by the Federal Communications Commission (FCC) to move forward on a proposal could have big implications on how we use the internet and how it is regulated in the future. The proposal would roll back rules that were put in place during the Obama administration regarding net neutrality. It will now move into the official public comment period before the final vote.

Some background:

In 2010, the FCC passed the Open Internet Act to ensure “net neutrality,” which effectively bars Internet Service Providers (ISP’s) from using their status as gatekeepers for additional profit. That is, they can’t engage in any paid prioritization or content blocking. For example, a company can’t pay an ISP to make their website run faster than others or an ISP can’t ban its customers from accessing a site like Google if Google refuses to pay.  ISP’s are companies like Verizon and Comcast that sell internet access via a mobile or fixed line connection. Ultimately, because ISP’s control internet access, they have a lot of power to shape how people experience online content.

In 2011, Verizon sued on the grounds that this type of regulation was outside the FCC’s jurisdiction. To get around this, in 2015, ISP’s were re-classified under Title II of the Communications Act of 1934 as “common carriers,” which was legal jargon that essentially gave the FCC jurisdiction to regulate ISP’s and enforce net neutrality.

However, ISP’s and FCC Chairman Ajit Pai saw Title II as a hindrance to growth, pointing out that a lighter touch would “remove regulatory barriers to broadband deployment.” Which brings us to today: under Pai’s direction, the Federal Communications Commission voted 2-1 to roll back Title II regulations on Internet Service Providers.

Where do states fit in?

This contentious tug-o-war unfolds at the federal level, with states seemingly limited to the sidelines. There are, however, several examples of states engaging in “light touch” internet regulation:

  • On February 1st, 2017, New York Attorney General Eric T. Schneiderman filed a lawsuit to take on Spectrum (formerly known as Time Warner Cable). His suit alleged speeds for premium plans were 70 percent slower than advertised, and that Spectrum-TWC committed fraud because they knew such speeds couldn’t be reliably delivered. The ability of Attorneys General to hold ISP’s accountable should not be overlooked.
  • On September 25th, 2002, California Senate Bill 1386 was passed to protect personal information online. SB 1386 stated that any entity doing business in California would have to notify all registered users were its data breached in an unauthorized way. This allows users to change compromised passwords and double-check credit card information. The law was so well received that many websites opted to make data breach notification standard nationwide, and most states have since adopted similar laws.
  • In 2009, South Carolina Attorney General Henry McMaster was the catalyst in a movement that convinced Craigslist to erase its “adult services” section on the grounds that Craigslist was facilitating prostitution. At first Craigslist resisted, even citing several federal laws that protected them. Craigslist had a point: some state internet laws have been ruled unconstitutional by courts for violating the Dormant Commerce Clause. This clause is what prevents states from passing legislation that impacts how businesses operate outside their borders. Craigslist’s CEO explained that turning off a portion of the site just for South Carolinians was impossible. Yet, mounting pressure from other states led Craigslist to axe the controversial section for the entire country.

This last example isolates the most powerful way states impact the internet: simply, the customer’s always right. When state-elected officials honor the desires of their constituents, it means proposed bills or litigation serve to amplify what consumers want in the free market. Craigslist didn’t get rid of its adult services section because of overbearing regulation—they shut it down because they realized it was becoming bad for business.

Similarly, most websites opted for data breach notification policies, even outside of California, because it became a common courtesy that users wanted. Tom Patterson, Vice President of Security Solutions at Unisys, pointed out that in the absence of a federal law “states are taking matters into their own hands and trying to do things to better protect their citizens.”

New York’s Attorney General’s action toward Spectrum-TWC will more than likely alter the telecom giant’s behavior in the future. On top of potentially facing monetary fines, the free market could punish Spectrum-TWC for damage to its image, even if the telecom industry is relatively monopolistic.

The state’s ability to regulate the internet with a light touch will be more important as smoke clears around the FCC’s decision to roll back Title II. This returns the internet to how it was pre-2015, when the Federal Trade Commission and states were trusted with internet regulation on a case-by-case basis. A congressional bill or Supreme Court decision may bring more stability to this issue, but until then (and afterward) we’ll see what our laboratories of democracy come up with.