As the FCC weighs action on net neutrality, mobile app makers are paying close attention. Advocacy groups maintain that the only way to protect these companies is with new regulation that would classify the internet as a utility. But are regulated utility companies the right model for supporting innovation in this new marketplace?
The rise of the app ecosystem is an amazing success story. For an industry that didn’t exist seven years ago, its growth into a $68 billion economy has dramatically changed the way we communicate and access information. Its rise has also led to the emergence of a new class of entrepreneur. With few barriers to entry, access to the marketplace is limited only by the quality of invention and the hard work of creators. Unbound by location requirements, innovators have started new businesses in communities all around the country.
This ease of publishing is the primary reason an industry so large is dominated by small companies. The vast majority of apps are created by companies with fewer than 10 employees, and those that top the rankings are predominantly made by firms traditionally classified as small businesses.
In this new marketplace, open and accessible broadband is the lifeblood. Nearly all app commerce and activity travel through this medium, and the freedom of consumers to access these services in any location at any time is the heartbeat of our business.
In short, net neutrality is critical to the continued growth of the industry; but how we get there matters.
The recent spat between Netflix and Internet providers has been marked by dire predictions for the fates of startups and emerging companies.
Adoption of innovative changes and consumer choice through competition occur far less frequently in regulated utilities. And with broadband demand rising at near exponential rates, innovation will be critical to better manage data traffic that app companies need to meet consumer expectations.
Reclassifying broadband as a utility offers up another unwanted outcome: litigation. That’s because the courts have repeatedly upheld the FCC’s existing authority to address net neutrality concerns. So if not through the utility model, how can the FCC protect net neutrality?
The Federal Communications Commission derives statutory authority to regulate broadband from the Telecommunications Act requiring it to “promot[e] competition in the telecommunications market” to ensure reliable broadband access. The Tenth Circuit has further ruled that the Act “appears to operate as an independent grant of authority to the FCC ‘to take steps necessary to fulfill Congress’s broadband deployment objectives.’”
Most important to today’s debate, the D.C. Circuit has affirmed that the FCC’s authority to “promulgate regulations that promote broadband deployment encompasses the power to regulate broadband providers’ economic relationships with edge providers.”
The commission’s only challenge came from D.C. Circuit decision Verizon v. FCC that rejected an attempt to prohibit Internet providers from charging edge network fees. The D.C. Circuit maintained that such actions would impose common carriage obligations to broadband providers which was impermissible under the statute.
The court took great care in its decision, however, to outline an alternative method to regulate edge network fees. It pointed to the 2013 Cellco decision where the court approved the FCC’s prohibition of “commercially unreasonable” conduct.
While the FCC could choose the more difficult path of reclassification, the courts have indicated this is unnecessary. Moreover, any effort to force industry incumbents into a utility regime would be met with fierce opposition and litigation. Startups would face years of waiting before they learned how net neutrality would be enforced.
The courts have made clear that net neutrality and the issues around edge providers can be addressed under current law. Regulatory authority already exists within the FCC, and even the Federal Trade Commission, to prevent the abuse of network resources to block competition and innovation.
If the goal is to protect small companies and competition, then the path that avoids years of uncertainty and court proceedings would seem to be the best route.
Dave Noderer is a founding member of the Florida Chapter of the Internet Society and president and CEO of Computer Ways, Inc.