California's Net Neutrality Law Is A Bad Idea -- It's Also Illegal

Posted on on Oct. 8th, 2018

california's net neutrality

California’s technology and Internet firms are worth trillions of dollars. The state is the worldwide home of the smartphone, search engine, and social network. Of the state’s 40 million citizens, 95 percent have access to both residential broadband and fast LTE mobile networks. In urban areas, according to the Federal Communications Commission’s most recent broadband report, that figure is 98 percent.

One could be forgiven for thinking that the Internet in California is humming right along. In fact, California is the biggest example of America’s 25-year Internet success story. The U.S. largely got Internet policy right, and did so in a mostly bipartisan way. It is thus strange that California felt the need for a new “net neutrality” law, signed by Gov. Jerry Brown just last week, attempting to override the successful federal communications policy.

It won’t work. Because it’s a bad law. And because it won’t be law for very long. The Justice Department just sued to invalidate Senate Bill 822 based on the Constitution’s Commerce Clause and specific statutes giving the FCC primary authority in this realm.

For the last 15 years, net neutrality regulatory proposals have been a solution in search of a problem, unwieldy sledgehammers in search of a gnat. In the most abstract and benign sense, net neutrality means a free and open Internet. And that’s what we’ve always enjoyed. Since broadband became the cable and telco firms’ most popular product, beginning in the 1990s, the business model of Internet service providers has been a free and open Web. A free and open Internet was demanded by American consumers, who generate, both in per capita and per user terms, far more Internet data traffic than anyone else on earth. There simply is no blocking or throttling at the network level.

At the level of legislation and regulation, however, net neutrality has meant something far different. The FCC’s 2015 Title II Order showed us what net neutrality means in practice – complex rules, suspicion of consumer friendly options like “free data,” asymmetric regulation, micromanagement of network interconnection, potential price controls, and bureaucratic supremacy.

The 2015 rules, against all law and experience, reclassified both wired and wireless Internet as Title II telephone services. Network investment fell as soon as the rules went into effect but is now rebounding, after the FCC repealed the short-lived rules in 2017. California’s new statute, which exceeds even the 2015 rules in its regulatory aggression, appears an effort to resist policies at the partisan level without regard to technology, economics, evidence, or law.

If ever there were an economic good that fits the definition of interstate commerce, the Internet is it. The Constitution gives Congress authority over interstate commerce, and for good reason. Even hundreds of years ago, we knew that patchwork or parochial laws could discourage the free flow of goods and services across state boundaries. This idea is doubly true in an information economy. The Internet is inherently borderless, and efforts to regulate it state by state make no sense – technically, economically, or legally. Can you imagine trying to govern quintillions of bits and bytes, traveling at near light speed, through the air and down optical fibers, across state lines and around the world, using one state’s ill-considered law? California is attempting to grasp the ungraspable Internet cloud.

In the 1996 Telecom Act, Congress declared broadband Internet access a Title I information service, which means neither the states nor the FCC can regulate like they would the old telephone networks. The FCC does have some authorities, but it cannot impose complex economic regulation, and the states most certainly cannot. The 2017 Restoring Internet Freedom Order reaffirmed the Internet as an information service. And as a triple layer of protection, the 2017 Order contained a specific clause preempting “state or local measures that would effectively impose rules or requirements that we have repealed or decided to refrain from imposing in this order or that would impose more stringent requirements for any aspect of broadband service that we address in this order.”

This used to be an uncontroversial, bipartisan idea. The Democratic FCC Chairman Bill Kennard weighed in on this matter in the late 1990s. He was in the middle of the original debate over broadband and argued firmly that high-speed cable modems were subject to a national policy of “unregulation” and should not be swept into the morass of legacy rules.

In a 1999 speech, he admonished those who would seek to regulate broadband at the local or state level:

'Unfortunately, a number of local franchising authorities have decided not to follow this de-regulatory, pro-competitive approach. Instead, they have begun imposing their own local open access provisions. As I’ve said before, it is in the national interest that we have a national broadband policy. The FCC has the authority to set one, and we have. We have taken a de-regulatory approach, an approach that will let this nascent industry flourish. Disturbed by the effect that the actions of local franchising authorities could have on this policy and on the deployment of broadband, I have asked our general counsel to prepare a brief to be filed in the pending Ninth Circuit case so we can explain to the court why it’s important that we have a national policy.'

Twenty years later, the national policy is likely to prevail once more. In its suit against California’s new law, the Justice Department has yet another arrow in its legal quiver. As Boston University law professor Daniel Lyons notes, California can’t even argue that the FCC’s preemption order is invalid. “The Hobbs Act,” he writes, “prohibits California from making this argument in this proceeding. The Hobbs Act vests exclusive jurisdiction in the circuit courts of appeal to ‘enjoin, set aside, suspend (in whole or in part), or to determine the validity of’ FCC orders.”

“The Justice Department is likely to win its motion,” Lyons concludes. And the Internet will remain free and open. Even in California.