“The internet we know wasn’t built by firms requesting bureaucratic approval for every move,” observed Judge Stephen Williams in an opinion last week. The bad news is it was a dissent, from a decision upholding new Federal Communications Commission regulations that are already stifling internet investment, innovation and competition.  The 184-page ruling by two Democrat-appointed judges is a sobering read for technologists and internet users. “We do not inquire as to whether the agency’s decision is wise as a policy matter,” they admit. They stress the Supreme Court’s “highly deferential standard” for reviewing supposedly independent and expert regulatory agencies.  Judge Williams, a Reagan appointee, called the new regulations so arbitrary and capricious the FCC should lose its deference from judges. The Supreme Court should now take the case on appeal to rule what “deference” is owed when an agency sacrifices its independence and rejects its experts.  In 2014 President Obama demanded that the FCC regulate the internet as a utility, under laws written for railroads and the early telephone monopoly. A congressional investigation concluded the White House “bowled over” FCC objections. The commission’s Democratic majority ignored decades of agency analysis to adopt Obamanet, granting bureaucrats broad discretion to set rates, regulate prices, ban offerings, second-guess business models, and prohibit any innovation that violates a vague new “General Conduct” standard.  Congress never intended such regulation. The Telecommunications Act of 1996 declared the internet will be “unfettered by federal or state regulation,” except to “promote competition.” The FCC “specifically forswears any findings of a lack of competition” on the internet, Judge Williams noted.  The chief economist at the agency later called the regulations “an economics-free zone.” Judge Williams noted the FCC’s “utter disregard” for the expert analyses: “The silent treatment given to three of its former chief economists seems an apt sign of the commission’s thinking as it pursued its forced march through economic rationality.”  Judge Williams’s dissent is rich in telecommunications law and economics. He warns Silicon Valley about the style of micromanagement it can expect under a utility-regulation regime. He cited a late-night call in the 1970s to the head of the now-defunct Civil Aeronautics Board from an airline asking about its application to transport sheep from Virginia to England, which was urgent because the ewes were in heat.  Obamanet will entrench established companies and suppress startups. Regulations are “more burdensome for small firms than large,” Judge Williams observed. Established companies are “accustomed to having their lawyers suit up, research all the angles, participate in proceedings after notice has been given to all potentially adversely affected parties, and receive, after an indefinite stretch, a green light or a red one.”  The regulations arbitrarily bless some internet “fast lanes” while banning others. Telecom entrepreneur Daniel Berninger explained in a court filing that he can offer a new high-quality telephone service only if he’s allowed to pay network operators for sufficient bandwidth to prevent “latency, jitter and packet loss.” Such “paid prioritization” is arbitrarily banned under the new regulations. “Berninger appears to be exactly the sort of small, innovative edge provider that the commission claims its order is designed to assist,” Judge Williams wrote. “In the words of Shel Silverstein ’s children’s song, ‘Some kind of help is the kind of help we all can do without.’ ”  Netflix was the loudest lobbyist for Obamanet, but its crony capitalism will backfire if a future FCC invalidates its huge contracts with content-delivery networks that speed delivery of its video. “If caching is a form of preferential treatment—and I cannot see why it is not—then paid access to broadband providers’ caching facilities violates the paid prioritization ban,” Judge Williams observed.  Overregulation will also discourage broadband investment. Economist Hal Singer calculates capital investment by the top dozen internet service providers fell in 2015 as Obamanet was being adopted—the first decline since 2004.  Judge Williams warned the new regulation “shunts broadband service onto the legal track suited to natural monopolies,” which “provides little economic space for new firms seeking market entry or relatively small firms seeking expansion through innovations in business models or in technology.” The regulations will result in “the prevalence of incurable monopoly.”  In a better-functioning Washington, Congress would immediately reconfirm its 1996 legislation to restore the internet as a haven for permissionless innovation. The Supreme Court is the likelier salvation. The justices should refuse to defer to a regulatory agency that is neither independent nor expert.  Until then, Silicon Valley is on notice that Washington is now in the business of picking its winners and losers.
Information Age columnist L. Gordon Crovitz writes about the D.C. Circuit upholding the Federal Communications Commission’s net-neutrality regulations: The FCC’s rules will stifle the internet and discourage investing in broadband.