The Real Cost of Regulating the Internet.

imageThe open Internet debate has long focused on protecting content developers from discriminatory treatment by Internet service providers (ISPs). Those who advocate in favor of strong network neutrality rules typically argue that “the next Facebook” or “the next Google” will never see the light of day in a world where ISPs can arbitrarily block or slow down access to new sites. Consumer benefits are decidedly secondary in this line of argument – consumers will benefit only if content companies benefit. With talk of the Federal Communications Commission (FCC) looking to impose sweeping net neutrality rules, which would entail regulating broadband Internet connections as something akin to the rotary telephone, the question of consumer impacts necessarily arises. Will consumers benefit from this approach? According to one recent study, the answer is a resounding “no.”
Left unaddressed in the advocacy in favor of such stringent rules is the actual cost of the rules for consumers. The Progressive Policy Institute (PPI), a liberal think-tank in D.C., set out to explore how the implementation of so-called Title II open Internet rules would impact Internet customers’ bills. The conclusion? Internet bills will rise significantly if the FCC goes down the Title II path. More specifically, those with a wireline connection at home – cable, DSL, or fiber – will see their bills increase by an average of $67 per year, while the bills of those with mobile broadband will increase by $72. These increases would stem from a range of new taxes and fees levied on Internet connections by local, state, and federal government. In short, the very act of opening the door to Title II would unleash dozens, if not hundreds, of levies that were originally meant for more basic communications services.

The application of these taxes and fees to broadband connections would be a rational response by state and local policymakers, who are always looking to bolster revenues, especially at a time when government finances remain volatile. But these new fees would be on top of already high tax rates for mobile communications services, which are among the most heavily taxed services in the country. According to MyWireless.org, consumers in every state must pay a wireless tax in addition to federal fees associated with supporting the Universal Service Fund (which currently stand at 5.82%) and sales tax. Taken together, these wireless-specific taxes can add as much as 25% to monthly bills. By applying Title II to mobile broadband, the FCC would open the floodgates to further taxation of these already burdened services.

Although all consumers would feel the pain of higher bills, minority and low-income consumers would feel the brunt of it. Blacks and Hispanics rely on mobile broadband to access the Internet more than most other groups. Their use of smartphones and wireless data networks has long been understood as a critical on-ramp for participating in our digital society, especially since adoption rates of wireline broadband connections in their homes have long lagged rates in most other households. Applying Title II to their wireless connections would thus encumber these communities more than most. Similarly, for low-income households that are already struggling to pay their mobile bill, higher prices resulting from the application of Title II would operate as a regressive tax increase.

These are more than hypotheticals. These are likely outcomes that can be avoided. The FCC does not have to use Title II to achieve what it wants to achieve. It can protect the open Internet by developing rules that rely on a different part of federal law – section 706 of the Telecommunications Act. Doing so would allow the FCC to move forward with new rules without opening the door to a slew of new taxes. This approach would also avoid having to treat broadband, the most dynamic communications technology in history, to rules that were developed during an age dominated by basic telephone service. For these many reasons, the FCC should embrace section 706 and explicitly reject Title II. Such an approach will put consumers first, which is how it should be.