For consumers, Title II common carrier universal service obligation far more important than net neutrality

U.S. Federal Communications Commission Chairman Tom Wheeler’s trial balloon proposing to place monopolistic Internet service providers under Title II of the Communications Act and subjecting them to common carrier utility regulation has generated considerable discussion and media coverage of net neutrality – the principle that all Internet traffic be handled equally by Internet Service Providers (ISPs). The net neutrality issue applies at the deeper layers of the Internet affecting business relationships between core content providers like Netflix and Yahoo and so-called “transport layer” players like Level 3 Communications, Verizon and AT&T. Wheeler proposes that Title II regulation would enable the FCC to place rules on these arrangements to ensure they are “just and reasonable” and prohibit blocking, throttling and paid prioritization.

All the discussion over net neutrality however has overshadowed a far more important element of Title II that would apply to common telecommunications carriers -- which ISPs would be deemed if the FCC ultimately adopts rules later this month placing ISPs under Title II. ISPs would no longer be able to serve only parts of communities and even portions of roads and streets, a problem the FCC recognizes leaves millions of Americans unserved by wireline Internet connections in a report issued last month. Like telephone providers currently subject to universal service mandates under Title II regulation, any premise would be able to order Internet service meeting specified standards. ISPs aren’t going to like the disruption that brings to their business models based on market segmentation and redlining less densely populated – and desirable -- neighborhoods. Even municipally-operated ISPs don’t relish the prospect, filing a letter this week with the FCC opposing a potential Title II rulemaking:

“[W]e fear that Title II regulation will undermine the business model that supports our network, raises our costs and hinders our ability to further deploy broadband…Our ability to repay current debt obligations and raise capital at attractive rates could well be adversely affected if we lose control over our retail rates or the use of and access to our networks.”

Some believe the universal service requirement will be applied only relative to eligibility for federal infrastructure subsidies for high cost areas offered through the FCC’s Connect America Fund (CAF). If that ends up being the case in whatever rules the FCC ultimately adopts, it won’t likely move the needle much to speed up infrastructure deployment to these areas since there is little business incentive for ISPs to tap into the grossly underfunded CAF as they concentrate on select wireline market segments and mobile wireless services.