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January 17th, 2018

Interview: Chip Pickering – Net Neutrality

Chip Pickering is the CEO of INCOMPAS, a trade association, formerly known as COMPTEL, that represents internet, streaming, communications and technology companies and advocates for laws and policies that promote competition, innovation and economic development across all networks. Pickering is a six-term Congressman representing Mississippi’s Third District from 1997 to 2009, where he served on the Energy & Commerce Committee as vice chairman and a member of the Telecommunications Subcommittee. While serving as a legislative aid for Senator Trent Lott and a staff member of the Senate Commerce, Science and Transportation Committee, Pickering helped shape the Telecommunications Act of 1996. We spoke to Chip at our office in early 2018, following the FCC’s vote to repeal net neutrality rules.

Chip Pickering

Why should people care about the FCC’s decision to reverse course on net neutrality?

PICKERING: Every small business today – every Realtor, every restaurant, every business imaginable – uses the internet as a platform of entry to a much larger market, one where there’s equal access, no matter whether you’re small, midsize or large, and the best idea, the best innovation, the best app wins. Even before we had the “commercial internet,” the internet’s founding principles were interconnection, interoperability and neutrality, or equality of content. Undoing those principles allows certain companies to have, in many cases, a gatekeeper function where they can block a competitor like a Netflix, Hulu or a new streaming service or disadvantage them so that the traditional cable bundle has an advantage. They can also now charge a small company differently than a large company, violating the principle of a level playing field and equal access to the market. The reciprocal access to a market is a cornerstone of free market economic theory.

If you allow incumbents a gatekeeper role, the incentive changes from one of building networks of great capacity to accommodate an abundance of commerce to an incentive to not upgrade networks so that you can monetize scarcity. The investments will be throttled, the innovations will be delayed, the competition will be denied, prices will go up, and the content that we have begun to love on our streaming services may be slowed. You have gatekeeper control of a handful of companies versus a broad-based competitive free market – not only for video content, but also for the platforms small to midsize businesses need and equal access so that they’re not disadvantaged in comparison with their rivals in a market.

A large national Realtor shouldn’t have an advantage over a local Realtor. A local hardware store shouldn’t have a disadvantage for getting their website to the consumer versus a national hardware store. So this [FCC decision] is a true disruption of one of the great American economic free market innovation success stories of our lifetime. We hope that the ISPs will not change the current business practices that have been enforced and guided by the principles, policies and rules of the last 12 years, but it’s too early to tell. Politically, I think, and possibly legally, the new version of the rules is not going to be sustainable, and we’ll see another reversal back to some form of the original policy within the next three to four years. The market really needs certainty and predictability. For investments in the infrastructure, content, apps and software and the entire ecosystem, really, we would do much better with the predictable and enforceable set of rules and principles that have worked over the last two decades.

I think a lot of people are confused about exactly what net neutrality is and isn’t. How do you explain the concept in a way that people can more easily understand?

PICKERING: Net neutrality is simply the equal access to internet content from the end user, and if you have a website, the equal access to every end user to your site. So it’s this idea of equal reciprocal process.

It’s the same as free market trade principles. If you look at networks of telecom, trade, transportation, electricity or pipelines, equal access and reciprocal access to networks and markets create the most efficient and largest market and the greatest wealth, as well as the greatest consumer benefit. So it really is a Republican/Democrat combination of ideas. This is why it’s such an American bipartisan value. It takes the Republican principles of free markets and it takes Democrats usual emphasis on the consumer benefit, and it marries the two into something that’s supported by between 70 and 80 percent of the country according to every poll that’s been taken. Net neutrality is one of the few policies that has united the country. Even if there’s some confusion as to what exactly it means, people know they don’t want a gatekeeper to be able to block or slow down or throttle their internet access. They don’t want to have to pay priority [rates] to have the same access that they have today or be put in a slow lane.

The language can be a little confusing. The “open internet” is usually something that Republicans say. “Net neutrality” is the term preferred by Democrats. It’s one in the same. At its core, it’s just the equality of access to content and the equality of an entrepreneur to have access to every individual with his website, expression or content. So net neutrality has both civic and political benefits, but it also benefits charities, nonprofits and religious organizations for everybody to have an equal voice on the internet. No one has to pay more to have their voice heard or their product sold, and that’s why this idea has been such a great success.

What impact do you think this new ruling will have on businesses and individuals in Mississippi?

PICKERING: What a lot of people may not realize is that Mississippi has really been a laboratory of telecom innovation and competition. Comcast started in Tupelo, Mississippi, [as American Cable Systems] then expanded to Meridian and Laurel. Now they’re the largest cable company in the world, but they started right here. My father was their first attorney. In the early to mid 1960s, they were the new entrant and disrupter to the three broadcast networks. Then we had WorldCom, which was a challenger and rival in the long-distance market. They acquired UUNET, the leading internet backbone company and, after that, MCI to become MCI/Worldcom. So they were one of the world’s leading long-distance and internet backbone companies, and that infrastructure still exists today, under different ownership.

SkyTel introduced two-way paging, the first form of texting. So we can claim to be both the birthplace of the blues and the birthplace of texting. And we had a number of wireless entrepreneurs from Billy Mounger, Wirt Yerger and Stacy Davidson and, of course, C Spire. Jim Barksdale, was not only with FedEx but also McCaw Cellular, in the early days of the cellular/wireless industry, before he joined Netscape to introduce what was really the first mainstream web browser. Net neutrality will only cause that rich history  I just described to grow and to give opportunity to anybody in Mississippi with a great idea. Look at the show, My Hometown, on HGTV. It’s based in my hometown of Laurel, Mississippi but was discovered on Facebook.

It’s not only the quality of getting access to a market of an idea or any app or business, but it’s the ability to build new networks without having the high cost of capital creating a new Hollywood studio to support your business. So net neutrality removes all barriers to entry. That’s why it’s really behind the greatest expansion of free market capitalism and the best, most pure form of a free market that there is. So for Republicans not to support net neutrality really is due to a misunderstanding – it all started with Republicans, it is based on free trade and free market principles, and it is the purest form of free market capitalism with no barriers to entry that you could create. That’s what we’ve had with the internet, and it’s why companies like Google and Amazon, within a period of 19 years, have created more wealth and connected more people and created the largest markets in the history of the world.

I think the big fear is that the internet is about to become more like cable TV. I know a lot of people were frustrated, for example, when AT&T blocked Fox during the World Series due to a contract dispute. Should we expect those kind of things to now happen on the internet?

PICKERING: That is our fear, too. We don’t want the internet to become more like cable. Before the repeal, you could not force people to pay AT&T, Comcast or Verizon in order to get “over-the-top” [standalone streaming media] content through the internet. The new rules would allow that. The conflicts between broadcasters like Fox, NBC and CBS and cable providers now is common now. You haven’t had these disputes with internet service in the past because of the rules of net neutrality. By repealing those rules, we could begin to have certain sites blocked, or you’d have to pay preferential or priority [costs], resulting in these types of negotiations for access. For example Comcast could charge Netflix access fees or tolls to have access to their subscribers. Even though the end user already pays $70 or $75 a month to access everything they want, if Netflix is having to pay to get access, it raises the price of streaming services and puts them at a competitive disadvantage to the cable TV package.

If you look at the Justice Department today opposing a merger between AT&T and Time Warner, it’s on the basis that AT&T now has the means and the motive to disadvantage competitive content that would come over the AT&T network, both wired and wireless, because it would be in direct conflict with Time Warner and CNN. So if you want to protect CNN and disadvantage FOX, disadvantage MSNBC, disadvantage Breitbart, a network can now do that. Under the old rules, they couldn’t.

Does this FCC’s new ruling make it harder for new ISPs, networks or streaming services to emerge?

PICKERING: Over the last two years, after the previous FCC rules were adopted and then affirmed by the courts, it really led to an explosion of streaming services – Amazon Prime, Facebook, Microsoft, Apple, Google, Netflix and Hulu. Even the traditional broadcast networks and studios are now going over-the-top in streaming. It’s more efficient, it’s consumer driven, and that does create the economic incentives to build new networks, it enables new entrants without having to have a studio for your own content.

So we hope that this market is so entrenched that, even if the rules are repealed, the law of the market will prevail and ISPs will not be able to undo what consumers are demanding. From a business model, it’s just a more efficient way to be profitable. If you look at C Spire Fiber, Google Fiber, Rocket Fiber in Detroit, or Sonic Fiber in San Francisco, these companies are all new entrants in fiber that are competing as the third entrant into a market. Their margins for streaming over-the-top services are very high. They may lose money if they have to package the cable programming of ESPN and all the other channels in one bundle. So, for a new entrant building a fiber network, the more they can just offer streaming and attract subscribers, the more new networks will be built.

You’re arguing for a level playing field. The counter argument I’ve heard from some, particularly among conservatives, is that deregulation leads to economic growth and competition.

PICKERING: The economic history and evidence is extremely clear. The government intervened to break up AT&T, and we got the long distance and internet backbone, taking us from copper to fiber, analog to digital. It took us from very high prices, where the incentive was to monetize scarcity, to abundant, unimaginable new applications. Congress intervened to end the cable monopoly and the same thing happened. We went from coaxial analog to fiber digital transmission. We went from a duopoly in wireless to full competition, where we had been stuck for 15 years with analog, first generation and now, within 20 years, we’ve gone through four generations of technology and we’re on the edge of 5G. We now have the capacity for networks to be able to put an iPhone or other smart phone over the wireless networks. So, wherever we have intervened in a market around core principles of competition, it has always worked. You go to what is a functioning free market versus a failed market, a concentrated market of one or two, where you get less investment, innovation or choices.

Is it reasonable to expect market forces to correct potential problems, such as ISPs blocking websites or throttling streaming services?

PICKERING: Historically, if you don’t have four to a market, we consider that a non-competitive or non-functioning market. If you look at anti-trust or competition policy, you need four to a market before the invisible hand of the market functions.

One of the other counter-arguments I’ve seen is that the internet was highly successful prior to 2015 when the Obama-era FCC net neutrality rules were adopted.

PICKERING: That’s really a big distortion. We’ve always had the same rules. There’s been a fight over which statutory authority applies – not over the rules or the principles, but under what part of the Telecommunications Act can you govern the internet.

In 2005, a policy was adopted around equal access to all content. Net neutrality was adopted by a Republican chair, Michael Powell, the son of Colin Powell. Everybody lived by those rules and then, in 2008, the second Republican chair under President Bush enforced those rules. So everybody did not break those rules and they knew, if they did, they would be subject to FCC enforcement action. Comcast challenged those rules in court. They won in court, and so the next chairman adopted rules that he thought would be upheld in court. Everybody still lived by those rules until the court, again, struck it down – not because the policy of net neutrality was wrong, but it was an issue of statutory authority.

The next chairman adopted the same rules, in essence, that started with and continued under Republican leadership, but now under something called Title II. That authority was upheld by the court. Even though you’ve had major fights over the last dozen years, everybody always lived under those basic rules and, as soon as rules were struck down by the court, the same rules were put in place under a new authority. This is the first time those rules and principles have been repealed.

Equal access, in principle, is similar to the way you can pick a phone and call anybody, and they can call you. And nobody can block that or throttle that or stop you from doing it. Your voice can travel over any network. So net neutrality is the same thing, except now it’s email, websites, over-the-top video and streaming, Pandora and Spotify, and business applications. So you have now this unlimited abundance of applications, but it’s the same principle. It’s a historic, enduring principle. But the question is, under which part of the Telecom Act do you maintain and preserve that principle. And what this chairman just did, for the first time in internet history, is to end the ability to enforce those principles and the policy of net neutrality.

When you talk about the internet operating in a similar way to telephone lines, that’s what’s meant by the Title II classification, right?

PICKERING: Right. Now, the other side would question using a 1934 law [the Communications Act of 1934] in 2017. But what people forget is that 1996 changed everything. When the Telecom Act of 1996 occurred, it amended the 1934 Act and replaced a monopoly law. The 1996 Act outlawed the monopoly by saying that there’s no state, no community, no person that can prevent competition. Before 1996, it was actually against the law for somebody to offer another telecommunications service. Nobody could compete against anybody else. But 1996 changed it dramatically, by saying that everybody competes against everybody. And if there’s anyone who tries to stop competition, that is now against the law. So equal access, in 1996, has a pro-competition objective. In 1934, equal access simply applied to the functioning of a voice network. But the principles can be enduring just like our First Amendment is enduring from one age to the next. Net neutrality is, in essence, the first amendment of communications law.

Is there anything wrong with an ISP charging a company extra if they’re using a lot of bandwidth?

PICKERING: That’s where it gets very tricky. Do you have different categories that you sell on a non-discriminatory basis? You can have the possibility of dedicated services, for example, in the cases of telemedicine or connected cars. The past FCC rules made that exception for certain specialized services that need dedicated, secure and higher capacity, allowing for agreements where you pay for those features. That was the exception. But in the broad sense, everyone had equal access under equal terms.

So what are the next steps? Where does this debate go from here?

PICKERING: There is a desire for Congress to step in, and it is on a bipartisan basis. The Republican leaders of the House Energy and Commerce Committee and the Senate leaders – and Roger Wicker is one of the Senate Commerce Committee leaders – have all said that they would prefer to have a legislative solution. This approach would offer a permanent solutions because, once a law is passed, it codifies these principles. It would be permanent, predictable and enforceable and, for everyone on all sides of this, that would be a better outcome.

For some of the ISPs, they don’t fear where the current rules were, so much as they were fearful that if you had a very liberal administration – say a Bernie Sanders or Elizabeth Warren – that instead of just guaranteeing equal access, the government would come in and price-regulate their services. But there’s still a willingness, I think, from AT&T, Comcast and Verizon, as well as Republicans and Democrats to codify the equal, nondiscriminatory access principles of net neutrality under a new title.

Comcast and other ISPs have been running campaigns to promote their commitment to net neutrality following the FCC’s repeal.

PICKERING: That’s right. One of the reasons why there’s skepticism around their commitment to net neutrality is this idea that if you support it, why did you not live by it? Why have you been in violation of it? Why have you litigated it for ten years? And why have you spent hundreds of millions of dollars lobbying to reverse the rules if you support it? So there’s definitely skepticism. At the same time, my sense is that, if you could take away their fear of future price regulation and codify an equal access policy, that we could find common ground between the incumbent networks and the over-the-top services, new entrants and new networks around a new title that codifies these principles. And there is an effort to do so. I don’t know if it’s going to be done this year or in 2019 or later, but the current action by the FCC is politically not sustainable. The policy was too popular for too long for it not to be restored in some form.

Does the FCC’s new ruling apply to mobile broadband or just fixed?

PICKERING: Both. I do think, as we move to 5G, we’ll see a much more competitive market than exists for wired broadband. And, with 5G, you’ll have a 1 Gig capacity and the speeds that really will allow whatever streaming content video service of any type to be competitive in a mobile platform. We’re not there today and it’s probably three to five years away.

President Trump has already given a speech about leadership in 5G, saying it’s a national security and an economic competitiveness imperative. It’s critical infrastructure, and it’s a national security issue. If you can have greater competition, then that takes care of many potential problems. If AT&T says you have to pay more or they won’t stream the content you want, you could then go to Comcast or C Spire or T Mobile. The market would then function and work when you get capacities in wireless that are equivalent of what we have in wired broadband today. But that’s still three to five years from today.

I think there are many out there who were frustrated by the FCC decision because they feel like their voices are being ignored. What can people who support net neutrality do at this point?

PICKERING: I would encourage everyone to communicate with their members of Congress that this is something that needs to be done by Congress, on a bipartisan basis, not by the FCC, and that we do need a permanent, predictable policy in place for the good of the country. The economy and consumer interests are best served by the policies that have worked over the last decade.

There will also be litigation in the courts, this time from those of us that are on the competitive internet and public interest side, challenging the new rules. There’s a good possibility that the current FCC decision could be overturned. And state attorneys general are challenging the FCC’s policy that preempts states from acting on their own to reinstate net neutrality or create their own net neutrality policy. Now historically since the 1996 Act, we’ve had a federal internet and telecom policy. But we’ve also never had these principles reversed by the FCC. So there are a lot of court challenges. We’ll probably see a year to two years of court challenges and litigation.

I do think there’s significant common ground between the Republicans and Democrats in Congress over the policy and what needs to be restored and how to do it. Congress could pass, over the next year to two years, a permanent solution. It’s just a case of political will for getting it over the finish line.

Any last thoughts?

PICKERING: I just hope for Mississippi that, given our history of being a pioneer in long distance, cable and wireless and texting and new technologies, that we’ll continue that tradition in new ways. I hope that  our young entrepreneurs will see that our state can be a great launching pad for ideas and businesses. You don’t have to go to the east or west coast or outside of the state to really be able to do something that has far-reaching impact.

Related post
Interview: Gallardo – Net Neutrality

Randy Lynn

Randy Lynn

Partner/Creative Director
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