Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.
Latest posts by Scott Cleland (see all)
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The FCC is considering administratively bypassing Congress and unilaterally reversing longstanding U.S. Internet policy in law with an administrative maneuver that could have sweeping and unintended negative consequences for U.S. trade and foreign policy.
To implement the FCC’s most recent redefinition of net neutrality, the FCC is seriously considering its net neutrality “nuclear option.” That would reverse administratively the legal status of the Internet from a lightly regulated “information service” to a utility price-regulated “Title II telecommunications” service, per Wall Street Journal reporting.
Rather than asking Congress for Internet authority that the FCC knows that it does not have, it apparently is scheming to creatively combine existing legal authorities, in ways in which they were never intended, in order to ban a two-sided free market for the Internet from developing.
The FCC covets a legal theory that would allow it to administratively dictate a permanent, zero-price subsidy for all downstream Internet traffic from cloud servers at Internet consumers’ expense.
Essentially, the FCC would be banning a two-sided free market where senders and receivers may negotiate payments, in favor of a permanent receiving-party-pays Internet economic model.
Some background here is important in order to understand the sweeping implications of this for U.S. trade and foreign policy.
In 1994, the Clinton administration privatized the Internet backbone. Its peering-arrangements were market-negotiated. That’s because the FCC legally treated Internet traffic as unregulated “enhanced” data services under the FCC’s 1980 Computer Inquiry II precedent, and not “Title II,” common-carrier-regulated “telecommunications.”
In 1996, the bipartisan Telecommunications Act also did not treat the Internet as “telecommunications.” To the contrary, that law explicitly stated: “It is the policy of the United States… to preserve the vibrant and competitive free market that presently exists for the Internet… unfettered by Federal or State regulation.”
Since 1996, the United States government has convinced international trading partners to not treat Internet traffic as “telecommunications” in order to ensure the development of a free and open global electronic marketplace, and to promote democratic discourse.
This purposeful consensus to not saddle the Internet with “telecommunications” price regulation has been integral to creating the free and open global Internet we know today.
Thus the world’s leading trading partners ensured that the Internet would not fall under the legal jurisdiction of the United Nations’ International Telecommunications Union (ITU).
International “telecommunications” legally falls under the UN-ITU equivalent of a trade treaty. Specifically, ITU agreement: ITU-T D.50 recognizes the sovereign right of each state to regulate “telecommunications” as that state determines.
The ITU’s “telecommunications” settlements regime operates under a sending-party-pays economic model, the exact opposite of the FCC’s desired receiving-party-pays economic model.
This allows each nation to set their own tariff on incoming traffic or information imports. In the past many nations set their telecommunications tariffs on incoming calls very high to generate large net trade payments from the U.S.
Now back to the FCC.
According to news reports, the FCC is responding to Silicon Valley pressure for a formalized American industrial policy that would protect and favor Silicon Valley’s cloud-based, client-server economic model, where the selling server-side never pays for delivery of its downstream traffic to the buying client-side.
Silicon Valley’s cloud client-server model — of ad-serving, video streaming, software on demand, and cloud-computing services — involves sending vastly more downstream traffic to American and international users than those users send upstream to Silicon Valley.
Now, one can understand why the FCC formally reversing the legal status of the Internet from un-tariffed Internet trade to tariffed “telecommunications” trade, where Silicon Valley would pay for its exceptionally disproportionate net downstream traffic under a sending-party-pays model internationally, would be a profound change in U.S. trade and foreign policy.
It gets worse.
The new secretary general of the ITU is Chinese, and China, Russia, Iran and the Arab states have convinced the vast majority of UN ITU member nations, which are heavily autocratic and have Internet censorship aspirations, to support eventual ITU governance and economic regulation of the Internet.
Edward Snowden’s leaks that the NSA has been near-universally surveilling foreign use of the Internet has only catalyzed and accelerated the UN-ITU’s Internet power grab plans.
It is in this international “telecommunications” tinderbox that the FCC is playing with matches by signaling to the world its likely plan to change the legal status of the Internet to price (and tariff) regulated “telecommunications.”
This is not an “administrative” call of three unelected FCC commissioners. This is a big-time congressional trade and foreign policy call that should involve the congressional leadership and the committees of jurisdiction responsible for trade and foreign policy, in addition to the FCC’s traditional congressional overseers for domestic matters.
And within the executive branch, the foundational legal status of the Internet should be a trade and foreign policy matter driven by the authorized Departments of state, treasury, defense, commerce and the USTR — not the FCC, a domestic regulatory agency with no lead trade or foreign policy authority from Congress.
Will the constitutionally empowered legislative and executive branches of government allow a mere administrative agency like the FCC to unilaterally reverse longstanding, successful, bipartisan, trade and foreign policy by acting like a self-appointed Federal Communications Congress?
Will the real Congress please stand up?
[Originally published at the Daily Caller]