The Federal Communications Commission votes Thursday on rolling back Obama-era net neutrality rules that require internet service providers such as Verizon and Comcast to treat all internet traffic equally. With Republicans controlling a majority of the five-member commission’s seats, the repeal is expected to pass along a 3-2 party-line vote.
Advocates of net neutrality argue it prevents telecommunications companies from blocking or throttling access to certain websites or services and bars them from charging consumers extra for internet “fast lanes.” Opponents say it discourages internet infrastructure investment and limits ISP innovation.
But one reason why net neutrality is such a big deal is that competition among broadband providers is more limited in the United States than it perhaps has to be. An estimated 46.1 million households are in areas with just one high-speed internet provider, according to one recent report using FCC data.
Other countries have found a way to create competition: forcing big internet service providers to sell access to the “last mile” of their infrastructure to other internet service providers. The term “last mile,” also sometimes referred to as the “local loop,” refers to the final bit of the network chain that physically reaches the end user — the wire that ultimately connects your home to the internet.
“Local loop unbundling,” requiring providers to sell access to that last bit of infrastructure, forces big telecom companies to open up their networks to smaller, newer telecoms, allowing them to compete for customers and, in turn, driving down prices.
New York University law professor Christopher Jon Sprigman in a 2016 New Yorker article laid out the case for unbundling’s advantages:
This is one reason why net neutrality is such a bigger deal in the US than in other countries, as Benedict Evans, partner at venture capital firm Andreessen Horowitz, pointed out on Twitter in November:
Unbundling isn’t an entirely foreign concept
The US has tried something like local loop unbundling before to break up phone company monopolies. President Bill Clinton signed the Telecommunications Act of 1996, the first major overhaul of US telecommunications law in more than six decades.
The bill was, in part, aimed at opening up local phone company monopolies held by the so-called “Baby Bells,” a nickname given to US regional phone companies formed from AT&T’s 1984 breakup, to competition. It required them to provide access to exchanges and the last bit of infrastructure to competitors.
The result was that competitors to come into the market without having to invest in expensive local infrastructure, said Michigan State University professor Johannes Bauer. But at the same time, critics argued unbundled network pricing discouraged additional investment. After a few years, the FCC backpedaled and reduced obligations.
When broadband technology began to emerge in the late 1990s, the issue was complicated even further. Cable companies and telephone companies could both offer broadband to customers. Telephone companies providing broadband services were subject to unbundling rules, but cable companies weren’t.
From a policy perspective, either regulators had to mandate cable companies unbundle broadband too, or free everyone up. In 2005, the US Supreme Court opened the door for the latter when it upheld the FCC’s authority to determine that cable internet providers were not subject to common carrier rules (and, hence, unbundling) in National Cable & Telecommunications Association v. Band X Internet Services.
The FCC subsequently freed up telephone companies from unbundling local broadband loops as well.
“It became way more difficult for broadband internet service providers to just lease access to facilities and was less attractive to investing in the whole physical infrastructure,” Bauer said. “As a result, broadband competition in local markets started to weaken.”
The number of internet service providers has diminished, as has the number of effective local competitors for higher-access speeds (essentially, as connection speed increases, the fewer choices consumers have). And a wave of consolidation in the cable and phone industries — for example, Time Warner Cable’s 2016 acquisition of Charter Communications — has compounded the problem.
A win-win net competitive solution?
Could unbundling local loops make local broadband markets more competitive and make net neutrality less of an issue?
Unbundling’s prevalence in Europe could be part of what makes net neutrality a relatively benign issue there — though net neutrality regulations are in place there, too. Sprigman’s 2016 New Yorker article noted that broadband prices in Europe are lower in countries that make more use of local loop unbundling.
“In the US, net neutrality was seen as a substitute for policies that had earlier been eliminated to secure more competitive access to markets,” Bauer said. “If the US had left unbundling rules in place, for example, net neutrality would not have to fulfill this goal of controlling market power locally, it could have been done with unbundling instruments, which is much better suited to control market power.”
A DC-based telecom attorney, who asked to remain anonymous because he was not authorized to discuss the matter, disputed the idea. “Loop unbundling was tried by lots of competitors after the 1996 Telecom Act,” he told me.
Those companies almost all failed, he said, and that was for voice services. Loop unbundling in the context of broadband telecommunications is a difficult feat both technologically and economically, especially as bandwidth demands increase.
With giants like Google and Netflix in the mix and given the rise of wireless technology, the model could potentially work better now, but there are no guarantees.
And legally, applying unbundling rules to cable companies would be an enormous feat — they were never included under the 1996 Telecommunications Act.
Requiring a provider to literally lease control of physical infrastructure — as in, unbundle their loops — would require legislative action. Requiring that network operators provide transit to all parties equally could be done with regulations. But neither solution is simple, or very likely. When I asked one Wall Street analyst about the prospect of local loop unbundling, he replied, via email, “You mean circa 1997? Who is unbundling anymore?”
Everyone says they want competition. They just don’t agree how to get it.