The One Line Difference Between Broadband Rate Setting and Price Gouging

By: Harold Feld, Senior Vice President at Public Knowledge

What happens when Congress passes a bill that enables broadband providers to price gouge consumers? You already know.

Ask any broadband subscriber and he or she will tell you that they pay too much for broadband — especially when you throw in fees and data cap overages. Surveys point to the high cost of broadband as a major barrier to adoption and a key creator of the “homework gap” for children whose parents can’t afford broadband in the home. Americans pay more for broadband than the citizens of nearly every other comparably developed country.

So why is the House of Representatives about to take up a bill that may encourage broadband providers to price gouge further? In the name of preventing rate regulation of broadband service, the House is prepared to vote on a bill that goes much further, eviscerating the FCC’s ability to enforce existing law to prevent broadband price gouging or anticompetitive conduct.

“Rate Regulation” Defined As Enforcing Consumer Protection Laws

House leaders have scheduled a floor vote for H.R. 2666, the “No Rate Regulation of Internet Broadband Access Act,” for April 11. The bill’s sponsors claim it simply codifies the promise made by President Obama, Federal Communications Commission Chairman Tom Wheeler, and just about everyone else that the FCC’s net neutrality decision will never lead to rate regulation. Normally, passing a bill against something no one wants to do could be dismissed as a harmless election year stunt. But H.R. 2666, by accident or design, goes beyond an empty gesture against hypothetical rate regulation.

The bill does not use the regular definition of “rate regulation.” As the Supreme Court explained last January, “rate regulation” means an agency uses a traditional ratemaking proceeding to set a specific price. H.R. 2666 expands this into new territory by defining “rate regulation” as the FCC using “rulemaking or enforcement authority to establish, declare or review the reasonableness of such rate[s].”

When Congress breaks with nearly 100 years of practice to define “rate setting” as something beyond what the Supreme Court said it means just three months ago, that’s significant. H.R. 2666’s language would protect broadband providers from any “review” or “enforcement” of their prices, and prevent the FCC from even “declaring” — let alone addressing — any broadband prices or fees as even “unreasonable.” To make this even more clear, the bill prohibits the FCC from reviewing any prices, fees, or overages “regardless of any other provision of law.” That goes way beyond the FCC’s traditional rate setting authority. “Any other provision of law” includes the FCC’s mandate to promote competition and its consumer protection authority.

Don’t expect a speed increase to compensate us for the price increase.

An Invitation To Exploit Market Power

In other words, even if the FCC finds that a broadband provider is using market power to overcharge consumers by imposing unfair terms and price gouging fees, the FCC can do absolutely nothing about it. It cannot even “review” the price gouging complaints, let alone act on them. Likewise, the bill prevents the FCC from addressing “zero rating,” a way in which broadband providers with video services can favor their own service over rivals. Comcast, for example, imposes a bandwidth cap on rival streaming services, but exempts its own service, Stream TV, from the cap. If you try to watch HBO Now as a stand alone, you will quickly run into overcharges. If you subscribe to Comcast Stream TV, you can stream as much HBO as you want.

My employer, Public Knowledge, has filed a complaint with the FCC asking the agency to address this blatantly anticompetitive and anti-consumer practice of forcing subscribers who want to stream unlimited HBO to either buy Comcast’s entire online video bundle or pay extra in bandwidth cap overages. H.R. 2666 would make it impossible to file these types of complaints going forward, because it eliminates the FCC’s power to review Comcast’s discriminatory “zero rating” of its own service, either under competition policies, merger agreements, or the new net neutrality regulations.

The bill’s sponsors claim to protect consumers by exempting the FCC’s “truth-in-billing” rules from the statute. All that means is that as long as broadband providers tell you they are price gouging you, they can do it. Given that Americans are usually limited to choosing between their cable company and their phone company for broadband service, this doesn’t help much. Exempting the truth-in-billing rules but prohibiting any actual enforcement for monopoly pricing gives consumers a choice between paying exorbitant prices or giving up broadband.

It’s one thing for legislators to burnish their free market credentials in an election year by passing a bill that purportedly prevents “big government” from rate regulation no one wants to do anyway. It is another thing entirely for them to shield broadband providers from competition and consumer protection law, placing us all at the mercy of our broadband duopoly.

Or in some cases, our local broadband monopoly. So many choices!

A One-Line Fix Would Solve The Problem

The bill’s sponsors still have time to correct things and move the bill back from being an invitation for broadband providers to favor their own streaming services through zero-rating and to gouge consumers even worse than they do already. All the bill’s sponsors need to do is accept an amendment changing the definition of rate setting.

Instead of deliberating using a brand new and expansive definition of rate setting, H.R. 2666 should simply define “rate regulation” the way the Supreme Court did in January. Strike the existing definition and define “rate regulation” as “using a rulemaking process to set a specific price.” That is what “rate regulation” has always meant, and is the thing President Obama and FCC Chairman Tom Wheeler pledged never to do.

Mind you, even with such a fix, H.R. 2666 would still be a solution in search of a problem. But at least it would be a relatively harmless political gesture in an election year, rather than an active invitation for broadband providers to price gouge Americans with impunity.