Section 214: Title II’s Trojan Horse

Cite this Article
Eric Fruits, Section 214: Title II’s Trojan Horse, Truth on the Market (March 15, 2024),

The Federal Communications Commission (FCC) has proposed classifying broadband internet-access service as a common carrier “telecommunications service” under Title II of the Communications Act. One major consequence of this reclassification would be subjecting broadband providers to Section 214 regulations that govern the provision, acquisition, and discontinuation of communication “lines.”

In the Trojan War, the Greeks conquered Troy by hiding their soldiers inside a giant wooden horse left as a gift to the besieged Trojans. Section 214 hides a potential takeover of the broadband industry inside the putative gift of improving national security.

Stifling Investment and Innovation

Section 214 requires providers to obtain the FCC’s approval before constructing new networks, offering new services, discontinuing outdated offerings, or transferring control of licenses. George Ford of the Phoenix Center dubs this a “Mother, May I?” process. But “Mother, May I?” is a children’s game that loses steam after about 15 minutes. Section 214, by contrast, no game; it’s serious business, with real long-term consequences. 

Faced with lengthy regulatory delays and uncertainty over whether they will get the green light, firms may make the rational decision to forgo network upgrades or expansions. AT&T, for example, argues that it would be hindered from retiring legacy copper lines in favor of modern fiber deployments if it had to seek permission each time. The prospect of enduring protracted reviews could deter startup ISPs from even entering the market.

These concerns aren’t hypothetical. Economic studies have found that past periods of utility-style Title II regulation corresponded with depressed broadband investment to the tune of billions of dollars annually, when compared to light-touch regimes. Perversely, saddling providers with more regulatory costs could slow the very broadband buildout that the Biden administration aims to accelerate through its “Internet for All” initiative.

What About Satellites?

As they say on just about every single episode of every single podcast: “Good question.”

The FCC’s notice of proposed rulemaking (NPRM) is clear that it intends to regulate satellite broadband (such as Starlink and Project Kuiper) under Title II:

We also propose to remain consistent with the Commission’s conclusions in prior Orders to include in the term “broadband Internet access service” those services provided over any technology platform, including but not limited to wire, terrestrial wireless (including fixed and mobile wireless services using licensed or unlicensed spectrum), and satellite.

Section 214 refers to “lines,” which the average person-on-the-street might take to mean physical connections, such as copper wire for fiber optics. Section 214, however, has a much more expansive definition of “lines”: 

As used in this section the term “line” means any channel of communication established by the use of appropriate equipment, other than a channel of communication established by the interconnection of two or more existing channels …

“Any channel of communication” seems to be doing a lot of heavy lifting here. If the FCC adopts Title II regulation and does not forebear Section 214, then it seems that satellite-broadband providers would also be covered. 

If that’s the case, then that means every satellite launch and every decommissioning and every investment to upgrade (or downgrade) service would have to obtain FCC approval under Section 214. Starlink plans to build 30,000 satellites. Project Kuiper plans to add more than 3,200 satellites to orbit. That’s a lot of approvals.

Soaring Compliance Costs

Just the process of preparing Section 214 applications imposes significant expense on providers, especially for smaller ISPs unaccustomed to this process. Hiring lawyers, compiling documentation, and navigating bureaucratic reviews could consume funds better spent on network improvements. If foreign investment triggers additional national-security reviews, costs could escalate even higher. WISPA, an industry group representing internet service providers, highlights some of these costs in its comments to the FCC:

Broadband providers across the country who never needed to obtain prior consent when adding a General Partner, refinancing, or engaging in numerous other kinds of purely domestic transactions would now need to file for and obtain prior Commission consent to an assignment or transfer of control. This alone will result in many more applications filed under Section 214 each year than have ever been filed before. … The Commission’s most recent Communications Marketplace Report states that as of the end of 2021 there were 2,021 entities providing broadband. More recent compilations indicate the number today could be closer to 3,000. If only five percent of these companies (the vast majority of which are small) file to assign or transfer control of their Section 214 authorizations each year, the number of applications filed annually will increase at least four times, and possibly up to six times. Even assuming the majority of those applications are subject to streamlined treatment, this would constitute a huge administrative burden on Commission resources, likely leading to far longer processing times than are already faced by applicants.

Inevitably, backlogs would generate longer delays to approve new services, investments, and pro-consumer mergers.

Several comments to the FCC questioned why broadband deployments should face utility-style “public convenience and necessity” tests, given that they connect with the decentralized internet, rather than traditional wireline telephone networks. Indeed, the FCC’s 2015 Open Internet Order concluded that Section 214 was unnecessary in light of the competitive environment and existing regulations.

Threatening Public Safety and Network Resiliency

Ironically, the FCC’s  proposal to impose Section 214 potentially undermines its self-professed motivation of bolstering national and cyber-security. If providers require approval to retire outdated technologies, they may be forced to divert resources to maintaining legacy systems, rather than migrating fully to modern, more secure networks. Mandatory discontinuance reviews create uncertainty that could lock in suboptimal or vulnerable technologies, as discussed in AT&T’s comments to the FTC:

For example, in many areas, AT&T originally offered DSL internet access services over legacy copper networks, which still cost billions of dollars annually to maintain. Subjecting those services to Section 214 discontinuance obligations could indefinitely force AT&T to continue allocating capital to these outdated networks rather than investing in modern fiber networks. Further, the Commission’s current Section 214 rules were developed for legacy telephone service, not internet service—and certainly not for outdated DSL-based internet access services.

Conversely, streamlined transitions to new technologies allow providers to concentrate resources on improving network integrity and resiliency. Prompt incident response and continual hardware/software upgrades are vital to thwarting cyber threats, priorities that could be hampered if ISPs get bogged down in regulatory quarrels over how and when to sunset obsolete services.

A well-known saying in economics is “barriers to exit are barriers to entry.” It’s as true in broadband as anywhere else. While intended to preserve service availability, Section 214 discontinuance reviews could perversely deter broadband buildouts in higher-cost areas by threatening to lock providers into operating networks indefinitely, even if they become commercially unviable. With no opportunity to eventually exit, a provider may decide not to enter.

A Limited National-Security Justification

The FCC’s national-security rationale rests on its recent revocations of Chinese carriers’ international Section 214 licenses—actions that have been affirmed by courts even under the pre-existing Title I “information service” classification of broadband. It’s doubtful that imposing domestic Section 214 on all broadband providers would augment security in any meaningful way.

Moreover, other robust mechanisms already exist to vet foreign-investment and supply-chain risks to communications networks. These include the interagency Committee on Foreign Investment in the United States (CFIUS), as well as the interagency Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (previously, the much less-of-a-mouthful “Team Telecom”) reviews of international licenses. There are also new rules allowing the U.S. Commerce Department to restrict transactions with “foreign adversary” tech suppliers. The FCC has not made a clear or convincing case that its oversight under Section 214 would add any value beyond these existing processes.

We Would Never Do That

To date, Section 214 appears to be a parade of horribles for both the industry and the federal government. To which, a proponent of Section 214 might say, “Oh, but the FCC would never do that”—whatever that bad thing is.

For example, in comments to the FCC on the proposed rules, some suggested the commission could grant itself limited authority to revoke authorizations if national-security concerns explicitly arose regarding particular broadband providers. Others suggested that the FCC might grant blanket domestic Section 214 entry authority, as it’s done in the past.

Unfortunately, we have no idea how far the FCC intends to go with its Section 214 authority. Will it apply to domestic providers or providers with a foreign financial interest? Will it apply to satellite broadband? Will it apply to mergers? Will it apply to copper-to-fiber replacements? We don’t know.

To a certain extent, it doesn’t matter. If the FCC imposes Title II regulations on broadband and includes Section 214 in that regulation, then the commission could easily change its enforcement regime down the road through the rulemaking process or its enforcement discretion. Promises made by today’s FCC members may be very different from the priorities of a future commission, as vividly noted in TechFreedom’s comments to the FCC:

Despite the FCC’s promise of forbearance, the core powers of Title II will loom over the broadband industry like Chekhov’s proverbial gun: “If you say in the first act that there is a rifle hanging on the wall, in the second or third act it absolutely must go off. If it’s not going to be fired, it shouldn’t be hanging there.”

In summary, adding Section 214 regulation to Title II’s already-onerous other provisions would stifle investment and innovation, hinder new entry, and impose enormous costs, with no discernible benefits to consumers, national security, or public safety. It would saddle the FCC and other agencies with a morass of regulatory red tape, adding pressure to their already-stretched budgets.