They say that when you’re raising kids, the days drag on, but the years fly by. The same could be said for this year in telecom policy. In 2024, the telecommunications industry faced a whirlwind of regulatory changes, legal challenges, and more than its fair share of fire drills without a fire. Let’s use this last Hootenanny of the year to look back at some key developments in Telecomland.
Digital Discrimination: A Bridge Too Far?
One of the most contentious issues was the Federal Communications Commission’s (FCC) enactment of “digital discrimination” rules intended to ensure equal access to broadband services. These rules, however, faced immediate legal challenges, with industry groups arguing they exceeded the FCC’s authority and created unnecessary burdens on broadband providers.
Critics—including we at the International Center for Law & Economics (ICLE)—argued that the FCC’s authority was limited to preventing intentional discrimination in broadband deployment. But the FCC decided to play fast and loose with the definition, trying to rope in a whole bunch of activities that Congress never intended to cover:
But, as they say in the theater, a funny thing happened on the way to the forum. Instead of focusing on deployment discrimination, the FCC approved sweeping digital-discrimination rules that cover nearly every aspect of broadband service, including speeds, capacities, data caps, credit checks, marketing, and advertising, as well as pricing and discounts.
We argued that the FCC’s reliance on a disparate-impact framework, which would allow claims based on statistical disparities rather than intent, departed from U.S. Supreme Court precedent and imposed an undue burden on broadband providers. Under disparate impact, even if a broadband provider didn’t mean to discriminate, it could still get slapped with a penalty if the numbers didn’t add up in its favor:
With its promise to consider all “external data sources and studies” alleging digital discrimination, the FCC has sent out an open invitation to flood the field with schlocky studies to trigger an investigation. Anyone who’s been in the world of regulation long enough knows that, in some cases, the process can be the punishment, and settlements can be shakedowns.
The FCC’s digital-discrimination rules also extended beyond internet service providers (ISPs) to encompass other entities that could affect access to broadband, including state and local governments and nonprofits, raising concerns about the breadth of the FCC’s reach.
[T]he commission defines a “covered entity” to include “[e]ntities that otherwise affect consumer access to broadband internet access service,” which would include state and local governments and nonprofits, as well as multi-family housing owners, many of whom may have no idea they are subject to the FCC’s digital-discrimination rules, nor any idea of how to comply with the rules.
The FCC’s claim to employ its full “enforcement toolkit” (including monetary penalties) was contested. The industry petitioners challenged that the law, known as Section 60506, does not authorize such penalties and that the FCC’s enforcement authority should be limited to forward-looking remedies, such as cease-and-desist orders.
Net Neutrality: The Title I/Title II See-Saw
Another major development was the FCC’s renewed push under the guise of “net neutrality” to reclassify broadband internet under Title II of the Communications Act, thereby subjecting it to public-utility-style regulation. This move reignited a longstanding debate over the appropriate regulatory framework for broadband.
We pointed out the teeter-totter nature of this debate, noting that broadband had been classified as a Title I information service for most of its history, with the FCC briefly shifting to Title II regulation from 2015 to 2018 before reverting to Title I. ICLE argued the uncertainty created by this regulatory see-sawing was detrimental to the industry—hindering both investment and innovation. We also criticized the vagueness of the FCC’s net-neutrality rules, which created a legal grey area for broadband providers and made it difficult to determine which practices were permissible.
While the order does not ban zero rating, data caps, and usage-based billing, the order is clear that these practices will be scrutinized and evaluated on a case-by-case basis under the general conduct rule. This places providers in a legal gray area, where some practices are neither banned nor clearly permitted until they receive review by the FCC.
ICLE was perhaps the only organization to question the veracity of the FCC’s claims that reclassifying broadband under Title II would have only minimal economic effects (emphasis added):
While the FCC claims the economic impact will be minimal, our amicus cites research suggesting Title II regulation could significantly decrease investment in broadband infrastructure. The uncertainty created by the new rules may make companies less willing to commit to long-term, capital-intensive projects.
The brief criticizes the FCC for dismissing these concerns without providing its own quantitative analysis of the potential costs. The most curious example involves research by Wolfgang Briglauer and his co-authors published in the European Journal of Law and Economics. ICLE summarized this study in its comments to the FCC…
The FCC’s order published in the Federal Register notes, “the underlying data for this study were not available to us in our analysis.” Nevertheless, the agency claims to make “corrections” to the paper to conclude “there is no empirical evidence in the record that Title II reclassification would have any significant negative impact on broadband investment.”
The commission provides no explanation of what “corrections” were necessary, how the corrections were made, or how those corrections could have been made without access to the underlying data. The FCC’s unexplained rejection of published peer-reviewed academic research has the hallmarks of “a serious flaw undermining that analysis” that “render[s] the rule unreasonable” under National Ass’n of Home Builders v. EPA.
Early-Termination Fees: Junk Fees or Mutually Beneficial Bargains?
Early in the year, it looked like the FCC was poised to ban early-termination fees (ETFs) charged by cable and satellite companies, which the agency described as “junk fees” intended to exploit consumers. After comments were submitted, the proposed rules went nowhere.
As noted in our February Hootenanny, ETFs serve an important economic purpose. They allow companies to offer discounts or lower rates in exchange for a customer’s commitment to stay for the length of an agreement. More importantly, consumers typically have a choice of entering agreements with or without ETFs.
Outlawing ETFs could backfire on consumers by leading to higher prices overall. ETFs help to reduce customer turnover, or churn, which can be costly for providers. By discouraging churn, ETFs contribute to a more reliable revenue stream, enabling companies to keep rates low.
Other Notable Nondevelopments
About a month after the FCC’s proposal to ban ETFs, the agency issued a set of proposed rules to require cable and satellite providers to give rebates to customers during programming blackouts stemming from retransmission-consent disputes. We noted that the rebates would unfairly favor broadcasters, potentially leading to lower compensation for smaller or local programmers and discouraging consumers from subscribing to cable and satellite services.
To be blunt, everyone’s to blame [for programming blackouts], so no one’s to blame. Ultimately, Park et al. conclude, “the statistical analysis is not able to identify the parties or the tactics responsible for blackouts.” Based on this research, it’s not clear which party is the least-cost avoider of blackouts.
Which takes us back to the FCC’s proposal to mandate cable and satellite providers rebate consumers for lost programming during blackouts. The proposed rules would put a thumb on the scale to favor broadcasters over cable and satellite providers. The rebates clearly impose a monetary cost, but there’s also a non-monetary cost.
If the rules are approved, the FCC would be tacitly indicating that the federal government believes cable and satellite providers are liable for programming disruptions resulting from retransmission disputes. This suggestion may drive more consumers to “cut the cord” and switch to an alternative MVPD, such as a streaming service.
After years of dipping its toes in the water, the FCC took the first steps toward regulating—or outright banning—data caps. With the new administration, the data-caps inquiry will likely be a dead letter. Even so, it should be noted that what are often labeled as “caps” are actually forms of usage-based pricing that can benefit both consumers and providers. Such usage-based pricing allows providers to accommodate high-use consumers without affecting the pricing for lower-demand consumers.
Under flat-rate pricing, which the current FCC majority appears to prefer, all consumers pay the same amount regardless of their usage. In practice, this means light users will tend to subsidize the data consumed by heavy users. As such, users with relatively low data demands may find broadband unaffordable under a flat-rate pricing plan, and therefore remain unconnected.
By contrast, usage-based strategies allow for more granular pricing that better reflects individual consumption patterns. This can lead to lower prices for entry-level plans—increasing broadband adoption and, in turn, provider revenues. Moreover, such pricing provides better recovery for the costs associated with serving heavy users.
In May, the Affordable Connectivity Program (ACP) ran out funding to provide subsidies to low-income households for broadband service. It’s been argued that the FCC spent too much energy chasing down Title II and digital-discrimination rulemaking rather than lobbying to re-up ACP funding. The loss of ACP funding will ripple throughout the broadband industry:
An ACP winddown could have far-reaching—and unintended—consequences. The median household receiving ACP subsidies reports they pay $40 a month for internet service. Loss of ACP subsidies would result in a 75% increase in those subscribers’ monthly internet bills. Such a steep increase may cause many households to think twice about continuing their internet service. Many also may see service discontinued because they were unaware they had to opt in or failed to take the proper steps to opt in. This could amount to a double-whammy that serves to disconnect millions of households from the internet.
In addition, the ACP prompted many internet providers to offer low-priced plans targeted to ACP households. Without the ACP subsidies driving demand for these programs, providers may take steps to eliminate these plans. If that’s the case, we may face a triple-whammy.
In addition to these foreseeable consequences, the end of the ACP could ripple through to other programs, such as the Broadband Equity, Access, and Deployment (BEAD) Program, which was established by the Infrastructure Investment and Jobs Act (IIJA) and is administered by the National Telecommunications and Information Administration (NTIA).
Looking Ahead
It’s a near certainty that Brendan Carr will be the next FCC chair, and he will have a lot of work to do beginning his first day.
The FCC’s Title II reclassification and digital-discrimination rules are working their ways through the courts. One of Carr’s first decisions will be how to handle the cases: let them work their way through, or moot the cases by rewriting the rules. There’s a lot to be said for the first option, as there’s a good chance that both sets of rules will be vacated. If that’s the case, undoing the Title II reclassification is fairly straightforward, as the FCC can revert back to the more lighthanded Title I.
Digital discrimination is a different matter. Congress mandated the FCC to write digital-discrimination rules. If the current rules are vacated, the FCC will have to go back to the drawing board and rewrite them based on the court’s guidance. If that happens, the FCC should ban intentional discrimination in broadband deployment and call it a day.
ACP and Universal Service Fund (USF) funding are also looming issues. As we noted, the ACP is out of money and there is demand from both providers and consumers to restore the subsidies to low-income households. The Supreme Court at some point in early 2025 will determine the constitutionality of the USF’s funding mechanism. Elon Musk has indicated that the soon-to-be Department of Government Efficiency may push to eliminate the USF. While these decisions are out of the FCC’s hands, the consequences of continued funding or elimination will have a direct effect on the agency.
In addition, the FCC will have to weigh in on several telecom mergers, including Verizon/Frontier, T-Mobile/UScellular, and Bell Canada/Ziply.
Lastly, and perhaps most importantly, the FCC will spend a lot of effort attempting to restore spectrum-auction authority. More than a year ago, the FCC’s authority expired, effectively blocking the agency’s ability to conduct spectrum auctions or issue new licenses.
Congress can go a long way toward resolving many of these issues. Earlier this year, our little Hootenanny offered a modest proposal for a telecommunications bill:
- Fund the ACP for the next three years;
- Restore the FCC’s spectrum-auction authority;
- Clarify the definition of digital discrimination; and
- Classify broadband internet under Title I of the Communications Act.
If the next four years fly by as fast as last year, Congress and the FCC will have a lot of work to do and little time to do it.