California’s internet law is bad for business

By most conventional wisdom, California is a trend-setter.  When it comes to forward-looking fashion, popular culture and alternative lifestyle choices, the Golden State leads the way.  But that may be where California’s leadership ends.  When it comes to commerce, the state has adopted laws, regulations and policies that have made it increasingly hard to do business there, leaving little wonder why many companies are choosing to go elsewhere. And now, the state is poised to strike another anti-business blow — this time under the benign guise of saving the Internet and protecting consumers.

The California legislature could pass the proposed California Internet Consumer Protection and Net Neutrality Act of 2018 (SB 822) any day now. This bill would give the state extraordinarily broad power over the business practices of internet service providers (ISPs), essentially harnessing their ability to manage how consumers and companies interact with broadband services.

{mosads}Most striking is that the bill goes well beyond the 2015 Open Internet Order adopted by the FCC under President Obama on several key provisions. Considered by most net neutrality proponents to be the gold standard, the federal Open Internet Order allowed ISPs to manage internet traffic as part of an approach to “reasonable network management.” The federal law prohibited ISPs from “throttling” lawful internet traffic — essentially prohibiting them from impairing or degrading the traffic. The California bill adds new and confusing language to the federal law. If nothing else, this creates the kind of uncertainty and conflict that frightens businesses and chills investment and innovation.

While consumers interact with the internet at an amazingly low price, the price of internet freedom is not free. The FCC’s Open Internet Order did not ban fees for access to last mile networks, which the California bill specifically does. Moreover, the California law would prohibit ISPs from offering or providing services other than “broadband Internet access service” that are delivered over the same last-mile connection as the broadband service. Under the FCC’s Order, any functional equivalent of broadband internet access services offered by an ISP would be regulated if it violated the bright line net neutrality rules of the internet conduct standard. These services were specifically exempted from the FCC’s rules.

And last, but not least, the California bill bans ISPs from “zero-rating” selective Internet content, applications, services or devices. In effect, the bill strips away the ability of a provider to offer the kind of free data plans that are widespread among most American families today. 

Huh? If all of this is confusing to you, you are not alone. The rationale underlying the California law is that consumer protections were lost when the current FCC adopted the 2017 Restoring Internet Freedom Order. The only problem is that the premise is flawed. When the FCC approved its latest action on net neutrality, it gave internet service providers the stability they need to continue with much needed infrastructure investment and consumers the comfort of knowing the internet would continue to be the valuable platform and vehicle it has been. That kind of regulatory certainty is what moves capital markets and motivates companies to continue investing billions into broadband. 

Regrettably, California’s approach to the internet will achieve the opposite mission. While the emphasis on consumers may feel good, the market reality revolves around dollars. So far, ISPs have been willing to put their money where it counts the most — in building the framework and network necessary for others to ride over the top. But that could — indeed would — change if California moves forward.

If the California Net Neutrality Act is passed, the legislature will begin a new era. It will establish a regime of over-regulation of a precious service that has survived — indeed thrived — without significant interference from government. Moreover, it will deeply burnish the anti-business bias for which the state is becoming famous.

We know the Golden State sets trends. But its approach to net neutrality is not good for business or the public interest and is not the kind of leadership California needs today. 

Adonis Hoffman is chairman of Business in the Public Interest, Inc. in Washington, D.C. He served as chief of staff and senior legal advisor to former FCC Commissioner Clyburn from 2013–2015. He is editor and publisher of Inside the FCC and an adjunct professor at Georgetown University. His public service career began in the California legislature in 1977, and continued as adviser to California’s lieutenant governor and assistant to a California Member of Congress.