Net neutrality’s cost to consumers pegged at $17B — or zero

After a dramatic shift in the debate over net neutrality last month, many expect the FCC will reclassify internet providers so as to bar them from giving special treatment to some websites over others. The question now becomes how much (if at all) the agency’s decision, which turns on an arcane process called Title II, will cost consumers.

Depending on who you ask, the answer is that Title II, which would treat internet providers akin to public utilities, will be ruinously expensive — or will have little financial impact at all. Among the Cassandras, you can count Republican FCC Commissioner Ajit Pai:

“It will cost $17 billion in new fees,” Pai told an audience of telecom lawyers in Washington on Friday, warning that consumers’ monthly internet bills are set to soar.

Pai’s number, which has also popped up on the Wall Street Journal‘s editorial page and in other right-leaning outlets, is lifted from a purported study by the Progressive Policy Institute, a think tank that has reportedly taken funding from [company]AT&T[/company].

The crux of the PPI study is that state and local governments will seize on the Title II legal regime to impose a bevy of new internet taxes, and that the FCC will soon apply a levy known as the Universal Services Fund levy to internet users.

The $17 billion figure, if accurate, provides additional ammunition for companies like [company]Comcast[/company] and [company]AT&T[/company], which are lobbying fiercely to stop net neutrality. The companies have already claimed that the new legal classification will dissuade them from investing in new internet infrastructure (though the $41 billion the industry just spent on spectrum casts doubt on that claim).

Like so much else in the pitched debate over net neutrality, however, the $17 billion number may have been ginned up for political purposes. According to Free Press, a nonpartisan advocacy group for open internet, the figure represents a misleading worst-case scenario that will never come to pass.

As the group points out, reclassification does not appear to require any new consumer fees. Such fees, it they do appear, will instead be the result of a separate set of decisions by the FCC and various governments.

Two different debates

To understand the fuss over the alleged $17 billion of new consumer costs, it’s helpful to recognize that the current debate over the internet is actually two debates: the first turns on net neutrality; the second turns on what sort of taxes and fees should apply to the internet. And one debate is not intrinsically tied to the other.

In the case of net neutrality, an FCC decision to reclassify internet providers as “common carriers” under Title II would trigger a new set of regulatory obligations. But the agency has the power to immediately excuse the companies from many of these obligations — a process called “forbearance” in telecom parlance.

Already, the agency has signaled that’s exactly what it plans to do. If the plan goes ahead, broadband providers will be barred from providing “fast lanes” for select websites, but will also get a pass from antiquated portions of the reclassification law. For consumers, no new broadband fees spring into place if the FCC waves its regulatory wand and turns internet providers into common carriers.

But that doesn’t end the larger concerns over fees and taxes, or eliminate conservatives’ fear that consumer internet bills will soon be filled with the same maddening series of charges that appear on their phone bills.

The outcome of this debate will turn not to Title II, but on issues tied to the FCC’s general powers over telecommunications and, to a large part, on whether Congress decides to extend the Internet Tax Freedom Act, a law that forbids states and local governments from taxing internet services. That law, known as ITFA, will expire on December 11 and, unless Congress renews it, consumers could get hit with all sorts of charges no matter what the FCC does with net neutrality.

As for the FCC adding charges to broadband bills, the agency already has the power to do so under the Universal Service Fund. This is a levy that has appeared on consumers’ phone bills for decades, and is spent on things like subsidizing phones for low-income Americans, school broadband or building telecommunications infrastructure in rural areas.

Collecting and spending the fund is a policy decision for the agency that is unrelated, however, to net neutrality.

“In the short term, nothing changes the next day when broadband gets declared Title II,” said Harold Feld, a lawyer with the advocacy group Public Knowledge. “On the Universal Service Fund, the FCC already has a proceeding on USF reform going and would need to have further proceedings on USF to determine how to apply the statute.”

A source close to the agency, meanwhile, said that if the FCC does decide to apply the Fund levy to broadband, it won’t necessarily mean that consumers’ overall expenses will go up. As it stands, a nonprofit corporation decides how much the Fund requires every quarter (the most recent amount was $16.1 billion), and the FCC then instructs a variety of companies to pay into it. If the list of contributors is expanded to broadband companies, that means that consumers could see new charges appear on their internet bills but, at the same time, see the same charge (currently $1.23 per month in my case) decrease on their phone bill.

The bottom line is that broadband users could see new fees and taxes on their internet bills in coming years, but that’s hardly a sure thing — and, more importantly, the outcome will have little to do with whether or not we have net neutrality.