The Case for and Against State Net Neutrality Laws

April 1, 2021 | by Andrew Regitsky

The Case for and Against State Net Neutrality Laws

The California net neutrality law took effect this week and it apparently has already had ramifications for ISPs.  AT&T claimed the law forced it to drop its zero data charges for its HBOMAX customers nationwide since so many of them live in California.  Further troubling to ISPs, in addition to the California law there are at least nine other states in the process of legislating their own similar laws.  With FCC action stymied by the fact that a third Democrat commissioner has not yet been nominated or confirmed, and Congress useless as usual, it appears that in the immediate future net neutrality action will be confined to the states.  Thus, it is interesting that just recently there have been two articles that crystalize the arguments for individual state net neutrality laws versus one national law. 

The arguments against the states come from a blog written by economist Lawrence Spiwak on The Federalist Society website.  This is an organization for conservative attorneys that often recommends justices for the Supreme Court.  The article is aptly titled “Biden Subjects the Internet to Death by 50 State Cuts.”  In it, Spiwak argues that federal regulation is far superior to 50 unique state laws: 

For nearly twenty years, the FCC has consistently believed that subjecting IP-enabled services to a hodgepodge of different state regulations is a demonstrably bad idea. When state law applies to a product or service that is national in scope such as telecommunications or the internet, even if each state acts with the purest of intentions to protect their respective constituents’ interests, there will be harmful conflicts in the assorted rules. That is, there are extra-jurisdictional effects whereby one state’s policy spills over to other states. In the presence of such spillovers, as is the case with communications regulation, society is typically better off with a single national regulatory framework.  In the presence of such spillovers, as is the case with communications regulation, society is typically better off with a single national regulatory framework. This is precisely why Congress gave the FCC—and not the individual states—exclusive jurisdiction over interstate communications. Like it or not, firms are not passive recipients of regulation. Broadband firms will not invest aggressively under a heavy-handed regulatory assault on their business, especially when that assault comes from both the federal and state governments.  (Lawrence Spiwak, Federalist Blog, February 10, 2021). 

In response comes an article in the LA Times written by its business columnist David Lazarus.  It is titled “Internet Providers Put Hypocrisy on Full Display in Challenging Net Neutrality.”  In the article, Lazarus postulates that ISPs seek one national net neutrality law, because it is easier to weaken one law rather than 50 individual ones.  Lazarus quotes NYU Law professor Jon Sprigman who mocks claims that 50 state laws will lead to a bunch of confused customers: 

It won't confuse anyone.  There is no interstate market for internet.  California consumers don’t shop for internet access in Iowa.  (David Lazarus, LA Times website, February 25, 2021.). 

Leonard Kleinrock a UCLA computer science professor agrees, noting that “[c]onsumers are predominantly unaware of any government regulation as applied to internet service.” 

Barbara van Schewick, Director of Stanford Law School’s Center for Internet and Society even claims that more state laws will lead to more ISP innovation: 

[N]et neutrality [means] that cool innovative startups don’t have to worry about being blocked, slowed down, or having to pay internet service providers, and that people can use their service without interference.  The more states adopt net neutrality, the larger the market for innovation.  (Id.). 

Personally, I find the arguments for 50 state net neutrality laws specious.  They fail to consider the regulatory costs to ISPs that will be passed on to consumers for having to comply with 50 individual laws.  They also assert that more laws will result in more ISP innovation.  However, that makes no sense.   Costly research and investment are easier to cost justify when a company can do so over a larger number of potential customers.  Coke doesn’t perform research on different varieties of soda to sell one flavor in New York and another in Mississippi.   

There are good reasons that Internet service has always been classified as an interstate service with the FCC permitted to preempt state laws that conflict with its own.  While it might be deeply satisfying for some folks to want to “put it to” the ISPs, in the long run consumers will lose through paying higher broadband prices and having fewer innovative services available if states control the Internet.