This guest post by BC Law Professor and Associate Dean of Academic Affairs Daniel Lyons first appeared in the AEIdeas Blog.
Reclassification opponents have long warned that net neutrality could be a Trojan horse for broadband rate regulation. Partly in response to this criticism, the Federal Communications Commission’s recent Title II reclassification order expressly reiterated its commitment to the agency’s long-standing, bipartisan commitment to keeping the Internet free from price controls. But even before the order had been finalized, New York’s Affordable Broadband Act began testing the strength of that commitment—and the agency’s initial response seems to be reinforcing its critics’ concerns.
Passed in 2021, the New York Affordable Broadband Act requires broadband providers to offer qualifying low-income consumers a basic service plan of either 25 Mbps for $15 per month or 200 Mbps for $20 per month. Challengers sued, arguing the act was pre-empted by the 2015 Restoring Internet Freedom Order. But last month the Second Circuit ruled that because the FCC had classified broadband as a Title I information service, it lacked authority to regulate broadband rates and therefore lacked power to preempt state rate regulation.
I’m not convinced by the court’s conflict preemption analysis, for reasons I wrote about here as part of the Free State Foundation’s Perspectives series. But that decision was mooted by the Commission’s decision the day before to reclassify broadband as a Title II telecommunications service. The Second Circuit had acknowledged that if the FCC had placed broadband service under Title II and exercised its power to forbear from rate regulation, then “the states are prohibited from imposing that same obligation on the telecommunications service.”
And that’s what the reclassification order did. While the agency moved broadband to Title II, it found “it in the public interest to forbear from applying sections 201 and 202 insofar as they would permit the adoption of such rate regulations for BIAS in the future.” This finding is consistent with Chairwoman Jessica Rosenworcel’s earlier commitment to Congress that there would be no broadband rate regulation (and no “hidden asterisks” in that commitment). It also reflects the FCC’s long-standing commitment under both Republican and Democratic administrations, as documented here. Importantly, the FCC order also stated that it “will not hesitate” to preempt state decisions that are “incompatible with the federal regulatory framework.”
But the FCC’s subsequent actions have cast some doubt on the strength of that commitment. After the vote but before the final order was published, the agency added a paragraph presumably in response to the Second Circuit’s decision. This additional language noted that the order “declined to address” any “particular state broadband affordability program” and “clarify[ied] that the mere existence of a state broadband affordability program is not rate regulation.” This latter sentence drew the attention of Commissioner Brendan Carr, who wrote in dissent that New York’s statute was “the type of naked rate regulation that is plainly preempted by today’s Order, regardless of the legislation’s title.”
Of course, state action is preempted only if it actually conflicts with the federal order, and this additional language injects some ambiguity. But Commissioner Carr has the better of the argument that New York’s scheme amounts to rate regulation. It mandates that broadband providers offer a plan with state-determined minimum service requirements at a price dictated by the Department of Public Service. The fact that New York is setting rates for only part of the market rather than all consumers, or that it asserts a good reason for doing so, carry little weight. Section 201(b) requires carriers to charge only “just and reasonable” rates, and declares that any “unjust or unreasonable” rate is unlawful. By forbearing from applying Section 201 because rate regulation is not in the public interest, the Commission has precluded regulators at any level from dictating the “fair” price for broadband access.
That’s not to say New York’s motives were misplaced. Universal service is important, and regulators should help ensure that low-income households are not left on the wrong side of the digital divide. But rate regulation is a suboptimal tool. As Lifeline shows, it can inadvertently steer the disadvantaged toward second-tier services. Instead, the state should consider vouchers or other direct-to-consumer aid that allows these families to participate in standard telecom markets. This intervention improves low-income households’ purchasing power while minimizing market distortions, allowing affected families the opportunity to participate more completely in the market for cutting-edge telecommunications services.
You can read the full Free State Foundation Perspectives article here.
Daniel Lyons is a BC Law Professor and Associate Dean of Academic Affairs . He posts regularly at AEIdeas.
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