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Dec. 17, 2020, 8:29 a.m. EST

What a Biden FCC means for social-media and internet regulation

Chris Matthews

The Federal Communications Commission is one of the U.S.’s most powerful agencies, with vast powers to regulate some of the largest corporations in America, and with a gridlocked Congress likely to prevent President-elect Joe Biden from advancing his economic agenda through legislation, it could become an epicenter of policymaking during the next four years.

Here’s what investors and consumers should expect from a Biden FCC:

Who will be the next FCC Chairperson ?

Biden’s choice to lead the agency will be critical to determining how aggressive it will be in the coming years. The most obvious candidates include Mignon Clyburn, former FCC Commissioner and acting chair and Jessica Rosenworcel, a current Democratic FCC commissioner.

Cameron Kerry, Brookings fellow and former acting secretary at the Commerce Department told MarketWatch that because of the power of the agency, it’s unlikely that the Senate will move quickly to nominate a new commissioner.

“We’re going to see what’s likely to be a 2-2 commission for a while,” he said, after the Senate Republicans confirmed Nathan Simington in the current lame duck session of Congress, leaving the body with 2 members from each party. A key argument for why Republicans made this a priority was so that Democrats would not have the power to “immediately get to work,” as a Wall Street Journal editorial warned they might before his confirmation.

A key variable here is the Georgia Senate runoff races : If Democrats are able to pick up two Senate seats in that contest, Biden will be able to confirm his nominees with the tie-breaking vote of Vice President-elect Harris, assuming his party can avoid any defections in an evenly split upper chamber.

Net Neutrality

A likely goal for a Democratic FCC, especially if a Democratic majority delivers for Biden his ideal pick for chairperson, is the return of so-called “net neutrality” rules that prohibit internet service providers from discriminating against certain content, by providing it to consumers at different speeds or by charging content producers — Netflix Inc. (NAS:NFLX) or Walt Disney Co. (NYS:DIS) — for the right to deliver their product to consumers.

In order to bring back such rules, the FCC would have to reclassify internet service providers as a “Title II” telecommunications service that gives the agency broad regulatory powers over them.

Net neutrality has been hotly debated for years, especially after the FCC implemented the rules in 2015 under President Barack Obama, only to have those rules and the Title II classification that authorized them, repealed in 2018 under President Donald Trump and current FCC Chair Ajit Pai.

Pai has defended his decision, arguing that broadband speeds have increased over the past two years and that consumers have faced no decline in the quality of their experience on the internet. “The American people can still access their favorite websites,” he said in October . “They don’t pay extra to avoid the slow lane.”

Internet service providers have thrived under the new rules. Pure-play broadband providers Charter Communications Inc. (NAS:CHTR) , Altice USA Inc. (NYS:ATUS) and Cable One Inc. (NYS:CABO) have all greatly outperformed the S&P 500 index since the beginning of 2018, according to FactSet.

Other major broadband providers Comcast Corp. (NAS:CMCSA) , Verizon Communications Inc. (NYS:VZ) and AT&T Inc. (NYS:T) have fared less well, but their struggles cannot be attributed to their broadband businesses.

“The only reason you’re seeing any kind of downturn for them is the bigger conglomerates have sometimes taken a bath on their media properties,” said Matt Wood, vide president of policy and general counsel at Free Press, nonpartisan group that advocates for affordable internet access.

Wood argued that the reason consumers haven’t seen an appreciable degradation in service after net neutrality’s repeal is that service providers are still operating under the threat of state-level regulation and because companies like Charter have been operating under merger conditions that have continued to impose net-neutrality like regulations.

The Digital Divide

Indeed, the industry itself has called on Congress to pass new laws that would cement net neutrality rules without the FCC needing reclassify broadband as a Title II service — a move that would open the door for much more stringent regulation like price controls.

“The industry is afraid that Title II will open the door to utility-style regulation,” Wood said. Though he doesn’t think the FCC should engage in rate setting, he argued that the Title II designation is essential for ensuring all Americans have access to affordable, high-speed internet.

One way to close this “digital divide” that leaves tens of millions of Americans without high-speed internet, would be to force broadband internet providers to sell wholesale access to cable lines to competitors at a reasonable rate, thus spurring competition in an industry where monopoly markets are common, Wood said. According to the Institute for Local Self-Reliance, 77 million Americans have only one choice of broadband internet providers.

ISPs are steadfastly against such regulations, saying it would deter companies from spending money on building out and upgrading their networks. “ISPs have built their businesses for decades, investing billions of dollars, on the promise that they were not under the heavy yoke of Title II,” Michael Powell, president and CEO of the internet and Television Association told Congress last year.

The controversial nature of Title II regulation could lead the FCC to attempt other methods to close the digital divide, especially if Congressional gridlock leaves the commission evenly split between the parties.

“I expect a period of neutrality on net neutrality and Title II, given the realities the administration, the FCC and Congress face,” said Brookings’ Kerry. He added that a compromise position would be to expand and make more generous the FCC’s Lifeline program that provides subsidies to lower income Americans to purchase internet access.

Section 230

Meanwhile, the debate over the law which gives social media companies liability protection for most material posted by its users, or Section 230 of the 1996 Communications Decency Act, has taken center stage in the public imagination.

“Some of the attention that was paid to net neutrality by people in Washington in past years has shifted over to the tech platforms and things like section 230 and privacy and antitrust,” said Paul Gallant, a former FCC attorney and managing director at Cowen & Co.

President Trump brought attention to the issue in recent months, arguing that social media companies like Facebook Inc. (NAS:FB) and Twitter Inc. (NYS:TWTR) should be stripped of liability protection because of an alleged anti-conservative bias in their content moderation. He plans to veto a recently passed defense-spending bill because it does not include a repeal of Section 230, White House press secretary Kayleigh McEnany said Tuesday.

President-elect Biden has also come out in favor of eliminating Section 230, but it’s not entirely clear what either party wants to achieve by through repeal, other than limiting the spread of content they find objectionable.

FCC general counsel Thomas Johnson argued in October that the commission has the legal authority to amend Section 230 through the rule making process, and outgoing Commissioner Pai announced that the FCC would move forward with efforts to “clarify” the meaning of section 230. Congress, however, would have greater ability to amend the law.

“Congress will make a  run at passing a 230 bill, but the parties start from two different places I’d be surprised if it actually passes,” Gallant said. “More realistic is tougher self regulation proposals in place of legislation.”

Link to MarketWatch's Slice.