In recent years, a number of states have endeavored to get into the internet policy game. As the internet diffuses across the economy, the urge to act at the state level will likely strengthen. We saw this recently when California legislators proposed their own internet privacy law after Congress struck down a 2015 internet privacy regulation using the Congressional Review Act, and the Federal Communications Commission (FCC) issued its Restoring Internet Freedom proposal. The California bill has been dropped for now, but you can bet California and other states will revisit privacy and other topics with similar proposals soon.
If ever there were an economic activity that met the definition of interstate commerce, however, it is the internet. Congress has the Constitutional authority to regulate interstate commerce. Yes, Washington oversteps our federalist boundaries in numerous, harmful ways. Beginning 80 years ago, the Commerce Clause was turned on its head and today is too often used as a tool of anti-commerce. In its truest and best sense, however, the Commerce Clause was written to prevent parochialism and fragmentation of markets and to encourage the free flow of goods and services across the nation with minimal interference. You might say that the Founders wrote the Commerce Clause to protect the boundless internet.
We debated the issue of state action in the late 1990s, when the internet was beginning to show that the old telephone regulatory model was obsolete. In the telephone world, the federal Communications Act governed. But the state utility commissions also had a role because much of telecom was “local.” States had authority to regulate local telephone services within a national framework.
The internet blew apart the old ways of doing things. Internet access and applications are inherently non-local services. In this sense, the “cloud” analogy is useful. Telephones used to be registered to a physical street address. Today’s mobile devices go everywhere. Data, services, and apps are hosted in the cloud at multiple locations and serve end users who could be anywhere. Likewise for peer-to-peer applications, which connect individual users who are mobile. Along most parameters, it makes no sense to govern the internet locally. Can you imagine 50 different laws governing digital privacy or net neutrality? It would be confusing at best, but more likely debilitating.
The Democratic FCC Chairman Bill Kennard weighed in on this matter in the late 1990s. He was in the middle of the original debate over broadband and argued firmly that high speed cable modems were subject to a national policy of “unregulation” and should not be swept into the morass of legacy regulation.
In a 1999 speech, he admonished those who would seek to regulate broadband at the local or state level:
Unfortunately, a number of local franchising authorities have decided not to follow this de-regulatory, pro-competitive approach. Instead, they have begun imposing their own local open access provisions. As I’ve said before, it is in the national interest that we have a national broadband policy. The FCC has the authority to set one, and we have. We have taken a de-regulatory approach, an approach that will let this nascent industry flourish. Disturbed by the effect that the actions of local franchising authorities could have on this policy and on the deployment of broadband, I have asked our general counsel to prepare a brief to be filed in the pending Ninth Circuit case so we can explain to the court why it’s important that we have a national policy.
In the coming months, the FCC will likely reclassify the internet as a Title I information service. In addition to freeing broadband and mobile from the regulatory straightjacket of the 2015 Title II Order, this will also return oversight responsibility for digital privacy to the Federal Trade Commission (FTC), its natural home. The FTC has spent the last decade developing rules governing this important and growing arena and has enforced those rules to protect consumers. State efforts to impose their own layer of possibly contradictory rules would only confuse consumers and discourage upstart innovators.
As the internet becomes an ever more important component of all that we do, as its complexity spreads, and as it touches more parts of the economy, this principle will only become more important. Yes, there will be legitimate debates over just where to draw the boundaries. As the internet seeps further into every economic and social act, this does not mean that states will lose all power to govern. But to the extent that Congress, the FCC, and the FTC have the authority to protect the free flow of internet activity against state-based obstacles and fragmentation, they should do so. In its coming order, the FCC should reaffirm the interstate nature of these services.