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What the FCC’s chairman told Verizon is a huge deal for net neutrality

WASHINGTON, DC - MAY 15: Federal Communications Commission (FCC) Chairman Tom Wheeler speaks during an open meeting to receive public comment on proposed open Internet notice of proposed rulemaking and spectrum auctions May 15, 2014 at the FCC headquarters in Washington, DC.  (Photo by Alex Wong/Getty Images)

For weeks, Internet providers have been warning regulators they'll stop growing their networks if they have to abide by strict net neutrality rules. But President Obama's top industry watchdog isn't buying that line.

The rules, which are currently being crafted at the Federal Communications Commission, could lead to the agency policing broadband companies with the same tools that it uses for phone companies. This is a big step the Internet providers have strongly resisted. As much as $45 billion of new infrastructure investment may be at stake, industry lobbyists have told the FCC. Strong regulations, they say, would discourage providers from using that money to give consumers faster data and more reliable service.

But FCC Chairman Tom Wheeler, a former tech lobbyist himself, shot down that argument Thursday. Responding to comments made by Verizon's chief financial officer this week, Wheeler said the telecom industry's been plenty willing to invest when it sees a market opportunity. He pointed to a massively successful auction of government airwaves that's raised more than $43 billion so far, nearly quadruple some of the sunniest predictions. He cited Wall Street analysts who say strong regulations would be, in Wheeler's words, "less of a bugaboo if it's done correctly." And, he said, infrastructure upgrades have continued without much problem when it comes to other services regulated under Title II of the Communications Act, the part of the law that regulators are considering applying to broadband companies.

"For 20 years, Verizon Wireless, AT&T Wireless, all the wireless carriers have been living under Title II with appropriate forbearance and have been able to raise and invest hundreds of billions of dollars and build a mobile network that is the envy of the world," said Wheeler.

Here's the implicit question behind his remark: So what's the big problem, guys?

Critics of the FCC who advocate for lighter regulations argue Wheeler is doing a bit of cherrypicking. They argue you can't compare regulating voice calls to regulating broadband; they're just different. And besides, upgrading voice infrastructure doesn't take nearly as much money as upgrading Internet infrastructure. The extra expense alone makes applying Title II to ISPs a more sensitive undertaking.

Others have a different take: Verizon's CFO — whose comments diverged from the industry's line about future network upgrades — was simply playing to his investor audience. That's the real reason why companies tell regulators one thing and their shareholders another.

"It's not because people are lying. It's because you sell to the customer that you're selling to," said one industry observer, who spoke on condition of anonymity because he was not authorized to speak on the record. "If you're selling to Washington, you're selling a story of, 'Doom is upon us unless you do precisely what we want.' And to Wall Street they say, 'Doom is upon you if you don't invest in my stock.' "

Whatever you make of the substance of this exchange between Verizon and the FCC, it's clear Wheeler isn't swayed by arguments of economic calamity. That suggests he may be more inclined than ever to apply Title II to broadband, analysts say.

"When speaking publicly about net neutrality, Mr. Wheeler has always tried to balance protecting an Open Internet with preserving carrier network incentives," wrote industry analyst Paul Gallant in a research note Thursday. "But today, he appeared to go farther by essentially saying, 'Not only should the net neutrality rules themselves have little effect on carrier investment levels, but neither should Title 2.'"

Here's the quote from Wheeler, in full.

Question: Can you respond to Verizon's CFO’s comments earlier this week suggesting that Verizon’s investments in its network would not be affected by an FCC move to Title II on the Open Internet?

Wheeler: I wasn’t surprised by it. The AWS-3 auction is at these incredible levels despite the fact that I went to the CTIA annual meeting in September and said, “You know, I think it’s pretty hard to carry 55% of the Internet and not be subject to Open Internet.” Despite the fact that I’ve been talking about Title II all along, including Title II being part of the Hybrid proposal that we were floating, despite the fact that the President said what he said about Title II. So I think those all fit together. So when Verizon makes that kind of statement, I think it’s logical, I think it’s reflected in what various Wall Street analysts have said in terms of Title II being less of a bugaboo if it’s done correctly. And I think it is also, in a greater sense, reflective of a world that Verizon has been living in. Section 332 of the Communications Act specifically says that wireless will be treated as a common carrier but that the Commission shall forbear from the vast majority of common carriage sections of Title 2, except for 201, 202 and 208. So for 20 years, Verizon Wireless, AT&T Wireless, all the wireless carriers have been living under Title II with appropriate forbearance and have been able to raise and invest hundreds of billions of dollars and build a mobile network that is the envy of the world. So again, I just think that is in keeping with that kind of a background.

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