Does net neutrality's repeal create regulatory crack or a chasm?

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(Bloomberg) -- The Federal Communication Commission’s decision to scrap net-neutrality rules doesn’t necessarily mean the internet won’t be regulated.

Whether the oversight void left by the FCC’s action is a small crevice or a giant canyon depends on what role other agencies play, as well as decisions by courts and policymakers.

Here are some ways it may play out:

Trade One Acronym for Another

FCC Chairman Ajit Pai, a Republican appointed by President Donald Trump, has said has the Federal Trade Commission can monitor for anti-competitive practices. Critics, including one of the FTC’s own commissioners, Democratic appointee Terrell McSweeny, say those agencies don’t have expertise and act only after abuses occur, rather than setting rules that guide behavior.

The FTC’s ability to do so may hinge on its winning a court fight with AT&T Mobility LLC over the carrier’s alleged failure to tell customers who signed up for unlimited data that it would throttle that flow after a pre-set volume.

The AT&T broadband unit last year convinced a three-judge panel of a west coast appeals court that the FTC’s oversight power is blocked. The reasoning was that parent company AT&T Inc. still provides conventional landline telephone service, making it a common carrier -- something the trade commission is barred from regulating. An 11-judge panel is weighing whether the earlier ruling was a mistake.

Justice Drops the Hammer

The U.S. Justice Department’s antitrust division could also step into the regulatory breach, should one or more of the now-deregulated internet service providers engage in conduct it deems harmful to competition. It’s already sued AT&T and Time Warner Inc. to block their $85.4 billion merger on those grounds.

States Rush to the Rescue

Pai’s plan expressly bars individual states from becoming internet service provider cops on the theory that national providers should be governed by uniform federal regulations, not a patchwork of local requirements.

But the states aren’t completely sidelined and still wield consumer-protection power, said Matthew Schettenhelm, an attorney and government litigation analyst with Bloomberg Intelligence.

Former FCC Associate General Counsel Randolph May, now president of the Free
State Foundation, a free-market think tank, agreed. "What I don’t believe that the FCC is purporting to do is preempt the states from enforcing their own consumer-protection laws," he said.

Still, the line between where federal authority ends and a state’s power to protect its citizens begins may need to be drawn by the courts.

Judges Get the Last Word

State attorneys general from New York, Pennsylvania and Washington threatened lawsuits immediately after the FCC’s vote aimed at undoing the agency’s repeal.

Washington Attorney General Bob Ferguson said he’ll mount a challenge based on the Administrative Procedures Act, a law designed to prevent an incoming administration from overturning its predecessor’s acts without showing a need or change in circumstance. New York State Attorney General Eric Schneiderman also announced plans to sue, as did Free Press, an activist group that helped organized the opposition to the FCC’s party-line vote.

But the lawsuits face an uphill battle because courts generally defer to the expertise of federal agencies, said James Speta, a Northwestern University law professor who favored the net neutrality rules.

Calling on Congress

Massachusetts Democratic Senator Edward J. Markey said he would mount a two-pronged attack to preserve the rules. Besides supporting legal action, he and other lawmakers said they would introduce a resolution under the Congressional Review Act that allows Congress to overturn some actions of regulatory agencies.

Congress could write a law to overrule the FCC’s action, and Republicans and broadband providers have asked it to step in. Democrats have resisted, saying legislation proposed so far would unacceptably weaken the FCC’s power to protect internet users.

The Democrats’ “wall of resistance” may weaken in the new year after partisan fervor heightened by Thursday’s vote has a chance to abate, Cowen & Co. analyst Paul Gallant said in a Nov. 21 note. A bill might restore some basic net neutrality protections and also bar the FCC from regulating rates, Gallant said.

The election of a Democrat as president in 2020 could prompt yet another reversal, said Speta. But, he added, "I don’t think that’s the best way to make policy."

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