Why the New FCC Chair Should Leave You Ajit-ated

In the struggle between dot-coms and telecoms, it's clear what side Ajit Pai is on.

Trump's pick for FCC chairman will have to referee the constant struggle between Silicon Valley app and content providers, and the big ISPs and mobile networks. That's also known as the debate over net neutrality, and Pai has placed himself firmly on AT&T's and Comcast's sides on this one.

Pai fashions himself a champion of small business, blowing up regulations to let innovation flourish. That was a big theme in his lengthy opposition to the FCC's net neutrality ruling. In support of his low-regulation stance, he cited a slew of tiny little ISPs that serve rural communities all over the US.

But that's an unrealistic view of the ISP landscape that doesn't affect most Americans. Pai is right that small, often community-run ISPs serve people in rural areas who otherwise wouldn't be able to get Internet—and they'd benefit from less regulation. But the vast majority of Americans are served by giant, monolithic cable companies with massive sway, and Pai doesn't seem to have much to say about curbing their power.

Pai's term will coincide with the launch of 5G, the biggest chance for new competition in wireless in years. Here are the positions I think he'll take.

Get Ready for Mergers

Pai's term is likely to lead to fewer, larger cable companies and mergers between cable and wireless firms. As he told the Wall Street Journal in 2013, when the Comcast-Time Warner Cable deal was still on the table, "a Republican administration likely would be more inclined to approve a deal."

That may not look like it's going to reduce consumer choice, as very few people have choice between cable companies anyway. But just wait for it. Verizon, for example, is eyeing a Charter or Comcast acquisition, according to the New York Post.

The danger of mergers between cable and wireless comes as the wireless firms implement 5G. Right now, a third of Americans only have one choice for high-volume, high-speed home broadband—their cable company. (Wireless companies either have data caps or forbid the use of their unlimited plans on laptops and TVs.) High-speed, 5G wireless from AT&T, Verizon, and the like could finally inject some competition into home Internet. But that won't happen if Verizon buys your local cable company, as it won't have much of an incentive to compete against itself.

Pai has opposed putting conditions on these sorts of mergers. He voted against the Charter/Time Warner merger not because he disapproved of the merger. Rather, he disapproved of the FCC forcing conditions and behaviors on the merged companies. He had similar objections to conditions placed on the AT&T/DirecTV merger. Pai appears to trust the ISPs to just sort everything out themselves.

New Internet providers don't seem to be growing up. In fact, they're dropping out. Google has rolled back its attempts to spread fiber nationwide, and promising startup Starry has no sign of a public launch yet.

Much of this is because the major costs in building a new ISP are in dealing with infrastructure buildout and local and state regulations, which the FCC doesn't control. In urban and suburban areas, those hurdles are so time-consuming and expensive that nobody seems to want to jump them.

Pai wants to nurture ISP startups, as he said in a fiery opinion where he tried to close loopholes allowing big ISPs to get wireless spectrum at a discount. But he'll have a hard time finding the authority to do it, even as large ISPs merge and reduce choices.

Not Neutral on Net Neutrality

Those fewer Internet providers are going to have more control over what goes over their lines. "Net neutrality" is a tussle over who gets to be the gatekeeper for the Internet. The pro-neutrality forces, many in Silicon Valley, want ISPs to be dumb pipes, simple conduits between consumers and the apps they love.

ISPs have a different idea. They want to be able to control traffic, prefer certain content providers over others, and make deals for speedier or less-expensive content delivery. Sometimes, that's consumer-friendly. T-Mobile's famous "Binge On," which exempts video from data caps, was not net neutral. But consumer advocates fear this will lead to less free choice; if AT&T drives users to its own DirecTV Now service rather than to competitor Sling, for example.

Pai sees net neutrality as a "problem that doesn't exist," and in possibly the most epic dissent ever written by an FCC commissioner, says it will lead to "higher broadband prices, slower speeds, less broadband deployment, less innovation, and fewer options for American consumers."

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In his dissent, he calls out T-Mobile's popular Music Freedom and MetroPCS's unlimited YouTube deals as the sort of things consumers like, but which net neutrality would ban.

He sees the ISP and wireless world as seething with competition, which will self-regulate. "Small-town cable operators" and "new entrants like Google" are champing at the bit to build out new lines for Americans, and they're being held back by federal regulations and costs, according to his dissent.

One of our columnists, John Dvorak, agrees in his column "Net Neutrality Hysteria." I don't. Competition can take the place of regulation, but as I said before, there's no real competition in home Internet. I don't think the natural monopoly providers will be able to resist taking rents from online services and choking out the ones they don't have deals with, as Americans don't have anywhere else to turn for their high-volume home services.

Who Needs Protection?

Reading Pai's statements, there's a pure question of worldview here.

In his writing, we live in a nation where hundreds of small Internet service providers, and innovative wireless companies, are thirsting to build and compete. Only government regulation is holding them back. By taking a light touch, the FCC can ensure that innovative new services flourish rather than being forced into old paradigms.

But that's not the nation most of us live in. For most Americans, we're under the thumb of monopoly cable companies and have nowhere else to turn for home broadband. Even when cities beg for competition, nobody's building it: New York City formed an agreement with Verizon to provide FiOS across the city years ago, but Verizon still doesn't offer it as an option to every resident. 5G could offer an answer, but not if all of the upstart 5G providers merge with the existing cable giants.

Pai's greatest task is going to be to manage the balance of power between consumers, content providers and ISPs. His greatest fear is of a heavy-handed government crushing private innovation into a gray smear. But if the crusher is a private corporation, does he have a response?