Net Neutrality 2014: The Regulators Strike Back

By Paul J. Feldman

Trying to meet conflicting demands of court, Congress and constituency, Chairman Wheeler is on the horns of a dilemma.

Feldman

Feldman

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The FCC’s May, 2014 monthly meeting was not ordinary. Protestors camped outside the Commission’s headquarters and shouted slogans in its meeting room. Democratic Commissioners showed signs of open rebellion against their Chairman. Republican Commissioners stood in blunt opposition to the Chairman. And everyone, including the Chairman, urged fervently that “the future of the Internet” was at stake.

Against this backdrop, Chairman Wheeler announced the FCC’s latest proposal for Open Internet rules. Caught between the demands of his political constituency and legal requirements set by the U.S. Court of Appeals for the D.C. Circuit, he attempted to walk a narrow and difficult path.

And by a 3-2 vote (with two of the three Commissioners in the majority expressing serious reservations), the FCC followed the Chairman on that path: it adopted a Notice of Proposed Rulemaking (NPRM) soliciting comments on the latest approach to “net neutrality” regulation.

Highlights of the NPRM include proposals to:

  • continue the “no-blocking” rule, first adopted in 2010, prohibiting Internet service providers (ISPs)from blocking subscribers’ access to certain content. But that rule would now be supplemented to allow ISPs some opportunity to provide content providers (e.g., Netflix, Amazon) enhanced, higher speed access to subscribers, presumably for a fee;
  • prohibit only “commercially unreasonable” practices in the ways ISPs treat different content on their networks differently. The previous version of this rule flatly prohibited ISPs from “unreasonably discriminating” among content providers;
  • continue to look to Section 706 of the Communications Act for the statutory authority to adopt net neutrality rules. The Commission does, however, ask whether it should instead rely on Title II of the Act to support the reclassification of broadband Internet access service, and possibly ISP service to content providers, as telecommunications services subject to common carriage regulation.

A Brief History of Net Neutrality

Some historical background may be useful before we delve into the NPRM in greater detail.

In 2002, the FCC declared cable broadband ISPs to be free of Title II/common carrier-based regulation; it did the same for telephone broadband ISPs in 2005.

Also in 2005, the FCC adopted an Internet Policy Statement setting out four “principles” designed to “preserve and promote” an Open Internet.

The 2005 Policy Statement got its first test in 2008, when the Commission found that Comcast had deliberately and maliciously interfered with some customers’ usage of Internet peer-to-peer applications. The FCC claimed that Section 706 of the Act authorized it to take this action. Earlier, however, in 1998, the FCC had expressly held that Section 706 did not constitute an independent grant of authority. Comcast appealed to the D.C. Circuit. In 2010, the court struck down the FCC’s action against Comcast, holding that, having never veered from its 1998 view of Section 706’s limits, the Commission could not without explanation suddenly rely on Section 706 as authority to regulate the management of broadband Internet traffic by ISPs.

In December of 2010, the Commission responded to the court’s Comcast decision by adopting an Open Internet Order announcing three basic rules:

  1. a transparency rule requiring both fixed and mobile ISPs to “publicly disclose accurate information regarding the network management practices, performance, and commercial terms” of their broadband Internet access services;
  2. an anti-blocking requirements barring (a) fixed ISPs from blocking “lawful content, applications, services, or non-harmful devices subject to reasonable network management” and (b) mobile ISPs from blocking access to lawful websites or “applications that compete with the provider’s voice or video telephony services,” subject to “reasonable network management”; and
  3. an anti-discrimination rule for fixed providers, barring them, also subject to “reasonable network management, from “unreasonably discriminat[ing] in transmitting lawful network traffic.”

The FCC again relied on Section 706 as the statutory authority for its 2010 Open Internet rules. But this time it acknowledged its earlier contrary view and explained its change of mind: Section 706(a) generally urges the FCC to “encourage” the deployment of advanced (broadband) capability through regulatory or de-regulatory measures to promote competition or remove barriers to investment; and Section 706(b) requires the FCC to take similar regulatory actions concerning the availability of advanced telecommunications if, after appropriate inquiries, it finds that such advanced services are not being deployed in a timely manner. Since the net neutrality rules are supposed to be encouraging broadband deployment and increasing the availability of advanced telecommunications, the FCC reasoned, Section 706 gives it the necessary authority.

Verizon appealed the 2010 Open Internet Order, arguing that Section 706 did not supply the required statutory authority to the FCC.

The good news for the Commission: in its January, 2014 decision the court concurred with the FCC, agreeing that it could find a grant of authority there.

The bad news for the Commission: the Court held that Section 706 does not allow the FCC to impose common carrier-like regulations on entities—such as ISPs—that the FCC had previously declared not to be common carriers. Because the 2010 anti-blocking and anti-discrimination rules effectively treated ISPs like common carriers, the court struck down the rules. (It did allow the transparency rule to stand.)

The court’s bottom line: the FCC must allow ISPs to negotiate with content providers and enter into “commercially reasonable” agreements that could include, by implication, paid prioritization.

What is paid prioritization, you ask? Hard to say for sure, since that hadn’t been an option before the court’s decision and no agreements between ISPs and content providers attempting to achieve such a thing have yet surfaced (if any exist at all). But one could imagine an Internet content provider—like, say, Amazon—agreeing to pay an ISP—Verizon, for instance—to enhance the speed or other technical characteristics of Amazon traffic to Verizon’s subscribers. That could give Amazon an advantage over its competitors, an advantage net neutrality supporters refer to—perhaps pejoratively, perhaps enviously—as a “fast lane.” They argue that Internet traffic not enjoying such “fast lanes” will necessarily be relegated to the “slow lane.” That, in turn (so the argument goes), would degrade consumers’ experience in accessing non-fast lane content providers, thereby competitively disadvantaging content providers unable to pay for the enhancement.

The NPRM

In the wake of the Verizon decision, Wheeler (who had arrived at the Commission only about ten weeks earlier) had two options: get out of the net neutrality business (as the Republican Commissioners urged) or try again. While most observers expected him to try again, the Verizon court had obviously complicated that option, leaving the Chairman with a dilemma. Yes, the court had said that the FCC could rely on Section 706 to regulate net neutrality but, in doing so, could not treat ISPs like common carriers. Importantly, that meant the FCC would have to let ISPs enter into “commercially reasonable” agreements with content providers, agreements that might include paid prioritization.

When Wheeler suggested (in one blog, then another) that he was open to that approach, the Internet “street” blew up, with even his fellow Democratic Commissioners rebelling publicly. So in the days leading up to the FCC’s vote on the NPRM, he revised his proposal to follow the court’s “road map,” while simultaneously threatening to move the Commission toward a Title II-based common carrier approach that could prohibit paid prioritization.

While reliance on Title II would provide a stronger statutory basis for Open Internet rules, there is considerable resistance to that approach. Reclassifying ISPs as telecommunications carriers could potentially expose them to hundreds of pages of full-blown Title II telecommunications regulation, a prospect that runs against the grain of both Internet history and the free-wheeling Internet ethos. In the view of some (including many ISPs), it would also discourage the investment and innovation in the facilities that drive the Internet. And it would almost certainly trigger massive political and legal resistance from ISPs and Republican members of the House and Senate. Of course, if ISPs were treated as common carriers, they might be relieved of some telecom regulatory burdens through the forbearance process set out in Section 10 of the Communications Act. But forbearance would not provide much regulatory certainty to ISPs, who might fear that a future FCC could un-do any grant of forbearance.

Wheeler’s dilemma can be seen in the NPRM’s discussions of the no-blocking rule and the prohibition on commercially unreasonable practices.

The No-Blocking Rule

Even though the court struck down the 2010 version of the no-blocking rule, the NPRM proposes retention of that rule, but with a “clarification.” While “blocking” would be prohibited, ISPs and content providers would still be permitted to bargain for provision of enhanced service (e.g., prioritization) above a minimum level of access to the ISP’s subscribers. This would be consistent with the individualized bargaining approach suggested by the court as an alternative to per se common carriage treatment. And, similarly consistent with the court’s analysis, under the clarified rule the terms of such service would have to be “commercially reasonable.” The evaluation of “commercial reasonableness” would involve multiple factors, including the impact of the practice on competition, consumers, and “speech and civic engagement.” Yet as an alternative, the NPRM seeks comment on whether the FCC should adopt a no-blocking rule that either itself prohibits ISPs from entering into priority agreements with content providers, or acts in combination with a separate rule prohibiting such conduct.

It is surprising that the Commission would propose to adopt a rule identical to one struck down just months earlier. And while the Commission’s proposed “clarification” would allow prioritization agreements, the specific language of the rule as proposed does not include any reference to that “clarification.” Instead, the “clarification” about prioritization is simply a supplemental interpretation outside the text of the rule itself. It is far from clear that this will be sufficient to protect the rule in a court challenge. Notably, future Commissioners could modify the interpretation of the rule, without having to modify the rule itself—and, indeed, Chairman Wheeler has already told Congress that, in his view, paid prioritization would interfere with the Internet’s “virtuous cycle” and, as a result, be “commercially unreasonable.”

Furthermore, if the FCC wished to prohibit any and all prioritization, theVerizon case indicates that it would presumably have to classify ISPs as telecommunications carriers to be regulated under Title II. Yet ISPs such as AT&T have already made a case that Title II does not itself require an absolute bar to disparate treatment of content providers. Rather, it prohibits only “unjust and unreasonable” discrimination or prioritization. That is, Title II allows telecommunications carriers to offer different terms and conditions to different customers (for instance, content providers) as long as those terms and conditions are made available to similarly situated customers. A blanket bar on prioritization would go beyond even the mandate of Title II.

Prohibition on Commercially Unreasonable Practices

The rules struck down in the Verizon case flatly prohibited ISPs from “unreasonably discriminating” in their treatment of different content carried over their networks. The NPRM proposes a new more “flexible” rule prohibiting only “commercially unreasonable” practices resulting in disparate treatment of different content. This would act both as a factor in evaluating violations of the no-blocking rule and, separately, as a supplemental protection in cases where a practice complies with the no-blocking rule but still may be deemed harmful. While the NPRM seeks comments on factors to be used in evaluating the commercial reasonableness of a prioritization practice (impact on competition and consumers, consistency with industry practice), it also seeks comments on whether prioritization agreements should be flatly banned under this rule. The NPRM concedes that such a ban would require regulating ISPs under Title II – illustrating that the “commercially unreasonable” provision is subject to essentially the same conundrum as the proposed no-blocking rule.

The Transparency Rule

In addition to the proposed rules regarding no-blocking and unreasonable commercial practices, the Commission is proposing to enhance the transparency rule that the Verizon court upheld. That rule currently requires ISPs to:

publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding the use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

The NPRM would expand that to require disclosure of specific data regarding transmission speed, latency and packet loss. This is apparently in response to a common consumer complaint that some ISP-advertised speeds seem faster than the speeds actually delivered. The NPRM also asks whether there is additional information that ISPs should have to disclose both to content providers and to the carriers between the content provider and the ISP.

To enforce the new rules, the FCC is considering a requirement that ISPs annually certify compliance. In addition, the Commission asks whether it should create an FCC “ombudsperson” to whom complaints (from consumers and “Internet entrepreneurs”, including mainly small start-ups and edge providers) could be addressed and who could, where warranted, “investigate and represent [the complainants’] case.”

The FCC’s meeting, and the NPRM and accompanying statements that emerged from that meeting, reflect deep divisions within the Commission and, indeed, across the public. The only point everyone seemed to agree on: the hyperbolic rhetoric that what’s at stake in this Open Internet proceeding is nothing less than “the future of the Internet.” Historically, the Internet has managed to survive and thrive despite similar overwrought claims, and it’s doubtful – at least to this blogger – that the fate of the Internet hangs on this decision. Of course, new FCC rules will have real consequences, but unquestionably, emotions and political rhetoric have been elevated to an extraordinary level in this proceeding. We expect more of the same as it progresses.

Comments in response to the NPRM are due no later than July 15, 2014; reply comments are due by September 15. Comments may be uploaded to the FCC’s ECFS filing website; use Proceeding No. 14-28. Please contact us if you have any questions or are considering participating in this proceeding.

Paul J. Feldman is an attorney with Fletcher, Heald & Hildreth. He concentrates on the areas of local and interexchange telecommunications, private and commercial mobile radio services, and video services, including cable TV, IPTV, and broadcast television. He can be reached at feldman@fhhlaw.com. This article first appeared at the FHH CommLawBlog.