By James Tuthill [1]
On
February 19th, the Chairman of the Federal Communications
Commission, Tom Wheeler, said that the FCC would not appeal last month’s
Federal Court of Appeals decision overturning the FCC’s Net Neutrality rules, Verizon
v. Federal Communications Commission, (D.C. Cir., Slip Op. No.
11-1355, Jan. 14, 2014.) Those
rules prohibited discrimination and blocking by Internet Service Providers (ISPs)
who provide broadband, that is high speed, connections to the Internet. Under
that ruling, if an ISP like Comcast wants to impede Internet traffic, as it did
several years ago[2], it can
once again. While asserting that the FCC
supports an open Internet and will develop new rules to replace those thrown
out by the court, effectively the FCC has conceded defeat. Let’s look at what the Verizon decision did and said and then evaluate what the FCC just
proposed and why its actions translate into a loss for consumers and edge
providers.
In
Verizon, the court said that the
FCC’s Net Neutrality rules amount to regulating ISPs, such as Comcast and
Verizon, as “common carriers.” It reasoned that because the FCC’s rules obligate
ISPs to act as common carriers the rules exceeded the FCC’s authority and are
invalid: “[w]e think it obvious that the Commission would violate the
Communications Act were it to regulate broadband providers as common
carriers. Given the Commission’s
still-binding decision to classify broadband [ISP] providers not as providers
of ‘telecommunications services’ but instead as providers of ‘information
services’…such treatment would run afoul of …[the definition of a Telecommunications
Carrier in the Communications Act of 1934 as amended by the Telecommunications
Act of 1996, “the Act”]” Slip Op. at 45.
The
court reached back to Nineteenth Century legal principles defining common
carriage and stated that the distinguishing characteristic of a common carrier in
the Twenty First Century is the “…requirement of holding oneself out to serve
the public indiscriminately.” Slip Op.
at 48. It then stated the principal
issue in the case: “…the question is whether, given the rules imposed by the
[FCC’s] Open Internet Order [which
established the Net Neutrality rules], broadband providers are now obligated to act as common
carriers.” Slip Op. at 52. It concluded that the anti-discrimination and
anti-blocking rules require the broadband ISPs to hold themselves out to “serve
the public indiscriminately” and therefore impermissively treat them as common
carriers.
While
criticizing the FCC’s logic, the court’s reasoning is itself fuzzy and
confusing. It primarily relies on Midwest
Video Corporation v. FCC, 440 U.S. 689 (1979.) That case, however, rested on the statutory
declaration that “***a person engaged in ***[television] broadcasting shall not,
insofar as such person is so engaged, be deemed a common carrier.” 47 USC 153 (11.) In contrast, the definition the court here
addressed is Telecommunications Carrier: “***A telecommunications carrier shall be
treated as a common carrier under this chapter only to the extent that it is
engaged in providing telecommunications services****” 47 USC 153 (51.) The difference in the wording of the two
sections is significant: the first, applicable to broadcasters, fences off
their broadcasting activities from regulation as a common carrier; the second
says a telecom carrier will be regulated as a common carrier only to the extent
that it is providing telecom services.
But it is silent about whether or not the FCC may impose some common carrier regulations on non-telecom
entities. The court either misses this
distinction or ignores it.
The
court of appeals here also fails to grasp the context of Midwest Video which was essential to the rationale the Supreme
Court relied upon in invalidating the FCC’s rules under consideration in that
case. There the court was concerned with
broadcasters’ journalistic independence which it noted was Congress’ rationale
behind the prohibition in section 47 USC 153 (11): “[The] provisio[n] clearly
manifest[s] the intention of Congress to maintain a substantial measure of
journalistic independence for the broadcast licensee.” Midwest
Video, supra at 705, citing Columbia Broadcasting System, Inc., v. Democratic
National Committee, 412 U.S. 94 at 116 (1973.) This critical consideration is absent in the statutory
definition on which the court relied in Verizon.
Although
saying that it must be careful not to substitute its judgment for that of the
Commission, that is exactly what the court does. It found that the FCC
has the authority to regulate ISP services, that is, Digital Subscriber Line
(DSL) and cable Internet connections, but declared that its rules prohibiting
discrimination and blocking exceeded its authority. Although recognizing that the classification
of common carriage is not an all or nothing determination, and that “it is at
least logical to conclude that one may be a common carrier with regard to some
activities but not others….” Slip Op. at 51, the court concludes that the
application of the rules to broadband ISPs constitutes treating them as common
carriers. The court’s explanation is confusing and unpersuasive: it
fundamentally says that the FCC is wrong just because we say so.
At its core, the principal disagreement
between the FCC and the court is what should be noncontroversial: the manner in
which the Internet functions and how ISPs provide services. This different understanding of the facts is
the decisive factor in this case. One or
the other is wrong. Under the Chevron doctrine, Chevron U.S.A. Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), if a
statute subject to agency jurisdiction is ambiguous, and the agency’s
interpretation is reasonable, the court will defer to the agency’s
interpretation of the statute. But here
the court doesn’t accept the agency’s explanation. This is one of the reasons Chairman
Wheeler is making a grave mistake in letting Verizon remain valid law instead of seeking a reversal before the
Supreme Court.
The
court seems to miss the fact that both end users and edge providers, like
Amazon, must purchase Internet connections from providers like Verizon and
Comcast and that in a connected data transmission, the providers to the end users
and the edge providers are frequently different. That is, Amazon may purchase Internet
services from Verizon to connect its data farm to the Internet backbone and
Elizabeth, in San Francisco, may purchase her Internet connection from
Comcast. Internet providers such as
Verizon and Comcast agree to exchange traffic under what are known as “peering”
agreements and each may use other wholesale network providers to carry
long-haul traffic among their switches. Thus, when Elizabeth logs onto Amazon’s
site the transmission is handled by both Comcast and Verizon and probably other
third party network providers too. The
court fails to take note that there are originating, transport and terminating
components in Internet connections. The FCC tried to explain this, but its
arguments were dismissed by the court.
The
court concludes that the FCC’s anti-discrimination and no blocking rules impose
the “serve all” aspect of common carriage because it says “if Amazon were now
to make a request for service, Comcast must
comply. That is, Comcast must now
‘furnish…communications service upon reasonable request therefore.’ 47 U.S.C. §
201(a).” Slip Op. at 52. But nowhere do the FCC’s rules explicitly require Comcast to provide service;
rather, the rules apply if Comcast chooses
to provide broadband Internet service to an end user or an edge provider such
as Amazon or Netflix. The No Blocking
rules states “[a] person engaged in the provision of fixed broadband Internet
access service, insofar as such person is
so engaged, shall not block lawful content, applications, services, or
non-harmful devices****” (Emphasis supplied.)
The rule prohibiting Unreasonable Discrimination contains the same
proviso. But nowhere in its discussion
does the court address this specific limitation in the rules.
The
FCC had basically five options following the court’s decision: 1) seek a
rehearing or a rehearing en banc before the court of appeals; 2) reclassify
broadband Internet access services as Telecommunications services and treat
ISPs as common carriers; 3) appeal to the Supreme Court; 4) do nothing; or 5)
promulgate new rules. Chairman Wheeler
took the fifth option. Let’s evaluate
each.
A
rehearing or rehearing en banc would likely have been unsuccessful. The panel vacated the rules, and therefore it
isn’t going to be swayed that they acted in error. And, reversals on a rehearing en banc are
rare. The FCC was right to pass on this
approach.
Various
stakeholders have strongly argued that
the FCC should accept the court defeat and reclassify broadband Internet access
as a Telecommunications Service instead of the Information Services designation
it gave Internet broadband service several years ago. This is the reclassification argument. Its premise is that the FCC can change the
regulatory treatment of Internet broadband service and impose common carrier
requirements and achieve its goals of preventing discrimination and blocking by
merely reclassifying the regulatory treatment of broadband Internet services. In a perfect world, this would be the right
approach. In his statement, Chairman
Wheeler said that he would retain this
as an option for the Commission “if warranted.”
He’s holding this club over the ISPs as a threat if his approach to
develop new rules is unsuccessful. But
it’s a weak threat, because reclassification won’t work for several reasons.
First, it will simply take too long: one to
two years to promulgate the new rules, and two or more years in court appeals.
It won’t be until near 2020 that the issue gets resolved, if ever. (Just look at the FCC’s media ownership
rules. They have been bouncing back and
forth between the Commission and the courts for over a decade.) The Internet is morphing at light speed. By the time the rules are in place they simply
won’t matter anymore.
Second,
the FCC can expect an invasion of lobbyists and opponents as intense as
anything it has recently seen.
Republicans in Congress would vociferously oppose reclassification. The argument will be the same tired and unproven
statement that regulation will stifle investment and innovation. Armies of so called “experts” will be hired
to proselytize their message that reclassification will destroy the Internet. It’s questionable whether or not the FCC will
be able to take the political heat.
Third, there is a Supreme Court case
known as Brand X, (National Cable
& Telecommunications Ass’n v. Brand X Internet Services, 545
U.S. 967 (2005) )which
stands as a giant hurdle for the FCC to clear to successfully reclassify broadband
Internet services as Telecommunications Services. That decision held that
the FCC’s determination that cable companies providing cable modem services
were not providing Telecommunications Services as defined in the Act and
therefore were not subject to the common carrier regulations of the Act, known
as Title II, was correct. The FCC had
determined that cable companies offering cable modem service were not
“offering” Telecommunications Services because of the integrated nature of
Internet access and the high-speed wire used to provide Internet access and
therefore they were not subject to common carrier regulation. The Court in Brand X applied the Chevron
doctrine, and accepted the FCC’s interpretation of the statute.
Of particular significance for the
reclassification argument is the Court’s statement in Brand X that “[t]he entire
question is whether the products here are functionally integrated…or
functionally separate….That question turns not on the language of the Act, but
on the factual particulars of how Internet technology works and how it is
provided, questions Chevron leaves to
the Commission to resolve in the first instance.” (Emphasis supplied.) Brand X at 991.
Reclassification would require the FCC
to reach a contrary factual conclusion: that Internet broadband services do not
involve functionally integrated services but an offering of two separate
services: the connection to the Internet and the high-speed facility used to
enable that connection. While the
Supreme Court has stated that an agency is free to change its policy under
appropriate circumstances, FCC v. Fox Television Stations, Inc.,
556 U.S. 502 at 517-518 (2009), it isn’t at all clear that an agency can change
the facts on which it bases its decisions so easily. And we can be sure that the formidable
opponents of reclassification will vigorously argue this point before the courts. It may
be for this reason alone that the Chairman has decided for the moment not to
seek reclassification.
The
FCC could have filed a writ of certiorari with the Supreme Court. It is likely the Court would have taken the
appeal given the significance of the case and the involvement of a federal
agency. As described above, the FCC has
a number of strong arguments to make: the court misconstrued the legal
consequences of its rules (they do not treat ISPs as common carriers), failed
to grasp how the Internet functions, failed to defer to the agency under the Chevron doctrine, failed to provide a
clear, cogent and convincing argument for its conclusion and substituted its judgment
for the FCC’s on national policy.
And
given the present composition of the Court, the FCC stood a better than even
chance of success. Three justices in the
majority in the Brand X decision, Justices Thomas, Kennedy and Breyer
remain and would be inclined to defer to the FCC as they did in Brand X.
Two new justices, Kagan and Sotomayor would be sympathetic to the FCC. The Chief Justice might also have been
inclined to defer to the agency’s expertise on complex technical matters
involving network operations. That’s at
least six votes. It isn’t clear why the
Chairman choose not to pursue an appeal.
Politically,
doing nothing was not an option. President
Obama openly supported Net Neutrality and he appointed Chairman Wheeler. Public interest and consumer groups, such as Public
Knowledge, would have unleashed the wrath of the Internet and social media on
the Chairman if he took no action. And
Democrats in Congress, who only last week introduced legislation to restore the
rules, would have been irate. Further,
the need to do something was escalated by the just announced acquisition of
Time Warner Cable by Comcast which will create a media behemoth serving 30
percent of the cable market.
The
Chairman has selected the fifth option, adopting new rules, to deal with the
court’s decision. But that approach will
likely be of little actual beneficial force and effect for end users and edge
providers. He said he would propose new
rules to “Fulfill the ‘no blocking’ goal…[and] … Fulfill the goals of the
non-discrimination rule.” But how can he
legally do this in the face of the Verizon
decision? The court has declared
that imposing no blocking and antidiscrimination rules amounts to treating the
ISPs as common carriers, and the Commission is prohibited from doing that. We all know that calling a rose by any other
name does not change it from being a rose.
The court will see through the guise to pass new rules off as something other
than the rules it struck down, and it won’t buy it. Additionally, the two Republican members of
the Commission will strongly oppose any new rules. They both issued statements criticizing the
Chairman’s approach.
Additionally,
as noted with reclassification, promulgating new rules will just take too
long. The original Net Neutrality rules
were proposed on October 22, 2009 after the FCC’s Net Neutrality “principles”
adopted four years earlier in 2005 failed.
It’s taken four years and three months to reach this point. The future is too unpredictable to wait
another four or five years more for clarity.
Chairman
Wheeler also states that the Commission will “Hold Internet Service providers
to their commitment” to honor the safeguards in the invalidated rules. But there is nothing he or the Commission can
now do to enforce those so called voluntary commitments except for imposing
conditions in Commission orders approving mergers; but of course, those orders don’t
extend to the entire industry. As became
clear when Comcast was caught red handed impeding peer to peer traffic in 2007,
without valid rules, the FCC is mostly toothless. Such is the situation now.
Unfortunately,
the Chairman seems to have taken the course of least resistance to avoid
angering the various stakeholders: the ISPs and Republicans would oppose either
an appeal to the Supreme Court or reclassification and public interest groups
and Democrats would be furious if the Commission did nothing. Even the court here in Verizon recognized the likely evils the rules sought to prohibit:
“[e]qually important, the Commission has adequately supported and explained
that absent rules such as those set forth in the Open Internet Order, broadband providers represent a threat to
Internet openness and could act in ways that would ultimately inhibit the speed
and extent of future broadband deployment.
First, nothing in the record gives us any reason to doubt the
Commission’s determination that broadband providers may be motivated to
discriminate against edge providers.”
Slip Op. at 36-37.
But
Chairman Wheeler’s course of action, to adopt new rules, places the authority of
the Commission to police the Internet and protect end users and edge providers
in serious jeopardy given what the appellate court held and said in Verizon.
His approach cedes national policy to the court and power to control
Internet practices and traffic to providers like Comcast and Verizon. And it leaves the Commission, the nation,
edge providers, end users and Internet entrepreneurs with an extremely bad judicial
precedent concerning what actual, effective and practical authority the FCC has
to prevent anti- consumer and anti- competitive practices by broadband ISPs.
1 James P. Tuthill received his J.D. from Northwestern University School of Law, and spent more than twenty years in the telecommunications industry. He was General Counsel of Pacific Bell Mobile Services and Vice President and General Counsel of Westwave Communications, Inc., a Silicon Valley startup. For the Past several years he has taught Telecommunications, Broadcast and Internet Law at the University of California, Berkeley, School of Law.
2 In the Matters of Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation for Secretly Degrading Peer-to-Peer Applications, Memorandum Opinion and Order, August 1, 2008, FCC 08-183, reversed Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010.)