Net Neutrality V.3: What We Know So Far

Pushed by losses in the courts, FCC relies on Title II, Section 706, Title III as authority for increased regulatory control of the Internet

[Blogmeister's Note: While the FCC technically adopted its highly controversial "net neutrality" rules on February 26, the full text of those rules has yet to be released. We would have preferred to report on the actual rules, but since we don't have them yet, we here in the CommLawBlog bunker present the following preliminary summary and analysis based onthe official public notice issued by the Commission on February 26(as well as the separate statements of the individual Commissioners). We plan to provide a detailed look at the rules and the accompanying Report and Order - said to exceed 300 pages in length - once they're released.]

First things first. The new rules did not spring out of thin air. They merely constitute the latest episode in a years-long, intensely scrutinized, highly charged process. That process has already involved two FCC attempts to craft "Open Internet" rules or policies, both of which were largely gutted by the U.S. Court of Appeals for the D.C. Circuit. (For a refresher course on the last decade or so of net neutrality back-and-forth, check out my post from last year.) The new rules are presumably designed to achieve the goals of the earlier, failed, efforts to promote net neutrality while avoiding the flaws perceived by the court.

The FCC has reclassified broadband Internet access as a Title II "telecommunications service" while also relying on other statutory provisions to bolster Internet regulation.

After the enactment of the Telecommunications Act of 1996, the FCC recognized two separate regulatory classifications: "telecommunications services" and "information services". Think of it as the distinction between the transmission of content (i.e., "telecommunications service") and the processing or provision of content (i.e., "information service"). Services falling into the former category were subject to rigorous regulation under Title II of the Communications Act. That meant that they were regulated as "common carriers", i.e., much like railroads and other monopolies as far back as the 19th century. Services falling under the "information services" rubric, on the other hand, were largely unregulated.

While that distinction worked reasonably well in the pre-broadband days, things got muddy as broadband took over. In the early 2000's the Commission declared all components of broadband Internet service - transport as well as content provision - to be an information service, and thus free from regulation, and particularly Title II regulation. But that severely limited the FCC's ability to regulate various aspects of broadband service that it eventually wanted to regulate. When the FCC tried to impose regulation - claiming statutory authority under Section 706, a provision (codified as 47 U.S.C. 1302) that authorizes the Commission to "encourage" the widespread deployment of broadband access - the courts concluded that Section 706 does not provide the necessary authority.

The FCC's latest net neutrality decision is a direct response.

The Commission has now reclassified broadband Internet access service - the retail broadband service that people purchase from cable, phone, and wireless providers - as a telecommunications service subject to Title II regulation. But the FCC didn't stop there in its effort to beef up its claim to regulatory authority. It is still relying to some degree on Section 706, since the D.C. Circuit, in its January, 2014 decision, did conclude that Section 706 provides some regulatory authority. And, to justify expanding the application of the net neutrality rules to mobile/wireless providers, the Commission relies on Title III (which authorizes it to regulate "Radio Services") because "mobile broadband access service is best viewed as a commercial mobile service or its functional equivalent."

The new rules will explicitly impose on ISPs (i.e., entities providing broadband Internet access service) some, but not all, provisions of Title II. As a result, ISPs will be subject to:

• The requirement that ISP charges and practices be "just and reasonable" and the prohibition against "unjust or unreasonable discrimination". Set out in Sections 201 and 202 of the Act, these are said to be the "core" provisions of Title II;
• Investigation (by the FCC) of consumer complaints and the possibility of enforcement under Sections 206-209, 216 and 217;
• Consumer privacy requirements under Section 222;
• Provisions ensuring "fair access" to poles and conduits under Section 224:
• The need to protect people with disabilities under Sections 225 and 255; and
• Partial application of Section 254, which establishes and funds universal service.

Notably, a "factsheet" that Chairman Wheeler had released well before the adoption of the new rules had indicated that the FCC was planning to declare that ISPs also provide a Title II service to content/edge providers. In doing so, the factsheet used strangely conditional language: "if [the italics there are in the original factsheet] a court finds that it is necessary to classify the service that broadband providers make available to 'edge providers,' it too is a Title II telecommunications service." It's hard to understand how a service's regulatory classification could be established on such a conditional basis. However, by the time the Commission got around to adopting the new rules, that bizarre approach had been dropped. That was apparently in response to edge providers, such as Google, who argued that the conditional classification would create a new regulatory relationship between edge providers and ISPs that has no operational basis; they also feared that this new regulatory relationship could be used by ISPs to try to charge edge providers for the alleged service provided.

Notwithstanding Title II reclassification, the FCC will "forbear" from applying certain Title II provisions to ISPs.

While Title II permits the Commission to regulate a wide range of ISPs' operations, it does not require the Commission to use all of its authorized powers. Section 10 of the Act expressly allows the FCC to refrain - or "forbear" - from enforcing substantive provisions of Title II if doing so promotes competition and is otherwise in the public interest. Invoking this provision, the Commission has announced that, with respect to ISPs, it will forbear from imposing:

• Rate regulation in the form of tariffs or other form of rate approval, unbundling, or other forms of utility regulation; and
• Any requirement that ISPs make Universal Service Contributions.

As Republican Commissioners Pai and O'Rielly noted in their dissents, however, it may not be so easy to forbear once broadband Internet access is declared to be a Title II service. Under existing FCC precedent, forbearance must be based on detailed factual analysis of specific services in specific markets. It is very difficult to make such a showing.

Additionally, unlike diamonds, forbearance may not be forever. ISPs also remain concerned that any forbearance by the current Commission could well be reversed by a future Commission. Similarly, Commissioner O'Rielly argued that because the Commission is applying to broadband Internet access service the "core" of Title II prohibitions (i.e., Sections 201 and 202) against unjust and unreasonable practices, those statutory obligations could be used to justify just about any regulations, thus rendering the declaration of forbearance to be no more than "fauxbearance."

The FCC announces three "bright line" net neutrality rules.

Presumably to be as clear as possible with respect to the message it intends to send to ISPs, the Commission has announced that it is banning practices that, according to the Commission, are "known to harm the Open Internet". Those practices are:

• The "blocking" of access to legal content, applications, services, or non-harmful devices.
• "Throttling", described as the impairment or degradation of lawful Internet traffic on the basis of content, applications, services or non-harmful devices.
• "Paid Prioritization", i.e., the favoring of some lawful Internet traffic over other lawful traffic in exchange for consideration. This is the rule that prohibits so-called "fast lanes". This rule also bans ISPs from prioritizing content and services of their affiliates.

An additional "standard for future conduct" supplements the bright line rules.

The problem with "bright line" rules is that they tend to be so specific that they can become out-of-date quickly. That's especially true in an environment like the Internet, where changes in markets, services and technology continue to evolve rapidly. Concern about this was expressed by both advocates for and opponents of net neutrality rules. In response, the Commission has created a general Open Internet "conduct standard" providing that ISPs cannot:

"unreasonably interfere with or unreasonably disadvantage" the ability of consumers to select, access, and use the lawful content, applications, services, or devices of their choosing; or of edge providers to make lawful content, applications, services, or devices available to consumers.

And further underscoring its intent to keep a close regulatory eye on things, the FCC cautions that it has written into the rules the authority "to address questionable practices on a case-by-case basis" going forward.

The previously adopted "transparency" rules are expanded.

The FCC's 2010 Open Internet Order included 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 service. This rule survived the D.C. Circuit's 2014 Verizon decision. The Commission is now expanding and enhancing the transparency requirements. Under the new rules, ISPs will have to disclose, "in a consistent format", their promotional rates, fees and surcharges and data caps, including packet loss as a measure of network performance. They will also have to provide notice of network management practices that can affect service.

Enhanced "reasonable network management" principles are imposed.

The FCC has always recognized both that carriers need at least some flexibility to manage network traffic to prevent congestion and prevent damage to the network, and that such traffic management techniques will vary based on the transmission medium (i.e., fiber, DSL, cable, unlicensed wireless, mobile). The FCC's 2010 order explicitly recognized this principle as the right of ISPs to engage in "reasonable network management." In its latest order the FCC again recognizes that an ISP may engage in reasonable network management, although such management may not include paid prioritization. However, the latest order emphasizes that any such network practice must be primarily used for and tailored to achieving a legitimate network management - and not commercial - purpose. (For example, a provider can't cite reasonable network management to justify reneging on its promise to supply a customer with "unlimited" data.)

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Both Republican Commissioners Pai and O'Rielly issued heated dissents. In their views:

• The Internet isn't "broken", so there is no need for this massive government intrusion to "fix" anything;
• Notwithstanding the majority's disclaimers, the result will be that for the first time, the government will be regulating the rates for certain broadband Internet access, and for related services such as the interconnection of ISP networks;
• The new rules will reduce the incentive of big companies to invest in the network, and prohibitively increase costs for smaller ISPs, thus reducing growth in broadband speeds and limiting competition;
• Rates paid by consumers will have to go up as a result of the new rules; and
• The order is the result of an improper intrusion by the White House into the business of an independent agency.

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All of this has triggered much discussion in the press and elsewhere, primarily regarding the reclassification of broadband Internet access service as a Title II Telecommunications Service. But the reclassification shouldn't come as news to anybody who's been paying attention for the last several months: Chairman Wheeler has been publicly hinting that he would take that path for months. But there is one element of the decision that, to my mind, is really newsworthy: the FCC will regulate not just "last-mile" Internet transmissions to retail customers, but also the network interconnection of ISPs, various intermediary transiting and content delivery networks, and content-edge providers.

The FCC's 2010 Open Internet Order made it clear that it was then regulating only the "last mile" connection between an ISP and its retail consumer customers. Back then the Commission asserted that it did not intend its net neutrality rules to affect existing arrangements for network interconnection between and among ISPs and the carriers that transport content from edge providers to the ISPs. Such interconnection has up to this point always been unregulated, handled through private peering, transiting, and content delivery network agreements. Last year's Notice of Proposed Rulemaking that started the proceeding leading to the latest order contained a mere two sentences indicating a tentative proposal to maintain this approach, though it sought comment on the issue.

However, as streaming video exploded as a primary Internet application and resulting traffic congestion became noticeable to consumers (including Commissioners), disagreements between ISPs, connecting carriers and content providers (primarily Netflix) grew increasingly contentious and public. Content providers accused ISPs of intentionally slowing transmission to their customers in order to extort payment for enhanced interconnection, while ISPs insisted that the content producers should help pay the costs to build and maintain facilities necessary to handle the massive increase of video traffic on the network.

Now, in its latest order the FCC has jumped into the fray, giving edge providers and interconnecting carriers the chance to file complaints at the FCC alleging that ISPs are charging unreasonable rates in interconnection agreements. In an Internet whose huge "backbone" has until recently been built on hand-shake agreements, this is a broad new domain for regulation, with unknown consequences at this time.

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The Commission's latest regulatory foray is, of course, only the beginning of the next round of a long battle in an even longer war. It may trigger renewed attempts in Congress to overturn the FCC through legislation, though it is unlikely that Republicans will be able to muster enough Democratic votes to make such legislation veto-proof. The new Order will certainly be appealed, so the courts may have the last word. Stay tuned.