CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

(A “prima facie” case here means that the allegations made by the Tennis Channel, if ultimately proved to be true, would be sufficient to support a conclusion of unreasonable discrimination. In other words, nothing has been proved yet, but the Bureau has decided that some investigation is warranted.)

The Communications Act (47 U.S.C. §536(a)(3), to be exact) prohibits multichannel video program distributors (MVPDs), like Comcast, from discriminating against “unaffiliated” programmers in a way which makes it hard for those unaffiliated programmers to compete fairly against programmers that happen to be “affiliated” with the MVPDs. The concern, obviously, is that an MVPD affiliated with a programmer is likely to favor that affiliated guy over any unaffiliated competitors, giving rise to possible unfair competition. 

The Tennis Channel, which started in 2003, has been carried on Comcast systems since 2005. Comcast, which provides cable service in 7 of the 10 ten DMAs (and 24 of the top 30 television markets) has ownership stakes in several regional sport networks, and in the Golf Channel, the MLB Network, the NHL Network, and NBA TV. Comcast carries all of those affiliated sport networks on its Expanded Basic or Digital Starter tier – i.e., the tiers likely to enjoy the most subscribers. The program carriage agreement between Comcast and the Tennis Channel didn’t specify on what tier the Tennis Channel would be placed; that was left to Comcast’s discretion. As noted, Comcast has chosen to exercise that discretion in favor of putting the Tennis Channel on a premium tier. The Channel has been trying since at least 2009 to get moved to a different tier, without success.

In reviewing program carriage complaints of this sort, the Commission looks to the treatment of the complainant programmer as compared to similarly-situated cable-affiliated programmers, e.g., the NHL Network. If such similarly-situated programmers are being treated differently than the complainant, then the Commission considers whether the dissimilar treatment has unreasonably restrained the complainant from competing fairly.

In this case the Bureau determined that Comcast’s affiliated sports channels were being placed on a tier with higher viewership than the Tennis Channel. The Bureau also found that: (a) the disparity in tiers could be affecting the Tennis Channel’s ability to compete for national advertising; and (b) the Channel’s subscription fee revenue was lower than Comcast’s affiliates due to the lower viewership of the premium sports tier. The Bureau also focused on the fact that the channel placement decision was made unilaterally by Comcast, and had not been the result of negotiation with the Tennis Channel.

That was enough for the Bureau to decide that the matter had to be resolved by an administrative law judge (or at least through the FCC’s Alternative Dispute Resolution (ADR) processes). (Again, the Bureau’s action here does not mean that Comcast is definitely guilty as charged; rather, it simply means that there’s enough smoke to warrant checking to see if there’s any fire.)

There would appear to be strong benefits for both parties to agree to proceed to ADR. 

First, both parties would avoid substantial litigation costs. The hearing process is not cheap – in terms of time, money, aggravation and distraction – for either side. And the hearing process gives neither side any real control over either the length of the process or the final resolution. (How long do such hearings take to get resolved? As one recent example, the ALJ in the Weath TV hearing issued his recommendation in 2009, but the matter is still awaiting a final decision from the Commission, a decision which can then be appealed to the courts.) 

Another factor that might be considered here is the fact of the Commission’s on-going review of the merger of Comcast and NBC. The potential for unfair, anticompetitive circumstances arising from such a merger is high, and the regulators tend to be on the lookout for such potential in their evaluation of the merger proposal. A hearing on the Tennis Channel’s complaint could give Comcast’s opponents an opportunity to develop an evidentiary record of past anticompetitive conduct by Comcast, a record which would likely not be helpful to its prospective merger efforts.

The choice of hearing vs. ADR is up to the parties. They have until October 15, 2010, to notify the Commission as to how they want to proceed. We’ll update you as developments warrant.

The Commission’s latest inquiry seems to respond in large measure to two aspects of the Verizon-Google Proposal. According to Verizon and Google: (1) as long as they comply with four general Open Internet principles (relating to consumer protection, transparency, non-discrimination, network management), Internet service providers should be allowed to provide other broadband services that would not be subject to the Open Internet rules; and (2) wireless Internet access service providers should be subject only to the transparency principle at this time. 

Well, isn’t that special?

With respect to the question of “specialized” services, the Commission is concerned that carving out exceptions for such services could undermine the ultimate effectiveness of the Open Internet principles. “Specialized” services include things like subscription video, telemedicine, or business services to enterprise customers. They’re services that are provided over the same last-mile facilities as “broadband Internet access service” (BIAS). They can in many instances look just like the kind of services normally available to the public through standing Internet access. But they are available only to those who sign up, and they typically incur costs beyond ordinary Internet access.

And that’s the problem.

Such “specialized” services can attract important private investment and can provide those willing to pay with new and valued services. There is therefore good reason to foster them by, for example, exempting them from Open Internet principles. In the NPRM the Commission appeared to recognize this and, accordingly, sought comment on how to define such services.

But the Commission is now focusing more on the possible risk that, if providers avail themselves of such an exemption, the whole point of those principles might be defeated. Providers might use the exemption to avoid Open Internet principles with respect to delivery of services that are substantially similar to standard broadband service. Or providers might devote so much of their capacity to such “specialized” services that the incentive and resources to expand standard broadband service would “wither”. The potential for anti-competitive conduct exists as well. And the risk of any of these undesirable consequences would be exacerbated if the public’s choices of Internet broadband service providers are unduly limited.

With these concerns in mind, the Commission suggests six possible approaches:

“Definitional Clarity” – This would involve defining BIAS “clearly and perhaps broadly”, with the Open Internet principles applicable to such service. “Specialized” services not subject to the Open Internet principles would be those services with a “different scope or purpose than broadband Internet access service (i.e., which do not meet the definition of broadband Internet access service)”,. This is somewhat similar to the approach suggested in the Verizon-Google Proposal, which characterized the exempt services as “additional or differentiated services . . . distinguishable in scope and purpose from broadband Internet access service”. The main difference, it would appear, is that the FCC is contemplating a more inclusive definition of BIAS that would, presumably, narrow the range of services entitled to the exemption.

“Truth in Advertising” – This heading – quoted directly from the FCC’s inquiry – is curious. The Commission’s brief summary under this heading refers to prohibiting providers from marketing “specialized services” as a substitute for BIAS. The Commission also suggests requiring providers to offer BIAS as stand-alone service. It is not clear that either of those suggestions necessarily involves “truth in advertising”.

“Disclosure” – This approach would entail the required disclosure, by providers, of information about specialized services, including their effect on capacity and the BIAS market.

“Non-exclusivity in Specialized Services” – Commercial arrangements for the offering of specialized services would have to be offered to all qualified parties on the same terms.

“Limit Specialized Service Offerings” – Broadband providers would be allowed to offer “only a limited set of new specialized services, with functionality that cannot be provided via broadband Internet access service”. The Commission offers telemedicine as a possible example.

“Guaranteed Capacity” for BIAS – Broadband providers would have to keep “providing or expanding” capacity allocated for BIAS regardless of any specialized services offered. Moreover, the provision of specialized services would be prohibited from “inhibiting the performance of broadband Internet access services at any given time, including during periods of peak usage”. Some of these suggestions are strong medicine, although for now, merely a starting point for discussion.

Going mobile

With respect to mobile wireless platforms, the FCC has asked in the NPRM how, to what extent, and when openness principles should be applied. Again, the Commission is concerned about furthering innovation, private investment and competition in the industry. In the most recent inquiry, the Commission seeks to update the record on these questions in light of intervening developments.

The two intervening developments that appear most significant to the Commission are: (1) the Verizon-Google Proposal suggestion that wireless broadband be exempt from all Open Internet principles other than transparency; and (2) the recent rise of wireless pricing plans based on the amount of data the customer uses. The latter, in particular, raises a serious question.

In essence the issue boils down to this. The need for “network management” – i.e,, blocking or slowing traffic – generally increases to the degree that network traffic approaches or exceeds network capacity. If usage-based pricing reduces congestion on wireless networks, will wireless operators have less need to use traffic management techniques that trigger open Internet issues?  

The latest inquiry raises far-reaching questions, and poses potential solutions, that are likely to generate considerable debate. Look for a further influx of commentary, for and against, as the deadline for comments approaches. (As of this writing the deadlines for comments and replies have not been established. Check back to www.commlawblog.com for updates.)

There is two additional intriguing aspects of the latest inquiry (and Chairman Genachowski’s separate statement in support of it). First, according to the notice, the “discussion” triggered by the Open Internet proceeding “appears to have narrowed disagreement on many of the key elements of the framework proposed in the NPRM”. Genachowski’s statement strikes a similar note. It is, of course, impossible to say for sure whether that gloss on the on-going deliberations is accurate. Certainly the Chairman would prefer it to be so. The response to the most recent may or may not tell a different story. 

Second, whenever the comment and reply deadlines happen to be set, the window for replies will not close before November 2. . . which happens to be Election Day. That means that the conclusion of the Open Internet proceeding, once expected by some to be set for September, will not happen before the upcoming election. In view of the high profile the issue of Network Neutrality has had on Capitol Hill – it’s probably no accident that Verizon and Google titled their magnum opus a “Legislative” proposal – an intervening election could have a significant impact on the fate of the Open Internet proceeding.   We shall see.

The problems begin in the first footnote of the NOI, where the FCC unhelpfully introduces new terminology, or (more accurately) uses a variation of an established term to mean something possibly different. Where the Commission had previously used the term “broadband Internet access service” for a bundle of services that allow end users to connect to the Internet, it now drops the term “access” and calls the bundle “broadband Internet service”. This seems backwards. According to Commissioner Copps, at least, the Commission is seeking only to regulate how people “get to the Internet”, not the Internet itself. Deletion of “access” certainly suggests that that the target of FCC regulation is getting broader, not narrower.

In the NOI the FCC refers to the component which it would regulate as “Internet connectivity service” or “broadband Internet connectivity service”.  This, too, gives rise to potential confusion and a need for careful definition.  

Historically, the Commission has defined the term “Internet connectivity” to include functions that “enable [broadband Internet subscribers] to transmit data communications to and from the rest of the Internet.” But this definition is probably  too broad to apply to the theoretically more narrow and discrete term “Internet connectivity service”. Apparently sensitive to this none-too-subtle nuance, the Commission solicits information on the specific functions necessary to allow end users to merely access the Internet, without more.

The Commission has previously used the term “Internet connectivity” to refer to a wide range of elements, including: the establishment of a physical connection to the Internet; interconnecting with the Internet backbone; and sometimes provision of numerous other features (think protocol conversion, Internet Protocol address assignment, domain name resolution, network security, caching, network monitoring, capacity engineering and management, fault management, and troubleshooting). Now the Commission wants to revisit “Internet connectivity.” But who is to make the call? Should ISPs be given latitude to define their own telecommunications service, should the FCC define only “bare minimum characteristics” of such service, or should the FCC step in and define “functionality, elements, or endpoints of Internet connectivity service”? Complicating the picture are important differences among the various technologies for delivering broadband Internet, and even among providers’ implementations of those technologies.

Re-engaging in this kind of functional analysis could be a dangerous task for the FCC.  After similar analyses, a pair of Commission orders in 2002 and 2005 concluded that the transmission component is so integrated with the finished Internet service as to make the two a single, integrated offering.  Is there adequate justification – based, for example, on changes in the functional components over the last decade – for adopting some alternate definition that splits the previously integrated components? In the NOI the Commission floats a few candidate explanations, none very persuasive.

Such salami-slicing can also have unintended consequences. To its credit, the FCC does ask commenters to describe the possible consequences of classifying Internet connectivity as a telecommunications service. But all of the business and technical consequences of such reclassification may be impossible to perceive at this point. And mistakes now could be hard to correct later.

Can the FCC Prevent “Un-forbearance”?

There is considerable agreement that full-blown traditional Title II regulation of Internet access would be unduly burdensome on ISPs, and ultimately harmful to the Internet. A key element of the “Third Way” solution is intended to limit some of that burden. That is, the Third Way includes a promise to forbear from applying most of the Title II statutory obligations to Internet connectivity.

A swell idea. But just how permanent could that promise be?

ISPs remain concerned that some future Commission could alter, or scrap entirely, the decision to forbear. Could the Genachowski Commission establish a policy of forbearance that would be immune from reversal at some point down the line? There is precious little precedent on these issues, although normally general administrative law contemplates flexibility to allow agencies to adjust rules and policies to deal with changed circumstances. Still, in the NOI the Commission seeks comment on possible provisions to “establish a heightened standard for justifying future unforbearance.” Crafting such provisions will take great creativity – and even if a plausible approach is identified now, it’s difficult to imagine that future Commissions, and (perhaps more importantly) future courts, will necessarily feel themselves permanently handcuffed by today’s Commission.

Make no mistake: today’s Commission is acutely aware of the problem. The NOI describes a sort of worst-case-scenario for ISPs. It runs like this. First, the FCC classifies Internet connectivity as a Title II service but forbears from applying many of the Title II obligations. Someone appeals the order, as someone usually does. The reviewing court upholds the Title II classification, BUT vacates some or all of the forbearance, thus requiring the FCC to regulate more heavily than the current FCC thinks is necessary or appropriate.  (Yes, a court could do that, if it thought the statute requires it.) The result: The Internet would be subject to precisely the full-tilt Title II burdens that the Genachowski Commission hopes to avoid through the Third Way.

In an attempt to plan ahead, the FCC asks how it might deal with that scenario. One option, of course, would be to undo the Title II classification, much as the proposed Title II regime would undo earlier orders that combined transmission and information services into a single offering under Title I. But the undoing would be neither easy nor quick, and would itself be subject to judicial review. Just the possibility of these events creates a degree of regulatory uncertainty that many people (including Commissioners McDowell and Baker) fear will limit crucial investment in the nation’s broadband network. But  the FCC’s current route to Net Neutrality runs straight through this particular minefield.

The NOI asks some hard questions. We look forward to seeing the FCC’s answers.

[Post-script: As this blog was being prepared for posting, the press reported that a number of top FCC officials have recently met with representatives of AT&T, Verizon, Google, Skype and the National Cable & Telecommunications Association – and possibly others – in what were referred to as “negotiations” looking toward a possible compromise that would enable the FCC to enforce Net Neutrality rules without having to overhaul the regulatory rationale for such rules. While not unheard of, this sort of gathering this early in a proceeding is certainly unusual.   It will be interesting to see how much of the resolution to this complex regulatory problem will be negotiated among the parties, and how much will be imposed by the Commission.]

A federal agency like the FCC has only the powers that Congress’s statutes bestow on it. Included in the Communications Act are two “titles” arguably relevant to broadband Internet regulation.

Title I lays out the FCC’s general powers, among them, the power to “perform any and all acts, make such rules and regulations, and issue such orders . . . as may be necessary in the execution of its functions.” When the FCC tried to proceed under this provision against Internet provider Comcast for selectively blocking customers’ content, the federal appellate court in D.C. slapped it down, with a ruling that the language is insufficient to support network neutrality regulation. See our further analysis here.

Title II, in contrast, originated in 1934 as a vehicle to regulate telephone companies. Because telephony was then a monopoly, Title II includes detailed provisions allowing the FCC to regulate rates and terms of service, among other things. Most of those are now obsolete, even as to telephony.

With the Comcast court having taken Title I off the table, any FCC effort to regulate network neutrality must turn to Title II. There, though, the FCC is hobbled by its own prior actions. Its 1976 Computer II decision limited Title II regulation to the transport of data, and excluded content from Title II coverage. And then, in a series of rulings through the early 2000s, the FCC removed Internet broadband delivery from Title II altogether.

In response to the Comcast decision, and as reported here previously, and also here, the FCC is now contemplating a small step backwards. It has released a Notice of Inquiry asking for comment on its proposed “third way” approach: to re-regulate the transport component of broadband Internet service, but to impose only those rules needed to implement “fundamental universal service, competition and small business opportunity, and consumer protection policies.” This included network neutrality.

The proposal is extremely controversial, here in Washington (like pretty much everything else, here in Washington). Two of the five FCC Commissioners argued against it, as will most Internet providers. Many others will argue in favor. (Want to tell the FCC what you think? Drop us an email and we’ll tell you how.)

And now stay tuned for the next (but almost certainly not the final) episode of “The Third Way”.

 Both Chairman Genachowski and the FCC’s  General Counsel have made public arguments for such an approach. Also, it appears unlikely that the FCC could accomplish net neutrality under a Title I theory after the Comcast decision (though some ISPs have asserted it can be done). And everyone, including the Chairman and other net neutrality advocates, agree that full-blown Title II regulation would be excessively and inappropriately burdensome.

Some of us here are mystified by the FCC’s determination to move forward with the NOI, in light of recent letters to Chairman Genachowski from 74 House Democrats and 37 Senate Republicans opposing the “third-way” approach. They demand the FCC allow Congress to come up with a legislative solution. Is the FCC trying to force Congress to act quickly? Or does it think Congress won’t act at all? 

Also notable is the FCC’s release of an NOI, rather than a notice of proposed rulemaking (NPRM) setting out specific proposals for specific rules. The use of an NOI suggests the Commission is acting tentatively (or wants to appear that way). This is probably appropriate, in light of bipartisan resistance from Congress, as well as from ISPs. Moreover, the NOI calls into question the status of the FCC’s October 2009 NPRM on “Open Internet”/net neutrality rules.  That NPRM was premised on the same Title I “ancillary authority” that the Comcast decision disfavored. Will the NOI merely look to the jurisdictional question, with the FCC plugging that answer into its existing Open Internet substantive proposals? More likely, the substance of those proposals will have to evolve in light of the jurisdictional resolution. The new “third-way” Title II context may require tweaking the six Open Internet rules proposed last October, or even dropping some of those and adding new ones.

In any case, given the strongly held positions both in favor of and opposed to the FCC’s regulation of Internet traffic management, the NOI will certainly trigger pitched battles over the existence or non-existence of a statutory basis for net neutrality regulations.   The battlefield has shifted, but the fighting will continue.

Chairman Genachowski began the process by issuing a press release indicating his intention to re-classify broadband Internet (or at least the so-called transport component) as a telecommunications service. This would establish the FCC’s authority to regulate under Title II of the Act. He also indicated that the regulation would be as light as possible – just enough to mandate net neutrality and curb abuses of the Internet. In other words, the FCC would forbear from most forms of common carrier regulation but would insist on certain basic principles. Those basic principles would include: reasonable and just interconnection; non-discriminatory terms and conditions of service; access to Universal Service Funds; protection of private customer information; and access by the disabled to telecommunications equipment and services.

The FCC’s General Counsel, Austin Schlick, then released a legal memo laying out the legal basis for the approach the Chairman had espoused. They both refer to this as a “third way” of regulating the Internet because only the “transport” component of Internet communications will be subject to Title II regulation; the information component will remain unregulated (or maybe still somehow subject to ancillary jurisdiction).   

Inquiring minds would love to know what elements of the Internet will be deemed “transport” and what “information” – that difficult line remains to be drawn. (Remember, the FCC itself had opined that broadband Internet was a single integrated unitary offering, so it will have some ’splainin’ to do when it now divides broadband into separate components.) The Schlick Memo pragmatically pointed out that one benefit of the “Third Way” is that it will require only one Court review – far more efficient than the dozens of case-by-case adjudication that would have been necessary if the Commission had tried to justify each regulatory provision under its limited ancillary authority.   Since everyone can agree that regulatory uncertainty is bad, any process that gets things settled quickly has at least one thing going for it.

Commissioner Copps quickly chimed in with a press release mostly supporting the Chairman’s Title II approach but, as always, wanting to know the details.   Hot on the heels of that release came a joint communiqué from Commissioners Baker and McDowell decrying the Chairman’s approach.  At this point the press release balloting was even. Much later in the afternoon, Commissioner Clyburn weighed in with her press release supporting the Title II approach of the Chairman.   By a 3-2 vote, the FCC’s policy is now set.

While governing by press release is unusual, it did have the salutary effect of calming everybody down, stopping the rampant speculation, and pointing the way that the FCC intends to go. The one small problem is that the Administrative Procedure Act requires the FCC to at least go through the motions of proposing rules and letting the public comment before it adopts a regulation. So we presume that the Commission will open a rulemaking proceeding post-haste using the framework set out in the Schlick Memo to justify re-classifying broadband Internet. 

Some important details will need to be filled in, and the rulemaking proceeding can serve that function.   And at some point the Commissioners need to go through the formality of actually voting one way or the other on the matter after having kept an open mind during the course of the proceeding.   Having been given a full, free and fair trial, ancillary jurisdiction will then be hanged.

The Chairman proposes to undo a key part of the Commission’s pre-Comcast broadband decisions. He would re-separate TS and IS, and once again regulate the TS transport component under Title II. (A good idea, some of us thought, when it was posted here several weeks ago.) But the Third Way is self-limited in its reach. Rather than impose the full panoply of 1950s telephone-type regulation, Genachowski would limit the Commission to controlling only unreasonable denials of service and “other unjust or unreasonable practices.”

We foresee a problem. Network neutrality – a prohibition against Internet providers discriminating on the basis of content – does not strike us as an element of TS transport. That makes it a poor candidate for regulation under the new Title II regime. To us, network neutrality makes more sense as an element of IS. But the FCC proposes to leave IS under Title I, as it probably must, as a legal matter. Now the quandary: an FCC that tries to impose information-based network neutrality under Title II, as part of the transport function, is likely to find itself back in court. Where it may well lose yet again.

We offered a solution to that problem: namely, give broadband facilities owners the option of either: (a) opening their systems to competing Internet providers under Title II rules; or (b) being free of such rules, so they could exclude competitors, but instead being subject to network neutrality regulation. An opening-to-competition rule is more plausible under Title II than a network-neutrality rule. But the Chairman has unwisely taken this option off the table, no doubt in hopes of muting cable and telephone opposition to the rest of the proposal. Which leaves him in the awkward position of using a screwdriver to pound in a nail.

On the other hand, network neutrality may not be the Chairman’s biggest concern, as the Comcast decision also threw into doubt the FCC’s authority to implement large pieces of the National Broadband Plan.  Chairman Genachowski may figure that tossing network neutrality overboard is worth it, if that can save the rest of the plan.

So far the new approach takes the form of a personal statement by the Chairman, with more detailed support from the FCC’s General Counsel. While ordinarily a statement by a single Commissioner, even the Chairman,  does not constitute agency action, Commissioners Copps and Clyburn have previously signaled likely agreement with the Chairman’s plan, providing a majority. Commissioners McDowell and Baker, by contrast, have expressed strong reservations.

A notice-and-comment rulemaking is needed to translate the Chairman’s vision into actual rules. The lawyers on all sides are warming up their laptops. Prepare for a long, hard fight, and don’t expect a final resolution any time soon.

Another possible ripple effect of Comcast on the broadcasting terrain: let’s not forget that Comcast, the folks who landed the knock-out punch on the FCC in the eponymous Comcast case, are also the folks who are currently trying to get the FCC to approve a massive merger with NBC Universal. Now that Comcast’s ability to restrict, legally, Internet traffic contrary to the FCC’s preference has been established (thanks to the D.C. Circuit), the FCC (and other governmental authorities) may not be especially gung-ho about giving Comcast even greater control of more media than it already holds. If Comcast’s practice of jiggering with its subscribers’ Internet access is deemed potentially anti-competitive, the Feds might be expected to be reluctant to increase any perceived competitive advantages for Comcast.

Of course, in light of such concerns, the Powers That Be (whether that might be the FCC, DOJ or Congress) might attempt to extract “voluntary” commitments from Comcast and NBC, much as they did in connection with the Sirius/XM merger. Could the Commission then impose conditions that look remarkably like net neutrality requirements – even though the FCC might not have the authority to impose such requirements industry-wide? Conceivably, since the FCC’s clear authority to act on the merger request would arguably provide it the related authority to impose conditions on any grant of that request. Such conditions could have an impact on competition in both the online media and the cable industries, not to mention the broadcast business – in all of which Comcast plays a major role.

On the other hand, even if the Commission were to offer grant of the merger in return for concessions or commitments from Comcast, who’s to say that Comcast would accept the deal? Presumably, Comcast would not do so unless the deal made good business sense.

Another possible impact zone from Comcast: retransmission consent. As has been widely reported, the cable industry has filed a petition for rulemaking seeking overhaul of the current retransmission consent process. Thus far the FCC has appeared to be receptive to the idea. But a large number of fixed broadband service providers are cable companies, and those companies can now restrict internet traffic (thanks to Comcast), giving them a potential competitive advantage. How eager will (or should) the Commission be to give the cable industry a further leg up over competitors in the retrans consent process?

At this point we can only guess about how any or all of this will shake out.  But it is important to recognize that the impact of Comcast is not likely to be limited to issues of net neutrality.  In any event, television broadcasters should keep a wary eye on their own situation.  They may still be looking at a decidedly unattractive future: packed tighter than ever in the broadcast band, stiffed by the FCC on any kick-back payments from spectrum auctions, and losing a steady source of revenue to the network, which just merged with the largest cable company.

You could take up Rockefeller’s suggestion and ask Congress to give the FCC express statutory authority. But there are downsides of going to Congress for a remedy: chairs could shift during the November elections, and besides – would you really want to risk opening the Communications Act to amendments (shot clock, anyone?) And let’s not forget about timing – you want the NBP to move ahead now, not at some indefinite future point, after the full range of Congressional process has managed to inch its way to some (unpredictable) conclusion at some point in the indefinite future.

Or you could take Hutchison up on her challenge and reclassify internet access as a Title II telecommunications service. But as many have observed, that would almost certainly lead back to court. 

Or maybe, as Fletcher, Heald’s own Mitchell Lazarus has suggested, the FCC could find a more tailored way out.

Both of the last two options, however, involve the FCC re-jiggering its own legal authority from within – which risks potential punishment from the minority party (not a purely hypothetical risk, as Hutchison’s comments, noted above, demonstrate).

So what’s the answer? 

If I were Mr. Genachowski, stuck between a legal rock and a political hard place, I might look for some other way out of the bind – a way that would permit regulation of net neutrality while keeping my agency both out of court and out of any politically costly cross-fire in Congress. If only I had a protector. Or in this case, a consumer protector. You see where I am going with this: I would consider handing off the net neutrality hot potato to my regulatory siblings at the Federal Trade Commission (FTC). 

The FTC can’t regulate common carriers. But so far ISPs aren’t common carriers, thanks to the FCC’s consistent reluctance thus far to so categorize them. And if ISPs aren’t common carriers, the FTC can step in. (See tech attorney Glenn Manishin’s analysis of Comcast on this point.) 

Section 5(a) of the FTC Act gives the agency jurisdiction over “unfair or deceptive acts or practices”, and FTC Chairman Leibowitz has been willing in the past to assert jurisdiction in order to protect consumers. 

Remember, dear Readers, Chairman Leibowitz has sunk significant political capital into asserting his agency’s power over online commerce issues and other consumer protection initiatives that are threatened if someone in the government can’t enforce net neutrality. So the FTC could be expected to welcome the authority to regulate ISPs and implement net neutrality.

And – just as politically important here – if the FTC were to be deemed the principal locus of control over the issue, Chairman Rockefeller and his Senate Commerce Committee – and their colleagues on the House side – would lose no power. The Commerce Committees have oversight authority over both the FCC and the FTC, so allowing one of the two agencies to take up regulation in an area – say, net neutrality – previously controlled by the other agency would not realign Congressional power in any way. All Chairman Rockefeller has to do is ask his Consumer Protection Subcommittee Counsels to join his meetings with his Communications Counsels. 

But even if the FTC is standing by, ready, willing and able to take over, and even if that approach would likely be acceptable to the powers-that-be on the Hill, there’s still one big question: would Mr. Genachowski voluntarily give up the power he believes his agency has? Jurisdiction does not switch hands easily or often in this town, but Mr. Genachowski’s boss, President Obama, might not care which of his agencies holds authority, as long as his National Broadband Plan’s infrastructure is protected.

One thing, I believe, is certain: net neutrality enforcement authority will be assigned eventually. Like a handful of chips thrown into the air on a casino floor, no part of government’s power will be left un-gathered and unused. The only question left is who will pick them up.

Seeing the obvious functional similarity between VoIP and POTS, the FCC decided that VoIP should be regulated like POTS. But is VoIP an “information service” or a “telecommunications service?” Labels are important here: “telecommunications services” fall under the full-tilt Title II common carrier regulation imposed on POTS, while “information services” would not be subject to such regulation. Complicating matters, the FCC has expressly declined to attach either label to VoIP, although the Commission has imposed a whole host of POTS-like common carrier regulations on VoIP providers. 

The claimed basis for those regs? Our old friend, “ancillary jurisdiction”.

Claiming ancillary jurisdiction, the FCC has subjected interconnected VoIP providers to: the consumer privacy regime of Section 222 of the Communications Act; the service discontinuation requirements of Section 214; the telephone disability access rules (which include mandatory payments into the disability fund); number porting requirements; and 911 emergency calling regulations. (The FCC also requires interconnected VoIP providers to contribute to the Universal Service Fund, but that requirement is based on direct statutory authority – no need to invoke “ancillary” authority). 

In the wake of Comcast, the obvious question arises: are these requirements really lawful exercises of “ancillary jurisdiction"? We have no crystal ball that will tell us how the court might rule if/when it faces these issues, but it is our professional judgment that many of the FCC’s regulations of interconnected VoIP would not survive the Comcast analysis. 

Comcast says that, if the FCC does not have express statutory authority to act in a certain area, the FCC may regulate that area only if the regulation is “reasonably ancillary” to “statutorily mandated responsibilities”. In Comcast, the FCC argued that Sections 1 and 706 of the Act were sources of “ancillary jurisdiction" – and the court disagreed. As the Comcast court saw it, those sections are merely statements of Congressional policy, not specific statutory mandates sufficient to support ancillary jurisdiction.

The potential bad news for VoIP regs is that the FCC has repeatedly relied on – you guessed it – Sections 1 and 706 to assert jurisdiction over VoIP.  The FCC’s essential thinking is that VoIP looks so much like (indeed, is a substitute for) POTS that the Commission is justified in imposing POTS regulation on VoIP. 

That may seem rational, but rationality is not the issue. The issue is the limit of FCC authority. Mere similarity in functionality is immaterial if the FCC can’t demonstrate that its regulation of VoIP is in fact related to – ancillary to – some specific statutorily mandated responsibility. Regulations imposed under ancillary jurisdiction must have some discernible effect on areas which are subject to direct jurisdiction. Moreover, the Comcast court made it clear that the FCC must independently justify each aspect of any regulation based upon “ancillary jurisdiction". The Commission can’t generally assert ancillary jurisdiction over an area and then rely on that broad assertion to regulate the area any old way the FCC feels like.

Let’s examine each of the FCC’s VoIP regulations and see how they fare under the Comcast test:

Privacy Requirements. Section 222 of the Act requires “telecommunications carriers” to use efforts to safeguard “customer proprietary network information” (CPNI). But VoIP providers haven’t been pigeon-holed by the FCC as “telecommunications carriers”, so Section 222 does not specifically authorize the imposition of CPNI obligations on VoIP. To get around that problem, the FCC claimed “ancillary jurisdiction” flowing from Sections 1 and 706 of the Act. (Check it out in Paragraphs 54-59 of the FCC’s 2007 decision.) But we know from Comcast that Sections 1 and 706 are statements of policy, not “statutorily mandated responsibilities”, so there’s no ancillary authority there. That leaves the FCC with only Section 222 to justify the regulation – but where, to use the Comcast court’s lingo, is the “ancillariness”? Section 222 applies to a specific class of entities – “telecommunications carriers”, but the FCC has declined to assign interconnected VoIP providers to that class. Accordingly, the FCC can’t rely on Section 222 as a source of ancillary jurisdiction to subject interconnected VoIP providers to its requirements. Sure, safety and privacy are lofty values – but, support of lofty values does not create jurisdiction. Score: VoIP providers 1, FCC 0.

 Discontinuation of Service.  Making sure that a carrier doesn’t abandon a route is a big deal when the carrier is the only carrier serving that route.  So Section 214 requires, among other things, that carriers get certificates from the FCC before discontinuing service. VoIP providers are not “carriers”, but that didn’t stop the FCC from imposing identical discontinuation obligations on VoIP. As a result, VoIP folks must notify customers and governors in affected states and get a service discontinuation certificate from the FCC before discontinuing service. Jurisdiction or not? We say not. To justify the imposition of these obligations, the FCC relied on ancillary jurisdiction based on Sections 1, 214 and 706 of the Act. (Read all about it in Paragraphs 10-13 of the FCC’s 2009 decision.) We hate to sound like a broken record, but Sections 1 or 706 won’t do the trick, which leaves only Section 214. But again, Section 214 applies only to “carriers”, a classification to which the FCC has not assigned interconnected VoIP providers. Nor can discontinuance of a VoIP service really be said to affect in any material way the regulation of any “carriers”.  Ergo, the FCC has not shown a ground for the existence of ancillary authority to impose Section 214 obligations. Score: VoIP providers 2, FCC 0.

Disability Access Requirements. Section 255 of the Act requires that a “provider of telecommunications service make its service readily accessible to persons with disabilities.” The idea is to assist people with speech and hearing disabilities by assuring the availability of options such as TTY, “speech-to-speech”, captioned telephone service and 711 abbreviated dialing. Section 255 applies to providers of "telecommunications service”; it says nothing about providers of VoIP. Nonetheless, citing ancillary jurisdiction supposedly arising from Title I as well as Section 255, the FCC imposed Section 255 requirements on VoIP providers. (Check out paragraphs 21-24.) But (yawn) Section 1 doesn’t work for this purpose. And while the Commission also claimed that Section 255 might do the trick, that claim falls short because Section 255 applies solely to a “provider of telecommunications service”, and the FCC has declined to classify VoIP as a “telecommunications service”.  Score: VoIP providers 3, FCC 0.

Local Number Portability Requirements. The Act (Section 251(e), to be specific) gives the FCC jurisdiction over the assignment of telephone numbers. Section 251(b) requires “local exchange carriers” to allow customers to port their numbers from carrier to carrier.   Clearly, VoIP providers are not “local exchange carriers”, but that didn’t stop the FCC from imposing Section 251(b) number porting obligations on interconnected VoIP providers and their carrier intermediaries. The FCC claimed authority to do so through direct statutory authority and ancillary jurisdiction. The direct authority supposedly derived from Section 251(e)(1)’s grant of plenary telephone number administration authority. As the FCC sees it, if you get numbers for your customers, you have to play by the FCC’s rules. Additionally, the Section 251( b)(2) porting obligation was cited, even though that provision, by its own terms, applies only to “local exchange carriers”. And the FCC cited as well to Section 1 and Section 251(e) as sources of ancillary jurisdiction. 

Again, the notion of ancillary jurisdiction through Section 1 is a non-starter. As to the FCC’s claimed direct Secton 251(b) jurisdiction, this observer has a hard time reconciling Congress’s express imposition of porting requirements on “local exchange carriers” with the FCC’s extension of the requirement to entities that are not “local exchange carriers” and that cannot even obtain telephone numbers without going to carrier intermediaries. As for the FCC’s Section 251(e) authority over telephone numbers, that at least might provide some ancillary authority for laying some number-related burdens on VoIP providers, since there is just one system of telephone numbers available to all phone service providers. Still, this observer questions how that might be a legitimate basis for imposing the full range of porting obligations onto VoIP providers. The FCC is correct that VoIP providers will have a competitive advantage if they are not subject to porting requirements, but such concerns are not a ground for ancillary jurisdiction. Score: VoIP providers 4, FCC 0.

Emergency Dialing Requirements. The FCC imposed its 911 emergency calling regulations on interconnected VoIP. While the FCC invoked the now-discredited ancillary jurisdiction through Sections 1 and 706, it also relied on its authority over the assignment of numbers granted by Section 251(e) and Section 251(e)(3)’s specification of 911 as the emergency number for all “wireless and wireline telephone service.” This writer sees no nexus between imposing 911 access requirements and the FCC’s authority over the assignment of telephone numbers. But I can see some nexus between this access requirement and the mandate Section 251(e)(3).  Chalk one up for the FCC. Score: VoIP providers 4, FCC 1.

Does all of this mean that interconnected VoIP will be suddenly freed from the oppressive yoke with which the FCC has burdened it over the years? No. But it does mean that VoIP regulation may be vulnerable to effective attack, now that Comcast is on the books.

Ah, the old days . . .

But first, a nagging question. The Internet has been popular for two decades. Why are we are talking about network neutrality only now? The anti-NN forces note that the stunning growth of the Internet occurred without regulation. Why not just continue?

True, there was no Internet regulation in the dial-up days, but an even stronger force was at work: competition.  The phone companies all had departments functioning as Internet service providers (ISPs). The FCC’s Computer III rules required the bigger phone companies to open their networks to competing ISPs. That gave most people dozens of ISPs to choose from. None of the ISPs dared tamper with customers’ content, because the customers could easily go elsewhere.

Then broadband appeared, and quickly became essential as web pages grew more complex. Most consumers have either one or two sources for broadband: the cable company, over the same wires that carry cable TV; and the phone company, first via DSL and later, in some areas, through fiber-optic cables. 

The DSL channel was originally subject to the Computer III sharing rules, but the cable never was. The FCC asked whether it should open the cable to competing ISPs, in the manner of Computer III.

Follow this part closely. To apply Computer III, the FCC would have to find that cable broadband is, or includes, a “telecommunications service” – that is, the pure transport of information, for payment, offered to the public. Common sense tells us that sending Internet pages over the cable has to involve a telecommunications service, among other things. But the FCC is not always bound by common sense. According to its 2002 order, the telecommunications component is not separable from the other components, such as interactive choice of content. The FCC resolved to treat the combined, non-separable service as non-telecommunications. That means Computer III does not apply. A cable operator need not open its facilities to competitors, and can require its Internet customers to use its own ISP service. Cable subscribers are not entitled to competition among ISPs.

The Supreme Court’s Brand X case subsequently upheld the FCC. But it did not say the FCC’s decision was the only right one. Rather – and this is the kind of thing that makes non-lawyers glad they picked some other line of work – the court deferred to the FCC’s right to make the decision. The distinction matters because, ruling the way it did, the Court could easily have supported even the opposite outcome from the FCC.

In the meantime, phone companies answered the FCC’s 2002 cable ruling with outraged filings about a “level playing field.” They still had to put their ISP competitors on the broadband channel, while the cable companies enjoyed the exclusive use of their own cables. In 2005, just a few weeks after the Supreme Court handed down Brand X, the FCC ruled that phone-company broadband was, like cable broadband, a combined service to be regulated as non-telecommunications. No more Computer III; no more competing ISPs.

As a result, if you have broadband Internet service, it is very likely that your ISP is the cable company or the phone company. And, if both companies serve your location, odds are your provider has tried to lock you into a long-term deal with a stiff early termination fee. Unhappy with the service? Tough luck.

Still, some people don’t want the Government intruding into the market for Internet services. Others don’t want a near-monopoly provider deciding what content they should receive. After Comcast, is there any hope for the second camp?

A possible way out

Suppose the FCC were to revisit that 2002 cable decision, the one holding the telecommunications and non-telecommunications aspects of Internet service to be inseparable. Could the FCC now change its mind, and separate out the transport-for-pay component as a telecommunications service? Then, instead of applying the full weight of common carrier rules, it could impose just one: a requirement like that in Computer III, requiring the operator to allow competing ISP on the cable. That would bring back competition among ISPs, and create a major disincentive to tampering with content.

Until last year, this would not have been workable. An agency like the FCC could not change its position without an intervening change of circumstances, such as a major shift in the industry landscape. But last year’s Supreme Court case of Fox v. FCC changed the rules on changing the rules. 

After Fox, the FCC need show only that the new policy makes sense – not that it makes more sense than the old policy. Admittedly, abrupt reversals of established policy have historically been disfavored for many good reasons, and such reversals may – as Brother Feldman observes – still be subject to attack as unjustified. But Fox appears to given the agency considerably greater leeway to change its mind.

Had the FCC chosen to regulate the cable transport back in 2002, the cable companies would have gone to court, but they probably would have lost, under the reasoning in Brand X that defers to the FCC’s judgment. And if the FCC could have required ISP competition on the cable in 2002, then the Fox case strongly suggests they could do it today. 

The argument is even better for phone company broadband, which was subject to mandatory-competition rules until 2005. If anything, the case for requiring ISP competition is stronger now, in light of abuses by the providers, followed by the Comcast court’s closing off more direct remedies.

The process has one more step. The FCC can require ISP competition, as above, but not network neutrality, after Comcast. Either one – competition or neutrality – can protect consumers against content discrimination. So why not give the provider a choice? Undo the 2002 and 2005 broadband orders; regulate data transport as telecommunications; require providers to open their facilities to competitors – but waive that rule for providers that adopt network neutrality. Competition will flourish, or content will be available without discrimination. Either way, consumers come out ahead.

Appeal to the Supreme Court.  In its Comcast arguments, the FCC relied on the Supreme Court’s 2005 Brand X decision. That case involved the Commission’s determination that cable modem Internet access service is an “information service” subject to regulation under Title I of the Act, rather than a “telecommunications service” subject to Title II. In its Brand X

opinion, the Supreme Court observed that the FCC “remains free to impose special regulatory duties on [cable Internet access providers] under its Title I ancillary jurisdiction.” In Comcast, the FCC argued to the D.C. Circuit that that Supreme Court language established that the FCC could claim ancillary jurisdiction derived from Title I.

But the D.C. Circuit felt that the Commission was reading too much into that quotation. In the Circuit’s view, just because the Supreme Court said that the FCC had jurisdiction to impose some kind of regulation on ISPs under Title I doesn’t mean that the agency had jurisdiction to impose this particular regulation (i.e., “reasonable” traffic management); rather, the Circuit held, each claim for ancillary jurisdiction must be analyzed on its own merits.

Given that, the FCC could try to convince the Supreme Court to provide a broad interpretation of its Brand X language, broad enough to support the Commission’s claim of authority to regulate ISP traffic management. This would not be an easy case for the FCC. As the D.C. Circuit’s Comcast decision makes clear, the Supreme Court itself has, in a number of decisions, treated the concept of ancillary jurisdiction as narrow. Like the Circuit, the Supreme Court has held that each new assertion of such authority must be evaluated on its own terms.  So the prospects of a broad, result-changing opinion out of the Supreme Court are not good. Additionally, a trip to the Supreme Court would not be quick: it is unlikely that a decision would be released prior to June, 2011, even if the Supreme Court agreed to take the case (which it is not required to do – indeed, the Supreme Court routinely agrees to review only about 1% of the cases presented to it).

Go to Congress. Seemingly the most direct way to fix a lack of jurisdiction is to get Congress to eliminate that lack by enacting legislation specifically providing the Commission with the authority to do what it wants to do. While legislation is perhaps the most direct route, it is neither the quickest nor the surest. Bills designed to give the FCC such authority have been introduced over the last few years – but they have not progressed significantly. While it’s difficult (if not impossible) to pinpoint precisely why proposed legislation gets stalled, in this instance that may be attributable, at least  in part, to a preference by Congressional Democrats to give the FCC a chance to take a first shot at crafting net neutrality regulations. Another factor possibly staying Congress’s hand: a desire to wait and see what the D.C. Circuit would do in the Comcast case. But now that the D.C. Circuit has ruled against the FCC’s assertion of ancillary authority in this area, those two factors have been eliminated.  

While it may be possible to get legislation authorizing very narrow FCC regulation of Internet traffic management enacted before everyone’s attention turns to the November elections, that seems unlikely. Verizon has been calling for much broader legislation to re-write the Communications Act for the “Internet Age,” but that seems even less likely to occur before November, and Verizon’s proposal probably would not provide the FCC authority to adopt net neutrality rules. Indeed, it took years of work to get the last re-write of the Communications Act enacted in 1996.  

Re-classify the Transport Component of Internet Access to be a Title II Telecommunications Service.  The FCC has recognized for some time that their 2008 Comcast Order was in trouble (as anyone who attended the oral argument at the Circuit could have surmised).  Perhaps because of that, some Commissioners have been floating a possible alternative approach: re-classify at least some aspects of Internet access (including, e.g., the transport component) as a Title II telecommunications service. Since Title II unquestionably contains “statutorily mandated responsibilities” (more so than Title I), so the thinking goes, the Commission would be better able to establish that its regulation is “reasonably ancillary” to such responsibilities, thus avoiding the jurisdictional problem identified in the Comcast decision.

But this “re-classification” approach has its own problems. 

First, re-classification would require the reversal of multiple FCC decisions made between 2002 and 2006. Those decision classified cable modem, DSL, wireless broadband and broadband-over-powerline as “information services” rather than telecommunications services. To be sure, the FCC already has a pending “Open Internet” proceeding through which a record might be built in support of re-classification of Internet transport as a telecommunications service. But what would Net Neutrality advocates use to make the case that the Internet environment has changed so radically in the last couple of years: the growth of “edge” providers and third-party Internet applications? Another difficulty: the FCC’s reasoning back in 2002, upheld by the Supreme Court in Brand X, was that even accessing the world wide web required an integrated information service, not merely telecommunications transport. 

Further complicating matters is Congress. Would a majority of Congress be happy with the FCC taking things into its own hands, when many in Congress probably believe that re-classification (at least re-classification that involves increasing regulation on the re-classified service providers) is the responsibility of Congress, not the FCC.  

And, of course, re-classification would generate very strong resistance on all fronts from across many industry segments. Further lengthy court appeals would be certain. 

Build a Stronger Case for Title I Ancillary Authority.  In Comcast, the D.C. Circuit did not rule that it was impossible for the FCC to make the case for ancillary jurisdiction, just that the Commission had failed to do so here. The Court left open the alternative possibility that the FCC could assert jurisdiction over Internet traffic management if such regulation were in fact ancillary to the Commission’s responsibilities under Section 201 of the Communications Act (which requires that common carrier charges and practices must be just and reasonable). 

The potential for such an alternative arises from the fact that the Circuit declined to consider one line of argument presented by the Commission in support of its claim of ancillary jurisdiction. In its brief, the Commission argued that it could regulate Comcast’s practices because discriminatory practices that impact VoIP traffic affect the prices and practices of traditional telephone common carriers. But the FCC had not included that as a basis for its regulation back in its 2008 Comcast Order that was on review – and the Circuit (as well as most other courts) refuses to consider justifications for an agency action which are made only at the appeal stage, and not in the original action on review. So the ultimate strength of that particular argument has not yet been tested in court.

Accordingly, the FCC could use the pending Open Internet proceeding to build a record establishing a nexus to Section 201 responsibilities. However, the FCC’s Section 201 theories seem pretty far-fetched, and it is hard to conceive of other theories that could be stronger. And while the Court also left open the possibility that the FCC could try to show a nexus to its responsibilities to protect broadcast TV stations under Title III of the Communications Act, it is unclear if and how the FCC would take on that task.

Statements released by Democratic FCC Commissioners and legislators suggest that they are determined to move forward and find a way to enact net neutrality regulations. Of the alternatives set out above, re-classification of Internet transport as a Title II service currently seems to have the most momentum, but the Obama administration may choose to push one of the other alternatives, or perhaps to work on multiple paths at the same time.   Either way, we are sure to see the struggle over this issue continue.

The FCC’s position was a little shaky from the start. It never had a rule prohibiting the Comcast action that caused all the trouble, just a loosely-worded policy statement. And nothing in the Communications Act, from which the FCC derives all of its authority, specifically authorizes control over Internet traffic. The FCC thus had to fall back on a claim of “ancillary authority,” based on a catch-all statutory provision that allows the FCC to do pretty much anything “as may be necessary in the execution of its functions.” 

But as the Court had previously held on a number of occasions, ancillary authority applies only if (1) some other statutory provision covers the subject matter, and (2) the challenged action is “reasonably ancillary” to the FCC’s exercising of its authority under (1). The FCC passed the first test, but not the second. The “other provisions” on which the FCC relied, said the Court, were either mere statements of congressional policy (which cannot support ancillary authority) or statutory provisions that miss the specific topics involved in Comcast’s behavior.

As a result, the FCC is legally barred from imposing or enforcing network neutrality.

The FCC still has a few options.  For example, it can ask the same court for a hearing en banc (Latin for “lots more judges”) or appeal to the Supreme Court. Or it can ask Congress for a law that gives it the authority it needs. There may be other alternatives as well, involving adjustments to the existing regulations for a better fit with the existing statutes, but their likelihood of success in court remains to be seen.

But right now, the view from the broadband mountaintop is a little murky. For the time being, at least, Internet providers are free to favor or block content as they choose. And no use complaining to the FCC.

The majority opinion, written by Judge David Sentelle (with Judge Thomas Griffith joining him), relied on a standard statutory analysis of the FCC’s decision, an approach in which the Court accords a boatload of deference to the agency. As usually happens when the Court takes that deferential tack, the FCC got the benefit of the doubt: the majority held that the Commission was not unreasonable in its conclusion that the prohibition is still justified, even though a different panel of the Court had held, in an unrelated case decided last August, that “[c]able operators [ . . . ] no longer have the bottleneck power over programming that concerned the Congress in 1992.” (We blogged about that case, which involves the FCC’s ownership caps, here.)

But the victory may not comfort the Commission (or others supporting the prohibition) much.  The majority wrapped up its opinion by observing that “[w]e expect that if the [MVPD] market continues to evolve at such a rapid pace, the Commission will soon be able to conclude that the exclusivity prohibition is no longer necessary to preserve and protect competition and diversity in the distribution of video programming.”  In other words, while the Court was willing to give the FCC a pass this time around, the Commission shouldn’t necessarily count on similar treatment the next time around.

An interesting aspect of the majority opinion is that it rejected the cable petitioners’ claims that, rather than the lenient, deferential statutory standard of review invoked by the majority, a more rigorous, less-agency-friendly First Amendment standard should apply because the cable operators’ First Amendment rights were (according to the petitioners, at least) at stake. The majority declined to consider any First Amendment arguments because, according to Sentelle, the cable guys didn’t raise them. 

That was news to Judge Brett Kavanaugh, whose 29-page dissent – not quite twice as long as the majority opinion – relied heavily on First Amendment analysis to reach the conclusion that the FCC’s prohibition is unconstitutional.  In the majority’s view, the cable petitioners never squarely argued that theirs was a First Amendment attack, and (according to the majority) the Court should not be in the business of deciding issues of constitutionality which the petitioner did not “set forth as an issue in the case and to which it refers only obliquely.”  [Important practice tip: If you plan to argue a constitutional issue, be sure to refer to the Constitution in your Statement of Issues.]  In fairness, while Kavanaugh makes a big effort to “tease out” (in Sentelle’s words) enough constitutional references in the petitioner’s briefs to cobble together an argument, it does appear that the cable guys declined to present the constitutional issue as such.

For their part, while the cable petitioners may take considerable comfort from Judge Kavanaugh’s  constitutional analysis, even he had to acknowledge that “the First Amendment rights of a Cablevision or ESPN do not tug at the free speech heartstrings in the same way as the iconic political protester who lies at the core of the First Amendment.”  Ouch.

Next stop? The ball is in Cablevision/Comcast’s court. They could sit back and wait for the current extension to expire (in 2012) and see what the FCC does. Or they could continue their litigation by seeking either: (a) reconsideration by the Sentelle/Griffith/Kavanaugh panel; or (b) rehearing en banc by the full D.C. Circuit; or (c) review by the Supreme Court. 

The odds of success in pursuing any of those options tend to be long against the guy seeking review. However, consider these facts. First, the cable petitioners have the advantage of a very thoughtful dissent on their side, reflecting at least one judge’s approval of their First Amendment arguments.  That might be helpful in persuading Kavanuagh’s colleagues that those arguments have merit.  Second, another panel of the Circuit did issue that decision on the cable ownership caps just last August, containing language that could easily be viewed as inconsistent with (or at least in strong tension with) the more recent ruling.  The full Circuit might be inclined to look at that aspect to confirm that the Court’s rulings are not heading in opposite directions.  And if cable’s goal is really to get the Supreme Court to revisit the issue of cable’s First Amendment rights – an issue last decided  there more than a decade ago, by a slim 5-4 vote – Cablevision and/or Comcast may figure that the Supremes might want to take a look (particularly in view of Judge Kavanaugh’s dissent).

Even if the cable petitioners pursue their litigation successfully, though, it’s possible that that litigation won’t be resolved until 2011 or even 2012. And at that point, the prohibition against exclusivity will be expiring anyway . . . unless the Commission decides otherwise. 

[Department of Credit-where-credit-is-due: FHH’s own Paul Feldman represented the Broadband Service Providers Association as an amicus on the FCC’s side before the Circuit in this case.]

The judges seemed to feed “softballs” to the attorney for Comcast, while giving the FCC lawyer a much harder time. We noted three particularly telling moments:

• The Chief Judge asking the FCC lawyer, “How would you prefer to lose – [on due process or on jurisdiction]?”
• Another judge pointedly asking the FCC lawyer, “Are there any limits” to the FCC’s jurisdictional claim? The lawyer seemed unable to come up with an answer that both satisfied the court and squared with his own theory.
• The Chief Judge remarking, “The impact of our decision [on the FCC’s pending network neutrality rules] will be perfectly clear,” in a context suggesting the court expects to undercut the FCC’s ability to adopt those rules.

But even if the FCC loses this case, it would be a mistake to suppose that marks the end of network neutrality. There are two points to remember.

First, the FCC believes it has a decent argument for jurisdiction based on the Supreme Court’s Brand X decision, which has language supporting the FCC’s authority to regulate at least some aspects of Internet service.  The Comcast court appeared uninterested in hearing about Brand X. But the FCC could ask the Supreme Court to rule in its favor under that precedent.

Second, a loss here on jurisdictional grounds will be an invitation to Congress to step in and give the FCC whatever authority it needs to impose network neutrality. Recent congressional proposals have been a lot tougher than the FCC’s proposed rules.

Either way, an FCC loss in this court will only set off the next stage of the dispute.

Today many people think the Web and the Internet are the same thing, but in fact the Web was a late add-on. Suddenly anyone, with or without technical aptitude, could learn to use the Internet in a few minutes. One needed only to type an address or click a link. Thousands of ISPs sprung up to serve all the new users. In part because the FCC's earlier Computer II and III rules had assured ISPs equal access to the phone lines, competition among them was fierce. ISPs vied to bring the most content possible to their customers. People with obscure interests had a new way to find each other, to form on-line communities, and to trade conspiracy theories or antique car parts, as the case may be.

It is hard to remember now what a big shift this was. Before the Web, to reach a large audience required going through a book publisher, TV network, or some other powerful gatekeeper. But the Web allowed anyone with a computer and a phone line to make his or her views available to millions. Conversations surged around the globe on every conceivable topic, from the conventional to the bizarre, from cookie recipes to outlandish sexual practices. And yet, amid all this vigorous dialogue, there was almost no large-scale commercial content.   Big companies distrusted the Internet because they could not control it. The medium was too open, too accessible, too accommodating of contrary views.

When people talk about the good old days of the Internet, this is often the period they have in mind – roughly the early 1990s. The Internet itself was big, and getting bigger very fast, as new subscribers signed on in droves and new sites appeared by the millions. Amazingly, though, no one was in charge. The only form of control was a simple system for registering domain names. Any user could post any information and visit any site. Even if a company or government had wanted to limit information or access, there was simply no way to do it.

Large companies soon woke up to the fact that all those millions of computer screens were lighting up the faces of millions of consumers. Cautiously at first, companies began to test out the Internet, first as a marketing tool and then as a channel for conducting actual sales. One early use was for brochures promoting new cars and the like. Internet-only retailers such as Amazon appeared. Chains like CompUSA and Lands End began offering Internet sales in parallel with their physical stores and phone operations. And then came the insight that set off the dot-com boom. If you can sell something that need not be physically delivered in a box, like mortgages or insurance or travel services, then you can sell it on the Internet for little more than the cost of electricity.

As more big firms came to rely on the Internet, they took an interest in seeing it run reliably. The casual patchwork that served in the early days was gradually supplanted by a much larger and more expensive infrastructure run by behemoths like MCI. Other companies installed massive facilities around the country that replicated popular sites willing to pay for the service. A click to access Amazon.com would deliver the content quickly, from a server close by, while the site of a small, specialized bookstore across the country might take much longer to reach the screen. The simple domain-name set-up was replaced by a more complicated scheme that gave big companies a leg up over smaller ones. A plumber named Jim McDonald who wanted to use mcdonald.com for his company website was plumb out of luck.

With commercialization, web-page design evolved from a hobby to a profession. Content became richer and more slickly produced, with more graphics and photos and sound and even videos. End users became impatient with the time it took these increasingly sophisticated pages to load. Once modem makers had wrung the last few bits out of ordinary phone lines, the only recourse was broadband. Consumers signed up for it in droves.

The Narrowing Effect of Broadband

Building out a new broadband connection to every home and business was prohibitive. Fortunately there were wires already in place, and ways to upgrade them. Adding components to the phone company's gear made DSL possible over voice lines, while additions to the cable system allowed for two-way Internet along with one-way video. Other providers offer broadband over electric power lines, via satellite, and through fixed wireless connections, but none of these has made much of a dent in the market.

Where a dial-up customer could choose among a great many ISPs, a broadband customer usually had two at most: the phone company and the cable company.  That limited menu worried the FCC, which considered extending the principle of Computer II and III so competing ISPs could connect through the DSL and cable facilities. But the phone and cable companies insisted they would have no incentive to build out the networks if they had to share them with competitors. The FCC bought the argument, with the result that broadband ISP customers in most markets are limited to two providers at most. Only a few consumers live within range of municipal public Wi-Fi. Cell-phone modems are an option for some, although expensive. FIOS fiber-optic service is available here and there, but again is provided by a major phone company.

Protecting the Parent

When thousands of ISPs competed for subscribers, no one cared about network neutrality. Now we do. Why might the cable and telephone ISPs be more likely to discriminate than their predecessors?

The early ISPs were mostly small businesses, many of them literally mom-and-pop operations. Even the bigger players, like Netcom, were primarily ISPs. Today’s broadband ISPs, in contrast, are all in some other business. The ISP offering in each case started out as a sideline. While it has become a growing piece, the parent companies still have other interests to protect. 

That creates incentives for ISPs to discriminate against certain content. One category at risk is anything that directly competes with some other part of the ISP company. There was an outcry when Comcast blocked subscribers' access to BitTorrent videos, possibly to protect Comcast’s own video-on-demand service. (We reported that here.) Also in danger is anything that might expose the ISP parent to even a remotely theoretical chance of criminal investigation. The major ISPs shut down vast segments of Usenet, a widely-used group discussion service, because a minuscule portion might have been used for distributing child pornography. Subscribers needlessly lost access to enormous amounts of fully legal material. Another category to watch is anything the ISP parent company fears might offend someone’s political sensitivities. Verizon once refused to assign a text-messaging short code to a political group solely because it feared the political content of the messages might be controversial.

In the early days, vigorous competition corrected any such inclinations. But today a home or business broadband subscriber who wants access to blocked content has few options. In principle there is more competition for wireless broadband services, because there are more companies in the market. They certainly tout the fact. “The wireless industry is ultra-competitive,” says their trade association website, “and that means you win with a wide variety of service plans, options, and features from which to choose.” In practice, though, the providers’ use of handset tie-ins and early termination fees makes competition largely ineffective. AT&T won’t let iPhone users run VoIP services over its broadband network, and Apple won’t let any other carrier connect to the iPhone, so iPhone users who want VoIP are stuck. For many of the Verizon users outraged by the company’s hindering their political message, changing carriers would mean paying early termination fees and buying new handsets.

Network neutrality rules will help. The ISPs and carriers no doubt will make the same bat-and-ball argument they have in the past: they built the networks, they own them, and they can run them as they please. In fact, though, the broadband networks could be viewed as a semi-monopoly, and we often take measures to ensure that privately owned monopolies treat their customers fairly.

But let’s be realistic. Although network neutrality rules will look good on paper, they will be frustratingly hard to enforce. The Chairman proposes to evaluate alleged violations “as they arise, on a case-by-case basis.” To anyone who has spent time around the FCC, this is the formula for a slow and expensive process. An innovator with novel content who runs afoul of discrimination by the broadband ISPs will not often have the time and money to litigate against a deep-pocket telephone or cable company.

Network neutrality rules may deter some of the worst abuses. But they will not bring back the anything-goes character of the early Internet. Anything went, in those days, because control was physically impossible. Now that a few companies do have control – or at least the capacity for control – all we can do is tell them not to use it. That may not be enough.

First, the IPS acknowledged the need for Internet service providers to engage in “reasonable network management” on their networks to minimize congestion and to limit illegal activities on the Net. Second, the FCC chose to give itself maximum flexibility by announcing only “policies”, rather than rules, in light of the rapidly developing nature of the Internet and the market for Internet services. This choice would come back to haunt the FCC in its first major network neutrality enforcement action. In a 2008 Order, the FCC held that Comcast’s practice of blocking consumers’ use of peer-to-peer applications violated the principles of the IPS. The Commission required Comcast to alter its network management techniques, and make its new techniques known to subscribers. While Comcast claimed to have already complied with those requirements, it nonetheless appealed the FCC’s Order to the D.C. Circuit, arguing that the Commission lacks the authority to regulate Internet traffic generally, and specifically with use of “policies” rather than “rules.” Comcast’s appeal is still pending – the FCC’s brief to the Court was filed today – and no decision is likely until the first part of 2010, at the earliest. (For some history on the Comcast dust-up, read our previous post here.)

One motive for the Chairman’s launch of a new proceeding may be to beef up the FCC’s enforcement abilities by enacting actual rules, in case the Comcast Court holds that “policies” alone just don’t cut it.  And the proposed “Sixth Principle” seems designed to prevent Internet service providers from engaging in discrimination disguised as traffic management, as Comcast may have done. Still, there will be serious debate as to the level of “transparency” that best balances consumer interests with legitimate operator requirements for network security and prevention of harmful or illegal use of the Internet.  

The debate will be even more heated over the proposed rule embodying the “Fifth Principle” of non-discrimination.  As summarized by the Chairman today, “broadband providers cannot discriminate against particular Internet content or applications.This means they cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers’ homes. Nor can they disfavor an Internet service just because it competes with a similar service offered by that broadband provider.” But even the Chairman acknowledged that the inquiry will reveal difficult policy issues.  For example, what if a consumer wants to use an application that maximizes the through-put and thus the quality of streaming music or video, but that application reduces the quality of the consumer’s other Internet applications while in use? Should this be prohibited “discrimination,” even if it is openly chosen by the consumer? One could easily answer “no.”

Similarly difficult questions will be triggered regarding the FCC’s legal authority to regulate an “information service” such as broadband Internet. There will be complex technical issues involved in defining “reasonable network management.” And, in light of the core role of the Internet in personal and political speech, First Amendment issues could get a rigorous work-out. But, as Bruce Springsteen has sung, “sooner or later it all comes down to money,” and that’s what the real battle will be fought over.

Some will argue that heavy regulation of Internet operations threatens the current business models under which large ISPs invest the funding necessary to expand and maintain a high-speed network. Large Internet application and content providers, as well, have their own marketing and financial interests in how traffic is transmitted. Many of these parties will argue that innovation in the network requires the government to keep its hands off. But the Chairman has already anticipated these arguments. He argued in his speech that truly transformative innovation has historically come from small entrepreneurs operating on the “edges” of the Internet. Non-discrimination is required, according to the Chairman and his supporters, in order to make possible the next Facebook, eBay or YouTube. 

Things have already begun to move quickly after the Chairman’s speech:  the Republican Commissioners, McDowell and Baker, have already fired back their critique of the Chairman’s approach.  (You can read it here.)  They express concerns that “factual and legal conclusions may have already been drawn” prior to the release of the NPRM.  They also stress their views that rules should not be based merely on “anecdotes” of problems, and that innovation and investment need to be protected in the core of the network, as well as at the edges. It appears that the battle is on!

The Commission is to be commended for opening up the debate, and making it accessible through new media. Check out the FCC’s new web site at www.openinternet.gov, which contains a video blog from the Chairman and space debating the issues. But even the best technology will not, by itself, yield easy answers to complex questions.

Last week Comcast announced a cap on residential users of 250 gigabytes per month.  This is a lot of usage, attained by under one percent of subscribers.  And even those busy browsers will not be cut off when they reach the cap, or even be charged more.  Comcast will just ask them to slow down.

Comcast thinks it addressed the anticompetitive issue by applying the cap without regard to which applications generate the usage.  But its executives may still be snickering into their coffee.  In reality, the only way to hit 250 gigabytes monthly is to download a lot of video.  Emails and pictures of the kids just won't do it.  It takes a few DVD-quality movies a day, on average, or a long stretch of high-definition video each day.  Somebody watching all those movies and TV over the Internet is probably not also subscribing to cable video service.  So Comcast's usage cap may still be hindering its competition.

Yet Comcast is still not satisfied.  Yesterday it appealed the FCC's order curtailing its previous actions against BitTorrent users.  Its ground for appeal?  The FCC never adopted a rule that specifically prohibits Comcast's admittedly discriminatory practices.  All the FCC has to go on is a broadly-worded policy statement.  Without a rule, Comcast seems to say, the FCC has no authority to take any action whatsoever.

All this is just delaying the inevitable.  Comcast has already complied with the order it is appealing, so presumably it is appealing as a matter of principle.  The FCC can make the principle moot as well, just by adopting a rule.  We should all have better things to do than continuing to litigate a case long after it is over.

And yet, in the end, the FCC did little more than issue a warning.  Comcast is required to do three things:  (1) give the FCC details of its discriminatory practices, (2) explain how it will stop those practices, and (3)  tell its customers and the FCC about any new practices it will use instead.

The FCC took the occasion to announce it would oversee "federal Internet policy" in resolving any other claims of discriminatory network practices.  After seeing the penalties imposed on Comcast (i.e., none), we doubt that other network operators are losing much sleep.

In fairness, though, the decision does plant a flag on the beach.  Since the 1970s, in the pre-Internet days when people began sending large amounts of data over telephone lines, the FCC has consistently forborne from regulating any aspect of transmitted content.  A series of decisions over the past few years explicitly extended that policy to cable, DSL, wireless, and broadband-over-power-line, exempting the providers of each from the traditional forms of regulation that would have blocked Comcast's methods.  Network operators might have thought themselves free to run their systems as they wished.  Today, though, the FCC put an important limit on that freedom:  operators may not discriminate against categories of content.

But another question, equally important, remains unanswered:  can an operator discriminate in favor of certain users?  That is the issue that launched the "network neutrality" debate -- whether an Internet service provider can move some sites to customers faster than others, in exchange for money.  Considering that today's decision went on a 3-2 vote, and that composition of the Commission may well change after the election, we are not making any predictions.