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

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”.

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.