Court Challenges FCC in Early Network Neutrality Test

Chief Judge to FCC lawyer: “How do you want to lose?”

If a recent oral argument before the U.S. Court of Appeals for the D.C. Circuit is any guide, the FCC may have a tough time imposing its proposed network neutrality policies. Unless Congress steps in to give it a hand.

The case (argued on January 8) arose from complaints that Comcast’s Internet service had deliberately and selectively interfered with BitTorrent file-sharing services. Comcast claimed it was just managing traffic on the network; opponents suspected Comcast of trying to shield the parent company’s cable operations from competition.

The FCC sided with the complainants. It did not fine Comcast, but imposed conditions intended to ensure that the practice had ended. Read the details here.

Comcast brought an appeal to the D.C. Circuit, raising two main grounds: (1) the FCC had no actual rule in place prohibiting what Comcast did (due process argument); and (2) the FCC could not have had such a rule because it lacks authority over an Internet provider’s handling of content (jurisdictional argument).

While it is always risky to predict the outcome of a case on the basis of oral argument, things look bad for the FCC – not only as to the Comcast case, but also in regards to its stated goal of adopting network neutrality rules.

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.

FHH On The Road: Paul Feldman In Florida (And On The Internet)

FHH member and noted Net Neutrality maven Paul Feldman recently appeared at the TM Forum’s Management World America Conference in sunny Orlando. He spoke at the Conference’s keynote event, “Hype vs. Reality: What is the Role of Deregulation in Delivering a 21st Century Digital World?” (That's Paul on the right in the photo to the left.) For those of you who didn’t make it down to Florida for the festivities, no problem – you can catch Paul’s 15-minute Q-and-A presentation on net neutrality by clicking on this link.

Net Neutrality Hard To Enforce

FCC’s proposed rules good on paper, may do little in practice

The IEEE, a widely respected association of electrical engineers, posted the reflections of FH&H lawyer (and former engineer) Mitchell Lazarus on why the FCC’s proposed network neutrality rules may miss their target.  Read the piece here:

http://spectrum.ieee.org/telecom/internet/policing-net-neutrality

How to Solve the Network Neutrality Problem

Giving ISPs a choice about giving customers a choice

As we have reported elsewhere, the FCC has proposed rules to mandate “network neutrality.” Those rules would bar a broadband Internet service provider (ISP) from, among other things, discriminating for or against a provider’s content.

The big ISPs are implacably opposed to all such rules. We own the networks, they say, and we can run them any way we want. On the other side, in favor of the rules, are content providers who fear discrimination by the ISPs. The big providers in particular, like Google, not only want to compete with the cable and telephone companies, but they want to do it through the cable and telephone companies’ own ISPs.

Ironically, the problem that network neutrality would solve is one of the FCC’s own making.

In the dial-up days, there were two kinds of ISPs: (a) the ones run by the phone companies, and (b) all the others. The phone company ISPs had an enormous potential advantage in easy access to the innards of the phone system. Other things being equal, they could have out-performed and undersold everyone else and had the industry to themselves. But the FCC wanted a competitive market. In the 1985 Computer III proceeding, it required the phone companies to offer to all ISPs the same functional network access available to the phone companies’ own ISPs. (This oversimplifies a very complex ruling; for more, click here.)

The result of Computer III was a lot of ISPs. Customers in many areas could choose from hundreds. Eager to preserve clientele in such an intensely competitive environment, no ISP would dare tamper with any customer’s content. What we now call network neutrality was such a pervasive fact of life as to not even need a name.

With the advent of broadband, the FCC changed course. Phone-company DSL, in the early days of broadband, still implicitly came under the Computer III rules, and thus had to be shared with competing ISPs. But cable TV companies, which had never been subject to Computer III, had no such obligations. Non-cable ISPs clamored for access; the cable companies fought back. The FCC settled the issue in 2002: cable TV is not like telephone service and need not share its facilities. A cable company could require its broadband subscribers to use the cable company’s ISP.

That decision outraged the phone companies, who still had to share their broadband channels. But in 2005, the FCC extended the same ISP exclusivity to the phone companies. The Commission decided that DSL is a lot like cable after all, and so abolished the DSL sharing rules. If you wanted DSL, you took the local phone company as your ISP.

Now, having let the broadband ISPs lock in their customers with nowhere else to go, the FCC is shocked to learn that some of those same ISPs are blocking or slowing content that might compete with their parent companies’ offerings. How can the Commission protect broadband customers from the undesirable circumstances which the Commission’s own regulatory decisions have unintentionally fostered?

It is too late for the FCC to re-apply Computer III to broadband Internet. That opportunity has passed.  And so the FCC goes to Plan B: duct-tape network neutrality rules over the problem and make discrimination victims run the gauntlet of lengthy and possibly expensive enforcement proceedings.

There may be another way. The ISPs cannot easily be forced into giving access to competing ISPs. But perhaps they might be persuaded to give that access voluntarily.

Here is how it might work.

The FCC lays out a set of detailed, no-nonsense network neutrality rules that specify clearly what ISP behavior is banned. (Not like the newly proposed rules, which are vague and general.) The FCC also sets up a swift and certain enforcement procedure that penalizes violations. But it gives each broadband ISP a choice: (a) the ISP can opt to abide by the network neutrality rules; or (b) it can offer competing ISPs access to the broadband channel, equivalent to its own. If an ISP chooses network neutrality, it keeps the entire customer base for itself, but must be neutral as to content. If it opts to open its network, it can block or favor content as it chooses, although it risks losing customers who dislike the discrimination.

Many details remain be worked out. Could a cable or telephone company use its relationships with subscribers to market ISP services? Could an ISP reject network neutrality, yet still hold in customers with optional long-term contracts and early termination fees? How would the rules operate in a rural area with no competing ISPs?

But the principle is simple enough. A provider that chooses to abide by network neutrality must live up to that commitment, in exchange for its role as the exclusive ISP. Another that chooses to open its network will have to work with competitors as promised, in exchange for the right to play favorites with customer content.

In short, a broadband provider can have all the customers, or it can manipulate their content. It just can’t do both.

FCC Releases Net Neutrality NPRM - Let the Jousting Begin!

Regular readers of the CommLawBlog who know a lot about Network Neutrality (see, e.g., recent posts here, here and here) also knew the FCC planned to open a proceeding to adopt formal Net Neutrality rules. True to its word, on October 22 it issued a Notice of Proposed Rulemaking (NPRM) that did just that.

In 61 pages of detailed legal, economic, technical and policy analysis, the FCC proposed:

  • to codify the four principles the Commission previously articulated in its 2005 Internet Policy Statement;
  • to codify a fifth principle that would require a broadband Internet access service provider (IASP) to treat lawful content, applications, and services in a nondiscriminatory manner;
  • to codify a sixth principle that would require an IASP to disclose information concerning network management and other practices reasonably required for users and providers of content, applications and services to enjoy the protections specified in this rulemaking; and
  • to make clear that the principles are subject to reasonable network management, and would not limit an IASP in delivering emergency communications or addressing the needs of law enforcement, public safety, or national or homeland security.

The NPRM also requests comments on:

  • a category of “managed” or “specialized” services, how to define them, and what principles or rules, if any, should apply;
  • how the new rules should govern non-wireline forms of Internet access, such as mobile wireless (an especially fertile ground for dispute), unlicensed wireless, licensed fixed wireless, and satellite; and
  • enforcement procedures that the Commission should use to ensure compliance.

Some noteworthy details:

  • While the proposed rules would apply to broadband Internet access, they would not apply to dial-up Internet access, or to private “intranets.” The exemption for dial-up may offer some comfort to small and rural Internet service providers.
  • Unlike the FCC’s existing Internet Principles – which state what “consumers are entitled to” – the proposed rules are phrased as obligations imposed on IASPs. But this raises the issue of what sorts of entities the rules should apply to. AT&T has called on the FCC to apply Net Neutrality rules to application service providers such as Google, as well IASPs. While the NPRM seeks comments on that idea, the rules as proposed would apply only to IASPs.
  • The proposed Non-Discrimination Rule would prohibit IASPs from charging content, application, and service providers for enhanced or prioritized access to subscribers, but makes no mention of charges to the end users. This might allow, for example, the end user to subscribe to a service that increases throughput (and hence quality) for a video channel, even if it reduces throughput to the same user’s other applications. The Chairman did say at the meeting that users should have the final say on their own Internet experience.
  • The NPRM tees up the issue of whether so-called “managed services” should be exempt from some or all of the Net Neutrality rules. Examples include IP-enabled cable television-like services (AT&T’s U-verse, Verizon’s FIOS video), facilities-based VoIP services, and telemedicine applications. These are delivered over the same network facilities as Internet access, but are not themselves traditional Internet services. This issue will almost certainly be hotly contested.
  • The NPRM asks whether only “unreasonable” discrimination should be prohibited. Such a limitation would allow forms of discrimination that may be desirable for end users (e.g., to promote quality of service for a particular application). While the IASPs can be expected to support that approach, there may be a catch: the concept of prohibiting “unreasonable discrimination” has traditionally be a fundamental component of common carrier regulation, and IASPs do not want to be treated as common carriers. Additionally, drawing the line that defines “unreasonable” will be a contentious task.
  • In exploring the “transparency” rule, the NPRM seeks comment on the proper balance between giving consumers the information that they need and overwhelming them with detail. The NPRM also asks whether the transparency rule should require IASPs to give details of network management to content/application/service providers, and/or to the FCC. While the IASPs may have limited concerns about providing this information to consumers, they will likely fight this extension of the concept.
  • There will be numerous FCC “workshops” in this proceeding, and more importantly, a formal process of technical outreach led by the FCC’s Office of Engineering and Technology. The latter seeks details on what is reasonable network management, what is workable in terms of transparency, and how the FCC can prevent the rules from having detrimental impact.
  • Commissioners McDowell and Baker dissented in part, laying down their “markers” as to how they would oppose the Chairman’s proposal with the “factual and legal predicates” of the NPRM. Commissioner McDowell agreed on the need to preserve an open Internet, but wanted it done through non-government management entities such as ICANN and other voluntary entities – a “bottom up” rather than a “top down” approach. He argued that countries that regulate the Internet more than the U.S. tend to be less free than the U.S., and are waiting for the U.S. to enact more regulation in order to justify their own more intrusive and political regimes. And while the Chairman has stated that a goal of Net Neutrality is to protect innovation at the “edge” of the network, McDowell noted an unprecedented overlap between “edge” applications and “core” ISPs. He also suggested that any anti-competitive conduct by IASPs could be addressed by anti-trust laws.

Comments on the NPRM are due to be filed by January 14, 2010. Reply comments are due March 5, 2010.

Recent history suggests that the proceeding will be a titanic battleground. Time to strap on your armor, grab your lance, and head to the field of combat.  Let the tilting begin!

"Net Neutrality = the First Amendment of the Internet"? Not Really

A good slogan perhaps, but NOT the law

As the FCC prepares to impose its version of net neutrality upon wireless and wired Internet service providers (ISPs), the Internet is buzzing with comments on how such governmental intervention may affect the future development of the Internet. 

On the one hand are the application service providers (with Google leading the charge) who promote net neutrality as necessary for the preservation of the Internet. These folks did not invest in any of the transmission facilities that comprise the hardware pipeline of the Internet – but they are happy to rely on that pipeline to distribute their services.

On the other side are the ISPs (including folks who DID invest in the hardware) and technical experts who believe net neutrality is a solution in search of a problem and a dangerous overlay of regulation upon a dynamic, constantly evolving set of relationships.

This battle presents a range of legal issues. The question mentioned perhaps most often involves the FCC’s authority to regulate at all here:  the Commission (with a thumbs-up from the Supreme Court in the Brand X case) has held Internet data transmission to be an “information service” that cannot be regulated – well, at least not as common carriage. But if that’s the case, how can the Commission now try to impose common carrier-like obligations on ISPs?

Then there is the First Amendment of the U.S. Constitution.

Talk to the advocates of net neutrality, and they will tell you that net neutrality advances the interests embodied in the First Amendment. To them, net neutrality is the “First Amendment of the Internet.” This is an interesting way of looking at the First Amendment . . . because it is backward. To quote Adam Thierer in his very compelling blog about the issue:

After all, the language of the First Amendment could not be more clear when it says, “Congress shall make no law…” It doesn’t contain any caveats or footnotes. And the First Amendment most certainly was not intended as a tool for government to control the editorial discretion of private individuals or institutions. It was about restricting the power of the government to curtail speech and expression.

But net neutrality would open the door for government to exercise at least some control – and very possibly a lot of control – over speech and expression. So the advocates of net neutrality as the “First Amendment of the Internet” have it backwards. Further, they seem not to appreciate that those who would be most directly burdened by net neutrality, the ISPs, enjoy First Amendment rights like the rest of us. ISPs, too, have the right to be free from government regulation of their speech.  Ignoring (whether or not intentionally) that right, the net neutrality advocates  fail to acknowledge the burdens that would be imposed by net neutrality on the ISPs’ First Amendment right to choose to transmit, or not to transmit, particular viewpoints or messages. 

“What?” you say. “ISPs are not newspapers! They’re merely service providers.” If you were to believe that ISPs have no free speech rights, you would be wrong. Think about cable television, which is somewhat similar. Sure, cable companies have been required to carry local commercial television stations without being paid a dime for the carriage. But such carriage has been subject to repeated First Amendment attacks, attacks which were barely parried by a razor-thin 5-4 vote in the last go-around before the Supreme Court (in Turner). And the Supreme Court has repeatedly held – in the 1979 Midwest Video case, and again in the 1986 Preferred opinion, and once again in the 1994 Turner case – that cable companies do have First Amendment rights that exceed those of broadcasters.   (Of course, the more ISPs claim First Amendment protection because they are “speakers”, the more they expose themselves to additional potential liability, as suggested by our previous posts here and here. But that’s a blog for a different day.)

You might also argue that providing access to web sites, applications and content selected by the user is what the Internet is all about and, thus, net neutrality is merely requiring ISPs to do what it is that ISPs do. That is an interesting argument, but it ignores the fact that nothing compels an ISP to adopt any particular business model and nothing compels the ISP not to be a speaker. As stated above, the FCC treats ISPs as “information service” providers who cannot be compelled by the FCC to offer any service at all, let alone any particular type of service.  And this argument also begs the question of what will ISPs being doing in the future?

You might also be thinking that my view on the application of the First Amendment to ISPs is just a theory, and not something that has been decided by, say, a Federal court. Not entirely true. In 2000, a Federal District Court sitting in south Florida considered the constitutionality of a Broward County ordinance which required cable companies who use their systems for Internet access services to allow any and all ISPs to have access to the service on a nondiscriminatory basis. (It may come as no surprise that the ordinance was written by a local telephone company.) The court conducted a thorough analysis of this ordinance under the First Amendment and decided that a cable company offering Internet access service enjoys First Amendment rights and must be free to reject any ISP it wants to reject.

This observer believes that the FCC will have to conduct a thorough and searching First Amendment review of any net neutrality rules it may want to promulgate. I believe that the battle ground will be over the level of First Amendment scrutiny to which any FCC decision will eventually be subject. The FCC will undoubtedly argue that the toughest standard of judicial review -- i.e., “strict scrutiny” – is not applicable here.  The FCC will have to make that argument because “strict scrutiny” is almost always fatal to a speech restriction. To justify a more regulation-friendly “intermediate” level of review, the Commission can be expected to turn to the Turner and Preferred cases to support its theory that net neutrality regulations are content neutral.

This observer believes strict scrutiny is the appropriate standard here because ISPs cannot claim that they possess the type of “bottleneck monopoly” which cable possessed in 1994, and which led the Turner court to apply the intermediate level of scrutiny. Nonetheless, let’s say, for sake of discussion, that the FCC’s regulations will receive an intermediate scrutiny analysis, and the FCC will rely upon the Supreme Court’s opinion in Preferred to urge that, “[w]here speech and conduct are joined”, the interests of the regulator must be considered. Still, Preferred and Turner would require that the burden of proof be placed on the FCC.  That, in turn, would require the FCC to show a factual basis for its belief that net neutrality is needed. And as the Turner court held, “a content neutral regulation will be sustained if it furthers an important governmental interest that is unrelated to the suppression of free expression and the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.”

This is where it gets sticky for the net neutrality proponents. Web sites and applications are not being blocked as a matter of course now or historically, except in instances in which sites depict the exploitation of children or in certain cases in which peer-to-peer applications hog too much bandwidth.  And if ISPs were to begin to block web sites and applications, what would the harm be? ISPs are operating in a competitive environment, and many new competitors are around the corner. For example, Clearwire has announced that it will bring WiMax services with a huge amount of channel capacity (i.e., more ability to move more bits) to over one-third of the population by the end of 2010 and two thirds of the population by 2017. Verizon Wireless, AT&T Mobility and other wireless service providers have announced that their 4G LTE offerings are just around the corner.

And let’s not forget the costs of regulation. As a regulatory lawyer of almost three decades  (and a former FCC employee, to boot), I can tell you without any reservation that regulatory authority inherently retards new and creative conduct  because of fears that the regulator may not like it, and because regulation inherently guides and restrains the development of markets and technology.

Regulating the Internet without hindering its development presents an especially difficult problem because the Internet is a rapidly evolving set of relationships that owe their evolution to technological developments and unique ideas for content and applications that simply cannot be anticipated.   The FCC appears to recognize that it may have problems attempting to regulate the Internet without thwarting its development – at least that’s the signal I get from  the broad principles which the Commission has proposed as its rules of the road for the Internet.

But how can the FCC’s proposed broad principles provide the clear rules of conduct that everyone will know and appreciate? They cannot. Litigation before the FCC will be the result. (Hint to FCC: better hire 50 or 100 lawyers for the Internet Litigation Bureau).   

Now you may be thinking that the FCC can react when its rules are found to hinder Internet development. Perhaps, but how fast?   Not fast enough. Regulators have a very difficult time adapting regulation to a fast changing marketplace. For one, the rules they must abide by under the Administrative Procedure Act and the Due Process Clause of the U.S. Constitution require a slow and cumbersome rule making process that cannot keep up with a fast changing industry. It is typical for the rule creation process to run for two or more years.

As I stated at the beginning of this blog, the Internet is buzzing with comments about the FCC’s soon-to-be-proposed net neutrality rules. And the net gets more robust every year, all without this proposed Government intervention that, excuse me, will meet some understandable and real crisis I have never seen. Doesn’t that say it all? In conducting my own research, everything I saw, I saw though my Internet connection. Strangely enough, I found only two articles that mentioned my position, and a host of articles that promoted “net neutrality as the First Amendment of the Internet.” Message to the ISPs: you are not doing a very good job of suppressing access to ideas that may hurt you.

Upcoming Appearances: FHH Attorney Paul Feldman To Give Webinar On "Net Neutrality"

Net Neutrality, a long-simmering issue, has exploded into the foreground of public debate as the future of broadband takes shape.  (If you have any doubt about that, check out our posts here, here, here and here, among others.)  And with the announcement that the FCC will be looking, in the very near future, to codify both existing and new Net Neutrality principles, we can expect it to stay in the foreground for some time to come.

If you’re looking for expert, in-depth, analysis of the Net Neutrality debate, FHH member Paul Feldman will be presenting a one-hour webinar on “Net Neutrality – What is it? Where is it going?” on Thursday, October 8, at 1:00 p.m. (ET). 

As an established telecommunications lawyer, Paul has been following the development of Net Neutrality closely for years.  He has written multiple analyses on the topic, including blogs here and here.  In his webinar he will be reviewing the debate over the substance of Net Neutrality proposals, and the FCC’s response – in its 2005 Internet Policy Statement and its 2008 Comcast/BitTorrent Order – to the evolving broadband landscape.  He will look at the Comcast conduct (some might say “misconduct”) that attracted the Commission’s regulatory attention last year, and the changes Comcast made to its network management practices as a result of that attention.  Paul will also address the Net Neutrality obligations which NTIA and RUS are tying to BTOP/BIP broadband stimulus funding.  Lastly, he will examine the new “Fifth and Sixth Principles” recently proposed by FCC Chairman Julius Genachowski to supplement the Commission’s Four Principles of Net Neutrality.

Clearly, the concept of Net Neutrality – however it is ultimately defined – will have an overwhelming impact on all aspects of the broadband industry.  Webinar attendees will come away with answers to important questions, including:

  • What practices have been focus of Net Neutrality discussions and regulations? 
  • What issues may trigger Net Neutrality concerns in the immediate future?

The webinar is being produced by Team Lightbulb.  A registration fee of $99 per computer will be charged.  For registration, go to https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=166037&sessionid=1&key=0B2AB783D63843E31A695E8145B8BFC9&sourcepage=register or call Mr. Sean Sullivan at 703-596-4133.

Two Cheers for Network Neutrality

Those who think network neutrality is the answer might be asking the wrong question

The recent announcement by the FCC Chairman of impending rules on network neutrality caused a lot of stir in the press, including our own coverage here. On the whole, we think network neutrality is a good idea. But it may not achieve the Chairman's stated goal: to preserve the open character of the Internet that fostered so much creativity and innovation in its early days. Those times are slipping away. No set of FCC rules, however well intentioned, will bring them back.

We quickly forget how the Internet used to be. Early technologies of other kinds – 8-track tape players, manual typewriters, tail-finned cars – are easy to remember because we have still examples to look at. But the early Internet has vanished without a trace, save in the reminiscences of the one-time early adopters.

Ah, The Good Old Days

Before the Internet was the precursor ArpaNet, which linked a few dozen major universities and Government facilities. Mainly it was a way to transmit research data, with a pasted-on afterthought called “email” to help researchers coordinate their exchanges.

As students and employees left the ArpaNet sites, they worked out ways to stay linked to the system over ordinary phone lines. Some set up connections their friends and colleagues could dial into, thus becoming the first Internet service providers (ISPs). Using the Internet in those days took technical know-how. Conveniences like URLs and clickable links had yet to be invented. There were few graphics, mostly just text. Access was by typing into command lines. Needed functions like “finger” and “Archie” and “Telnet” were complex and hard to use. Also we walked five miles to school in the snow.

Then, in 1991, came the World Wide Web.

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.

Network Neutrality: The Chairman Sets A Course

Genachowski announces plans to expand, codify Network Neutrality Principles

In a speech this morning, FCC Chairman Julius Genachowski announced his intention to initiate a proceeding looking to the adoption of new rules designed to preserve and enhance the “openness” of the Internet, in accordance with the principles of “network neutrality.” (You can read the speech here or watch it being delivered here.) While the Chairman’s support for a so-called “Fifth Principle”, prohibiting discrimination by Internet service providers, was widely anticipated, he also made the surprising announcement of a “Sixth Principle” requiring broadband Internet service providers to be transparent about their network management practices.   A Notice of Proposed Rulemaking, to be issued in the near future, will certainly precipitate a hotly contested battle over the nature of “discrimination” and “reasonable network management.” 

Fifth and Sixth Principles? What are the first Four? Back in a different Internet era (2005), the FCC took a tentative first step in addressing the issues of Network Neutrality with its Internet Policy Statement (“IPS”). That laid out four “principles” designed to “preserve and promote the open and interconnected nature of the public Internet”. Specifically, the FCC stated that consumers are entitled to:

  • access the lawful Internet content of their choice;
  • run applications and use services of their choice, subject to the needs of law enforcement;
  •  connect their choice of legal devices that do not harm the network; and 
  • competition among network providers, application and service providers, and content providers.

Two elements of the IPS helped bring us to today’s announcement.

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.