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

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.

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.

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!

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.

It will allow VoIP on the iPhone 3G channel after all. If you hear loud cheers from the general direction of Mountain View, CA, that’s the Google folks breaking out the Red Bull. Apple still has not formally approved the Google Voice app, but a big obstacle is now out of the way.

The coincidence? Exactly one day before AT&T’s about face, the FCC announced the date, two weeks from now, on which it will formally propose its network neutrality rules. One of the key factors that precipitated the current surge of interest in network neutrality was a 2007 request from Skype, a VoIP company, asking the FCC to prohibit wireless companies (like AT&T) from blocking VoIP service. So the rules that might eventually be adopted, a year or two from now, may require action along the lines that AT&T took today.

Down here in the bunker we are a little surprised at the news. The wireless carriers have been erecting a protective wall of press releases that say network neutrality rules will bring about the end of technical innovation, social progress, and cheap cell phones. And AT&T’s decision may fundamentally change the economics of wireless phone service. We can expect vigorous marketing of VoIP services to iPhone users. That will probably cause a significant drop in paid-for voice minutes. Will AT&T start charging more for its data plan? Will Apple abandon the subsidy on the iPhone and start charging customers what the phone actually costs? AT&T may have brought us a little closer to a system in which customers have free choice and pay only for what they choose.

Sometimes the FCC can get the results it wants without actually regulating. Sometimes just announcing the date on which it plans to begin to consider regulating is enough.

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.

While it makes up its mind, Apple generously invites Google to put the application on other, non-iPhone platforms “and let consumers make their choices.” Apple apparently misses the irony. If it truly favored consumer freedom, it would let customers include Google Voice in their choice of user experiences on the iPhone.

AT&T, for its part, claims no involvement in Apple’s decision (or failure to make one) regarding Google Voice. But AT&T is equally irony-challenged. Much of its response (a) touts the benefits of wireless competition, while (b) defending AT&T’s arguably anticompetitive policy of blocking VoIP services on its broadband network. The response is surprisingly frank about the rationale. VoIP users run up fewer minutes of voice service. AT&T needs the revenues from voice minutes to pay back the subsidy that lets consumers buy the iPhone at an artificially low price, which in turn has attracted many new customers to AT&T’s network (and billings for voice minutes).

Here’s an idea: a wireless network that offers its users maximum choice, and charges only for services actually selected and delivered. No limitations on handset applications; no handset “subsidies” recovered through excessive monthly charges. The wired phone system once had carrier-imposed equipment subsidies and service restrictions. Their removal by the FCC triggered the current telecommunications revolution and helped to produce the Internet. Maybe it’s time to try the same approach for wireless services as well.

Google’s response to the FCC on Google Voice might be interesting and helpful, but we will never know. Except for a glowing account of the advantages of Google Voice and Android, a Google-supported operating system for wireless phones, public copies of the response are heavily redacted, especially as to communications between Google and Apple about getting Google Voice approved. Again, the irony is hard to miss. Google has the legal right to redact information that it thinks might unfairly help its competitors. But as a company that has long championed openness on the Internet, it might have been more open with information that affects not only Google and Apple, but all of us interested in making the best use of communications resources.

One started with a petition from Skype, which provides free or inexpensive phone service over the Internet.  Most wireless carriers do not allow access to Skype over their handsets, because the customer could call via Skype instead of running up expensive minutes. The other proceeding began with a group of small rural cell companies asking the FCC to ban exclusive arrangements for handsets. Because such deals limit the most desirable handsets to the majors, the small carriers lose business to customers who want the latest in hardware. So far, though, the FCC has only invited public comment on these requests, with no hint as to whether it might act.

The newest wrinkle comes out of Apple’s decision against Google Voice.

Broadly speaking, Google Voice brings phone service into the Internet Age. A subscriber receives a new phone number, local in any region of the subscriber’s choosing. Calling that number rings all the customer’s phones, wherever they are: office, home, cell, etc. Different callers can be automatically routed to different phones, or forwarded selectively to still other phones, or fed different voice mail greetings, or given different rings, or blocked altogether. All the voice mails from all the phones end up in one place, where they can be read in printed form, like emails, or listened to online from anywhere. There are provisions for setting up conference calls, and for recording phone conversations for online storage. Parallel features cover SMS messaging.

And calling anywhere in the United States is free.

Apple rejected Google’s application to sell Google Voice through the App Store, the only legal source of iPhone software. And Apple revoked previous App Store approvals for third-party software intended to work with Google Voice. Early speculation supposed that Apple had acted at the request of AT&T, whose network uses the iPhone, but press reports say that AT&T has denied any involvement. Apple’s motivation for stirring up its customers remains unknown.

Now the FCC has sent letters to all three companies: Google, Apple, and AT&T, asking Apple and AT&T which one of them made the decision to bar Google Voice, and why, and whether Apple and AT&T offer competing applications. The letter to Google asks for details on how Google Voice works, and for a summary of the discussions with Apple and AT&T.

What the FCC will do with this information is not clear. Also not clear is whether it will even get the information. Or whether it has the authority to ask. Back in the 1976 Computer II proceeding, the FCC relinquished jurisdiction over information flowing through communications systems. It would regulate the lines, it then decided, but not the bits and bytes moving over them. (In the broadband environment, it has since deregulated even the lines.) With only limited exceptions for certain forms of VoIP , the FCC has indeed kept its hands off Internet applications. Apple and AT&T have to concede the FCC’s authority over wireless voice service, and may even acknowledge some control over handsets, but may well argue that Computer II put optional software applications beyond Commission reach.

For those of us who enjoy corporate conflict as a spectator sport – over-muscled, over-equipped gladiators struggling in the arena – the Google-Apple-AT&T spat is a welcome addition to the long-running Google-Microsoft and Apple-Microsoft events. “The enemy of my enemy is my friend,” the saying goes. But now the two biggest enemies of Microsoft have become enemies themselves.

Pass the popcorn, and keep your scorecard ready.

Section VI.A of the FAQs asks and answers:

Q:        Do the nondiscrimination and interconnection requirements apply to the portions of the applicant's network that are not funded by BIP or BTOP?

A:        No

(A brilliantly concise answer which we applaud.)  Logic appears to prevail.

But there is more:

 Q:        Is last mile infrastructure subject to the same nondiscrimination and interconnection obligations as middle mile infrastructure?

 A:        Yes. The same nondiscrimination and network interconnection obligations apply to both Last Mile and Middle Mile projects. (See NOFA section V.C.2.c.) For BTOP only, Broadband Infrastructure applications will be evaluated on the applicant’s commitment to exceeding the minimum requirements. Section VII.A.2.c of the NOFA (“Project Benefits”) explains how Last Mile and Middle Mile applicants may exceed the minimum requirements, based on the different technical characteristics of the two types of projects.

As straightforward as these answers seem, the practical aspects of compliance may not be so easy to resolve. After all, if one or more parts of a network are subject to net neutrality obligations, it may be difficult to sector the network so as to be net neutrality-compliant only in funded portions, while still retaining operational flexibility in non-funded portions. And conceptually, it might be challenging to justify such a bifurcation.

Also, as our colleague Mitchell Lazarus has previously noted, it may be hard to tie down precisely where in a particular network a net neutrality violation actually occurs. Thus, any network with any BTOP/BIP-funded component could theoretically be pulled into a net neutrality battle.

So while the FAQs give concise, logical answers, the practical and conceptual realities are less clear.

Also less clear is the FAQs’ authoritative significance, if any. The FAQs don’t say where they came from. Federal agencies act through the issuance of formal orders, notices and the like, pursuant to the Administrative Procedure Act and other statutes. In their current posture, the FAQs, while no doubt intended to help clarify matters, may not have any binding effect on RUS, NTIA, the FCC, or anybody else. Trust, but verify. Or, better – first verify, then trust.

The existence of this business model means we can no longer talk about “the Internet,” as though it were one thing. Now there are at least two Internets: the one with ESPN360, and the one without. This is not the first instance of Internet fragmentation. We wrote earlier about different ISPs carrying different components of Usenet. But all of Usenet is still available to everyone through third-party services. ESPN360 is different. Those with the wrong ISP have no way to reach it.

Back in 2005, the FCC issued a policy statement that promised consumers access to "the lawful Internet content of their choice." That worthy goal may be unenforceable as to ISP-purchased services like ESPN360. The FCC has no authority over ESPN as an Internet content provider, and it cannot force an ISP to pay money for a service it does not want.

The answer to this kind of problem is supposed to be competition. In principle, a consumer who wants ESPN360 can simply switch to an ISP that offers it. But in practice, the FCC has made that difficult to do.

In the dark ages of dial-up Internet access, the phone companies offered ISP service, but were required to open their facilities to competing ISPs. That set of rules, collectively called “Computer III,” never quite worked as intended. But even so, there were thousands of ISPs. A dissatisfied customer could move easily from one to another.

Things are different in the broadband environment, following two FCC decisions that largely ended competition among broadband ISPs. The first was a 2002 ruling that deregulated cable modem service. The second, coming a few weeks after the U.S. Supreme Court upheld the first, did the same for DSL service. Cable companies and phone companies breathed a sigh of relief. They could provide broadband Internet access without having to let other ISPs use their networks.

The large majority of residential broadband customers today receive their service through either a cable company or a phone company. Thanks to the FCC deregulation decisions, these people must also take the cable company or phone company as the ISP. Few have any other choices. The high cost and relatively low speed of satellite service limits it mostly to remote areas. Fixed wireless and broadband-over-power-line have limited availability. Mobile broadband wireless is expensive and relatively slow.

Some customers live in areas with only one broadband provider. They have no choice at all. For most others, the only alternative to their present ISP is a switch from cable modem service to DSL (or fiber) from the phone company, or vice versa. But the change is rarely fast or easy. The old provider may charge early termination fees. The new provider will likely charge for its modem and for activation, and may demand a one- or two-year commitment. Waiting for the installer takes time. If the subscriber’s email address includes the name of the old provider, then changing providers turns off that address – a powerful incentive to stay put.

In short, most broadband consumers are at the mercy of their present ISP. If the ISP chooses not to provide certain content, the consumer is unable to receive it.

ESPN is a TV content provider that sells video channels to cable systems. For the company to replicate the same business model on the Internet is a natural step. But its doing so threatens the vision that has made the Internet such a strong force: all the information on the planet, all of it available to everyone. ESPN's approach, if widely adopted, would result in many little Internets, a different one for every ISP. That might make business sense for the content providers. But it would seriously disserve everyone else.

Thanks to John Chapin for bringing this issue to my attention.

The Wall Street Journal on December 15 accused Google of changing sides on network neutrality.

Other companies, though, have long collocated servers with the broadband providers. Akamai, Limelight, and others provide a service called “edge caching,” which locally replicates the content of major websites to allow faster access by subscribers. The practice is not widely seen as a violation of network neutrality. For one thing, edge caching is necessary to prevent logjams at popular sites. Today’s Internet could not function without it. For another, the companies that provide edge caching compete with each other in signing up as many websites as possible. Smaller websites work fine without edge caching; larger ones have a choice of providers. Everyone benefits.

Google now says it only wants to do what Akamai and Limelight and the others have been doing for years.

But there is a big difference. Akamai et al. do not manufacture their own content. They merely help with distributing the content of others. Google, with its search engine, YouTube, and dozens of other operations is probably the biggest single content provider on the planet. It has no incentive to share its edge servers with competitors. Despite the company’s protestations, Google’s plans seem to exemplify a fundamental violation of network neutrality.

So far, though, Google faces no legal barriers. Nothing in the FCC rulebook prohibits discrimination in broadband Internet services. The FCC did announce four Internet “principles” back in 2005, but never adopted them as rules, so they may not be enforceable. (We will find out, now that Comcast has appealed the FCC’s use of the principles in ordering it to alter network management practices.) But even then, Google’s plan may not amount to a violation. The most relevant principle just entitles consumers to “competition among network providers, application and service providers, and content providers.” So long as Google is not the only provider on the block, it may be able to discriminate with impunity.

But it can’t do that and still keep saying it supports network neutrality.

Over the last few years, the FCC reiterated its 1976 hands-off decision as to facilities used for broadband Internet access.  The current question is whether it should now step back in – not to control content, which would be unconstitutional, but to maintain free access to content.  Four distinct viewpoints have emerged:

• Old-time users and their younger allies seek to preserve the Internet’s original wide-open, anything-goes character at all costs – even if that (paradoxically) takes regulation.
• Big ISPs invoke the Internet’s original wide-open, anything-goes character to fight Government regulation that might limit their profit opportunities.
• Operators of big commercial websites support or oppose regulation as needed to ensure unimpeded (or preferred) delivery of their own content to their customers.
• Law-and-order interests favor even intrusive regulation to thwart use of the Internet for illegal activity, ranging from child pornography and terrorism to copyright infringement.

Two case studies illustrate the problem.

Comcast vs. BitTorrent

Comcast is the largest cable TV company and the second largest ISP in the United States.  Among other services, the cable business offers video-on-demand (VOD) for a fee.

BitTorrent is a popular Internet application that helps users share very large files, such as movies.  As a group, people who obtain movies for free with BitTorrent are probably less likely to pay for Comcast’s VOD.

Comcast programmed its ISP servers to peek into subscribers' communications looking for BitTorrent packets.  When they found one, the servers sent out forged signals that instructed both ends of the communication to hang up.  Comcast put out successive denials and explanations, all later shown to be untrue.

The FCC suspected that Comcast was interfering with BitTorrent to protect its VOD service from competition, and ordered it to stop all discrimination based on content.  By then, Comcast had already done so.  But it nonetheless appealed the order in federal court, questioning the FCC’s authority over its internal network management practices.  Since the FCC had not fined Comcast, and the company was already in compliance with the FCC’s order, the appeal was purely a matter of principle.

Even so, Comcast may have a point.  Possibly two points.  The FCC gets all of its authority from Congress via particular statutes.  Ordinarily an FCC order disposes of the authority question by citing the relevant statute.  But the Comcast order, lacking a statute to cite, struggles through a dozen single-spaced, heavily footnoted pages to establish its authority.  Comcast is betting the court won’t buy it.  Moreover, the FCC does not claim that Comcast violated any specific regulation, there being none on this topic.  The FCC does point to a published policy statement on broadband services under which, among other things, consumers are “entitled to access the lawful Internet content of their choice,” and “to run applications and use services of their choice.”  But the FCC did not follow the procedure needed to put this language into an enforceable rule.  Although Comcast’s actions may have been anticompetitive, discriminatory, and just plain unfair, they might not have been illegal.  And the FCC has still not proposed rules to prohibit similar future conduct by others.

alt.no-more-usenet

An early Internet application that long predated the World Wide Web, Usenet is hundreds of thousands of discussion groups covering every imaginable human activity (and also some others).  The groups are organized into “hierarchies” with names like comp.*, rec.*, soc.*, and dozens of others.   ISPs have traditionally made Usenet available as part of the service.

Eight of the major hierarchies – the so-called “big eight” – have loose rules for starting new groups.  A ninth big hierarchy, alt.* does not.  Anyone can start an alt.* group.  Many have.  Roughly 100,000 such groups exist, ranging from alt.history.ocean-liners to alt.swedish.chef.bork.bork.bork.  Some concern out-of-the-way sexual interests.  A few dozen are suspected of having been used to distribute child pornography.

That activity is unlawful.  Enforcement authorities could have used appropriate procedures to shut down the offending groups, plus any new ones that pop up.  But they did not.  Instead, the New York attorney general called in the large ISPs and asked them to voluntarily block the entire alt.* hierarchy – including the 99.9% that is fully legitimate.  AT&T, Comcast, RoadRunner, Sprint, Time Warner, and Verizon all complied.  Verizon went further, and blocked all of Usenet except the big eight.  Comcast went further still.  It shut off its subscribers from all of Usenet.

Of course no large company wants to be seen as aiding child pornography.  Yet subscribers have every right to the vast majority of Usenet that deals with other material.  For an attorney general or a legislature to order the complete shut-down of alt.* would be unconstitutional.  The same action, if carried out voluntarily by an ISP, would seem contrary to the Comcast ruling.  Yet, the FCC’s response to the widespread blocking of Usenet, affecting a large fraction of U.S. Internet users, has been . . . nothing.

More Regulation, Fewer Restrictions

The Internet’s inventors thought they had built something so decentralized as to be immune to authoritarian control.  They failed to foresee access becoming concentrated into a handful of large companies, or those companies caving so easily to law-enforcement authorities making improper requests.  To achieve the dream of the unregulated Internet – everyone able to access content posted by anyone on the globe – the FCC may have to step in and regulate after all.

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.