FCC Chairman moves to re-regulate broadband Internet transport function, but network neutrality may fall by the wayside.

Stymied by the Comcast decision in his efforts to impose network neutrality, Chairman Genachowski is asking the FCC to back up and come at the problem again, this time from a different angle. He calls his approach “the Third Way.” The other two Ways, both rejected, consist respectively of too little and too much regulation. So we think instead the Chairman should name his choice the Just Right Way. But the name is not its only problem.

From a regulatory standpoint, Internet service is a combination of two very different things. One is the provision and selection of content, called an “information service” (IS, for brevity). The other is the transport of that content between the Internet provider’s facilities and the customer’s phone or computer, a function termed a “telecommunications service” (TS). Any FCC power to regulate IS comes from Title I of the Communications Act, which provides its somewhat vague authority to regulate wire and radio communications generally.  But when the FCC first drew the IS/TS distinction – in the pre-Internet days of the 1970s – it forbore from regulating IS.

By contrast, the Commission then chose to regulate TS under Title II of the Act, the same statutory regimen that governs telephone service. Title II unquestionably gives the FCC enormous authority over rates and conditions. Among other rules, the Commission required the phone companies to accommodate other Internet service providers on their dial-up phone lines (and still does). The resulting competition effectively prevented any dial-up provider from short-changing its customers on content.

When broadband arrived, the FCC made a drastic change. It treated IS and TS as one combined service subject to the same regulatory approach as IS – i.e., under Title I only. Soon afterwards, Comcast began to selectively interfere with customer content; the FCC ordered it to stop (in the name of net neutrality); and Comcast challenged the order in court.

In defending against that appeal, the FCC was badly constrained. Having relinquished Title II, it had to argue that the indeterminate language of Title I was enough to support network neutrality rules. And since Title I has no actual words on the subject, the FCC could rely only on the claim that Title I provides it “ancillary” authority. Wrong, said the court, to the joy of cable companies and phone companies everywhere.

Now Chairman Genachowski is looking for some way out of the hole. And that way is the Third Way.

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

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

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

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

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

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