But the opinion may indirectly threaten survival of the FCC’s “network neutrality” rule

The FCC can require mobile data providers to offer roaming arrangements, says the U.S. Court of Appeals for the D.C. Circuit. But in so ruling (in a case titled Cellco Partnership v. FCC), the court may have threatened survival of the FCC’s network neutrality rules. We’ll come back to that.

“Roaming” arrangements make it possible to use your cell phone outside your own provider’s service area. We take it for granted that a cell phone will work anywhere in the country, and usually it does. If your own provider has a tower in the vicinity, it will take the call. Otherwise, one of the local cell companies will handle the call and send the bill to your provider, which (of course) will pass the bill on you.

As to voice calls, the FCC has required roaming capabilities since the dawn of the cell phone era. No one questions its authority over voice-call roaming. But the FCC’s jurisdiction over roaming for mobile data usage – such as email, Facebook, and web browsing on smartphones and tablets – has been a matter of debate, at least until this court ruling.

Why the difference? After all, voice calls are transmitted in digital form. The technologies for handling voice and data are very similar. Why would anyone think the regulatory schemes might be different?

The answer: common carriage.

“Common carriage” is a legal concept that’s been around for several centuries. It initially applied to services that involved physically transporting, or carrying, goods or people from one place to another; hence the concept of “carriage.” Think shipping or railroads or pipelines. A company designated as a “common carrier” had to make its transportation-related facilities available to any and all customers subject to standard rates and terms, which in turn were subject to considerable government regulation and oversight. This prevented the carrier from unfairly discriminating in favor of its friends and affiliates, and against its enemies.

In the 1930s, when telephone service was becoming essential to commerce, Congress required the FCC to regulate the phone companies as common carriers.  It was not a perfect match, since telephone companies don’t actually carry anything (or anybody) from Point A to Point B, but it was close enough. Those companies did, after all, cause communications to be delivered to remote destinations, so some kind of “carriage” was arguably at work; and besides, there was precedent in the common carrier regulation of telegraph companies. Consistent with traditional common carrier notions, Congress specified that telephone rates must be “just and reasonable”; it prohibited “unjust or unreasonable discrimination” among prospective customers; and so on. For the next 40 years, under Congress’s watchful eye, the FCC kept tight control over every aspect of phone service.

Fast forward several decades to the 1980s, to the time of the first cell phones. Those handled only voice calls, using analog technology similar in some ways to conventional landlines, and they connected through the same switches as landline calls. It seemed natural for the FCC to impose the same core common carrier obligations on cell providers – half of whom, at the outset, were the incumbent wireline phone companies. Requiring cell providers to make roaming arrangements came well within the FCC’s common carrier authority, and was not that different from the long-standing requirement that local landline and long-distance phone companies interconnect with each other.

In the meantime, those same landline companies had begun carrying data over conventional phone lines. The FCC, in a prescient 1976 order, continued to regulate the transmission of 1s and 0s in data calls as common carriage, but it left unregulated the processing of those 1s and 0s. In classic common carrier terms, a phone company in the act of simply transmitting, or carrying, a customer’s message from one point to another was behaving as a carrier. But when the company also involved itself with the content by engaging in some form of processing, then the company was acting outside its role as a common carrier and those activities were not to be subjected to the stringencies of common carrier regulation. So reasoned the FCC.

The dial-up Internet emerged a few years later into this preexisting environment. The result was a completely unregulated Internet running over fully regulated phone lines. The explosive growth of the Internet, during the dial-up years, is good evidence the FCC’s 1976 decision got it right.

But the FCC walked away from that decision soon after the advent of broadband Internet service, which initially reached consumers over both cable systems and phone lines. Cable systems had never been common carriers; the FCC ruled their provision of broadband Internet service did not change that status. To help even up the competition, it likewise ruled that a telephone company providing broadband Internet service was not functioning as a common carrier, even as to the transmission component.

Then smartphones arrived. Suddenly cell phone carriers were offering broadband Internet access along with voice service. The voice and Internet content came over the same handheld device, were covered by the same contract, and were paid for with the same monthly check. As far as consumers can tell, they are accessing a single, indivisible service that combines voice and data.

But from the perspectives of the FCC and the cell phone carrier, that service consists of two separate and distinct elements, each subject to its own separate and distinct regulations. The voice component remains common carriage. The Internet-based services, by contrast, are not common carriage, and until recently, had not been subject to any significant regulation . . . not until last year, when the FCC, on a 3-2 vote, adopted a rule that requires mobile data providers to enter into roaming agreements on “commercially reasonable terms and conditions.”

But wait – that sounds like common carrier talk, which mandates “just and reasonable” conduct. Verizon (under its corporate name, “Cellco Partnership”) hastened to court, seeking to have the roaming obligation for mobile data overturned.   Verizon argued that the FCC has no authority to treat mobile data providers as common carriers – a point the FCC conceded. And since the new regulation of mobile data looks for all the world like common carrier regulation, Verizon argued, that regulation could not survive.

The court disagreed.

While acknowledging that the FCC cannot treat mobile data providers as common carriers, the court observed that the FCC has additional and very broad powers, beyond its authority over common carriers – namely, to regulate the use of radio. Mobile data services, by definition, use radio spectrum. So the FCC can regulate mobile data providers, even if they are not also common carriers. And the court accepted the FCC’s claims that its data roaming rules fall short of common carrier regulation. The court pointed out, for example, that common carriers are held to “just and reasonable” conduct, while mobile data providers are subject only to “commercially reasonable” obligations. Sure, those terms have a similar ring, but according to the FCC, the latter gives mobile data providers “more freedom” than the former affords to common carriers.

Verizon objected, arguing that the FCC’s claims of greater permissiveness are just so much bureaucratic mumbo-jumbo (or, in the words of Helgi Walker, Verizon’s counsel, “smoke and mirrors” – well played, Ms. Walker!).  According to Verizon, regardless of how much lipstick the FCC might apply to the pig, the net result is the same: the FCC is treating mobile data providers as common carriers, which it cannot do.

This argument gave the court some difficulty; it agreed the roaming rule “plainly bears some marks of common carriage.” But in the court’s view, non-common carriers may be subject to some regulations characteristic of common carriers without thereby actually becoming common carriers. There is a “gray area,” said the court, in which similar regulatory obligations may be imposed on both common carriers and non-common carriers alike. Within that gray area, the FCC’s position – that, despite common carrier-like characteristics, the data roaming rule does not itself constitute common carriage regulation – was entitled to deference.

This may not be the last word, though. Verizon opted to mount a “facial” challenge to the rule; that is, it attacked the rule “on its face” rather than as specifically applied to Verizon. The court deliberately left the door wide open for Verizon to come back in the event that the FCC, in implementing the rule, treats Verizon as a common carrier. And the court wagged its judicial finger at the FCC, cautioning the agency to make sure the supposed non-common carrier aspects “carved out in the rule’s text remain[ ] carved out in fact.”

In other words, the FCC must implement the roaming rule without crossing the line into common carrier regulation. But thanks to this opinion, the precise location of that line is harder to find than ever.

Postscript: The day after the court’s opinion was released, the same court suspended briefing in a different case, one challenging the FCC’s network neutrality rules. The court did not say why. Very possibly, though, it will ask the lawyers to rethink their arguments in the net neutrality case in light of the Verizon decision. If the net neutrality rules amount to common carrier regulation, then the Verizon case may be a fatal blow. The FCC’s authority over radio is no help to the agency in defending the net neutrality rules, as those rules apply with full force only to non-mobile providers. It remains to be seen whether the FCC can demonstrate some basis, other than radio or common carriage, for asserting jurisdiction adequate to satisfy the court.