Court affirms FCC’s authority to engage in some Internet regulation, but FCC faces complex choices on next moves.
In the war over how, if at all, the Internet will be regulated, a major battle has been decided. Both sides can claim victory to some degree, but no knockout punch was landed: the war wages on.
The U.S. Court of Appeals for the District of Columbia has struck down the core “anti-blocking” and “anti-discrimination” elements of the FCC’s Open Internet rules. At the same time, the Court agreed with a crucial aspect of the FCC’s strategy: the Court held that the FCC does have the authority to regulate Internet traffic management under Section 706 of the Communications Act. While that affords the Commission at least a ray of hope going forward, how the FCC might utilize that authority remains to be seen.
The FCC now has some choices to make as it contemplates its next step. In the meantime, broadband Internet Service Providers (ISPs) will be able to experiment with new traffic management techniques and business models.
In late 2010 the FCC adopted its “Open Internet” rules. The Commission was concerned that Internet service providers (ISPs) could, in the position of “gatekeepers” controlling access to the Internet, unfairly bar some Internet content providers (edge providers) or at least disadvantage some edge providers relative to others. Accordingly, to assure a level Internet-access playing field, the FCC stepped in, adopting three primary measures:
- A prohibition against blocking of content, applications, services, or non-harmful devices, applied to both fixed and mobile ISPs (the “Anti-Blocking Rule”);
- A prohibition against “unreasonable discrimination” among lawful network traffic, applied to fixed ISPs only (the “Anti-Discrimination Rule”); and
- Mandatory requirements for ISPs to disclose transmission performance and traffic management practices to end users, applicable to both fixed and mobile providers (the ”Transparency Rule”).
“Fixed” ISPs here include telephone, cable, and fiber wireline providers, and also satellite and wireless ISP service to particular premises.
ISPs would still be permitted to undertake “reasonable management” of traffic on their networks to remedy congestion or prevent spamming. However, the FCC made clear that anti-competitive behavior would likely be deemed unreasonable under any circumstances. Such behavior could involve, for instance, offering to let an edge provider pay the ISP to prioritize delivery of its content to end users, or hindering services that compete with some other part of the ISP’s business.
For a more detailed discussion of what the FCC did in 2010, read our post here.
The Commission asserted that Section 706 of the Communications Act (47 U.S.C. §1302) authorizes it to regulate along these lines. Unfortunately for the FCC, its previous claim that Section 706 gave it that authority had run aground in the same court.
In 2008, reacting to attempts by Comcast to limit consumer use of peer-to-peer transmissions, the Commission declared such activities contrary to federal policy. The FCC said Section 706 gave it the authority to take that step. In its 2010 decision in Comcast Corp. v. FCC, however, the D.C. Circuit disagreed, holding that the FCC failed to demonstrate that it had the statutory authority to regulate Internet network management practices.
Several months later, in response to the Comcast decision, the FCC issued its Open Internet rules, relying on a revised rationale regarding its statutory authority under Section 706 of the Communications Act. That FCC action was the subject of the Court’s most recent decision.
As it had in its 2008 Comcast ruling, the FCC relied heavily on Section 706 as the jurisdictional basis for its Open Internet rules. Section 706(a) generally urges the FCC to “encourage” the deployment of “advanced telecommunications capability” (i.e., broadband capability) by using various regulatory or de-regulatory measures to promote competition or remove barriers to infrastructure investment. Section 706(b) requires the FCC to conduct inquiries concerning the availability of advanced telecommunications; if it finds that service is not being deployed in a timely manner, it must “take immediate action” to accelerate deployment by removing barriers to infrastructure investment and promoting competition in the telecommunications market.
In the Open Internet Order, the FCC found that broadband Internet was not being deployed in a sufficiently timely manner, and that enactment of Open Internet rules would promote competition and accelerate deployment through a “virtuous circle of innovation in which new uses of the network—including new content, applications, services, and devices—lead to increased end-user demand for broadband, which drives network improvements, which in turn lead to further innovative network uses.”
Challenging the Open Internet rules, Verizon argued that Section 706 was merely a statement of policy, not a substantive grant of authority to enact rules. Indeed, the FCC had asserted that same position back in 1998, a fact that came back to haunt it in the Comcast case: observing that the Commission had not even questioned, let alone overruled, its 1998 interpretation of Section 706, the Comcast Court held that Section 706 as interpreted by the FCC did not give the agency the authority to regulate Comcast’s behavior.
Having lost the Comcast decision on the basis of its earlier reading of Section 706, the Commission took another look at the statute in its 2010 Order, and lo and behold, concluded that Section 706 in fact did grant substantive authority to the FCC! And this time around, under established case precedent directing courts to defer to an agency’s reasonable interpretation of an ambiguous statute, the Court concurred: the Commission could change its mind, turn its back on its 1998 interpretation of Section 706, and now find that that section does indeed constitute a grant of authority to impose some Internet regulation.
The Court warned, however, that that the FCC’s authority is limited. First, the Commission may regulate only the “wire” and “radio” aspects of Internet communications, not the content of Internet transmissions. In addition, any FCC regulation of the Internet must have the sole purpose of encouraging reasonable and timely deployment of “advanced telecommunications services” (i.e., broadband). Nevertheless, the Court found that the FCC’s “virtuous circle” theory supported the use of Section 706 authority to enact some sort of Internet traffic management rules.
So far, so good for the FCC, right?
Not so fast.
While the new interpretation of Section 706 generally authorizes the FCC to enact some rules, it does not permit the Commission to enact rules that contravene other provisions of the Communications Act. Section 153(51) of the Act states that “providers of telecommunications services” may be treated as common carriers only to the extent that they are providing telecommunications services. But the Court found that the Anti-Blocking and Anti-Discrimination Rules treated Internet service like common carriage. This is a major problem for the FCC because a decade earlier the Commission changed the classification of broadband Internet service, labeling it an unregulated “information service” and not a common carrier telecommunications service. And if broadband Internet service is not a common carrier telecommunications service, the Act says that it cannot be subjected to common carrier regulation – including the Anti-Blocking and Anti-Discrimination Rules.
The FCC tried to argue that its Open Internet rules did not impose common carrier obligations, but the Court wasn’t buying it. Rather, the Court held that the Anti-Blocking and Anti-Discrimination Rules are barred by the Act. (Generously, the Court found that the Transparency Rule could be “severed” from the other Open Internet rules and, because that rule does not regulate ISPs like common carriers, it can stand.)
So where does the FCC go from here?
Chairman Wheeler now has a chance to establish his own legacy on Net Neutrality. His comments on Net Neutrality have been ambiguous: he has expressed willingness to allow some level of pricing experimentation by ISPs, but in response to the recent court decision he stated that he is considering a court appeal of the Circuit’s order.
Taking the Open Internet litigation to the next level – either by a petition for rehearing (whether to the three-judge panel or to the D.C. Circuit en banc) or by a petition for certiorari to the Supreme Court – presents risks. While the FCC might hope for a ruling that its Anti-Blocking and Anti-Discrimination Rules do not amount to common carrier regulations, such a result does not appear likely. And, by seeking review of the Circuit’s decision, the FCC would risk a reversal of the valuable holding that Section 706 gives the FCC some degree of substantive regulatory authority. (That is a non-frivolous risk: Judge Silberman, dissenting in part from the Circuit’s decision, opined that the FCC had not made a sufficient case for substantive Section 706 authority.)
From a practical perspective, the appeal process is not a quick one. An appeal would prolong the uncertain status of the Open Internet rules, contrary to the FCC’s years-long effort to resolve that status.
A more attractive option for the FCC might be to try to craft new Open Internet rules. The Circuit has now given the FCC some clues as to how that might be done. For example, a more robust opportunity for ISPs to engage in “reasonable network management” might reduce the common carrier like impact of the Anti-Discrimination Rule. The Anti-Blocking rule might be more difficult to preserve in any form. The Court did suggest that a rule requiring ISPs to provide a certain minimal level of service to all edge providers, while allowing individual bargaining to charge others for a higher level of service, might pass muster. That, however, would require elimination (or at least substantial modification) of the Anti-Discrimination Rule.
A simpler alternative for the FCC could be to re-classify broadband Internet service as common carriage. However, any such attempt would trigger aggressive opposition from ISPs, from many members of Congress, and from Commissioners Pai and O’Rielly, both of whom urged their colleagues to accept the Circuit’s decision and get out of the Net Neutrality business.
In the meantime, what can we expect from ISPs?
At least for now, the Anti-Discrimination and Anti-Blocking rules have been vacated by the Court and, in effect, no longer exist (except for Comcast, which committed to follow those rules though 2018 as a condition of approval of its merger with NBC). As a result, most ISPs are free to begin experimenting with “two-sided” business models in which ISPs might boldly begin offering paid prioritization to edge providers. (One possible model: AT&T Wireless’s recently announced plan by which edge providers can sponsor free data downloads to end users.) The market may well reveal whether such prioritizations have a pro- or anti-competitive effect, or both.
But moderation would be a wise approach in any new traffic management or business models, and statements from the major ISPs reflect their understanding of that. Seemingly abusive or blatantly anti-competitive practices could trigger negative reactions from consumers, who have strong feelings about their Internet service. Similarly, such practices could trigger enforcement actions from the Department of Justice (perhaps invoking the anti-trust laws) or the Federal Trade Commission (acting to end unfair or deceptive trade practices) or state regulators.
The Net Neutrality war continues, and we here at CommlawBlog will keep you informed of its progress.