What Is All This Talk About 'Forbearance?'

On October 30, the Wall Street Journal reported that the Federal Communications Commission is seriously considering reclassifying broadband into two distinct services: a retail one, in which consumers would pay broadband providers for Internet access; and a back-end one, in which broadband providers serve as the conduit for websites to distribute content. The FCC would then classify the back-end service as a common carrier, giving the agency the ability to police any deals between content companies and broadband providers. The news makes all the more timely this brief from Andrew Jay Schwartzman, the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation, on the FCC’s power to waive enforcement of certain aspects of common carrier regulation.

What Is All This Talk About 'Forbearance?'

The time has come to discuss forbearance.

The debate over Network Neutrality has increasingly focused on the Federal Communications Commission’s forbearance powers. This is because the central debate over the Commission’s proposed Network Neutrality rules is over “reclassification.” Currently, the FCC governs broadband service under Title I of the Communications Act, which gives the FCC relatively few regulatory powers. Many tech companies and public interest advocates want the FCC to invoke the stronger regulatory scheme available under Title II of the Communications Act. Several elements of Title II, the framework long used for traditional telephone-type services, would not be needed and, indeed, could be very counterproductive if applied to broadband. In such situations, the Telecommunications Act of 1996 gives the FCC the power to waive enforcement of certain aspects of Title II (i.e., “forbear”). Hence, the debate about forbearance.

Advocates of reclassification (or a somewhat similar “hybrid” approach advocated by others, including influential Representative Henry Waxman (D-CA)) contemplate that contemporaneously with reclassification and adoption of Network Neutrality rules the Commission would forbear from most traditional aspects of telecommunications regulation, most especially rate regulation.

Section 10(a) of the Telecommunications Act (codified as 47 U.S.C. Section 160, but everyone calls it “Section 10 ”), provides in pertinent part that

the Commission shall forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service, or class of telecommunications carriers or telecommunications services, in any or some of its or their geographic markets, if the Commission determines that—

(1) enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary for the protection of consumers; and

(3) forbearance from applying such provision or regulation is consistent with the public interest.

Section 10(c) allows affected companies to file petitions seeking forbearance and provides that they must be acted upon within one year, with an additional 90 days allowed under certain circumstances. However, the Commission is also free to forbear on its own initiative. (Interestingly, 47 U.S.C. Section 706, the provision of the Telecommunications Act which the FCC proposes to employ to apply Net Neutrality without using Title II, also gives the FCC power to use forbearance as a means to promote broadband deployment.)

During the eight years of the George W. Bush administration, the Commission received, and granted, numerous forbearance petitions pertaining to traditional telecommunications carriers. In those cases, the FCC made the requisite findings that regulation was no longer necessary and was in the public interest. Adversely affected parties unsuccessfully appealed these decisions, creating a body of case law that gives the FCC broad discretion in making forbearance decisions. In one important case, AT&T v. FCC, the Commission declined to forbear in advance from regulating Internet Protocol services that were not yet clearly subject to regulation, but the Court of Appeals reversed, effectively giving the FCC the power to forbear from potential obligations that might never even arise.

The primary objection to forbearance is that the process is uncertain and complicated and that the FCC has recently imposed a very high burden for permitting forbearance. This argument arises from Qwest Corporation v. FCC, a case decided in the U.S. Court of Appeals for the 10th Circuit. In that case, the FCC declined to forbear from certain common carrier requirements (specifically, “UNE” and “special access” rules) in the Phoenix market. Significantly, the Commission’s decision was based on a revised methodology, adopted in 2009, which had created a higher bar for those seeking forbearance. Having found that predictions of increased competition in earlier forbearance cases had not proven accurate, the Commission adopted a new methodology focusing on market share. The reviewing court accepted the FCC’s new scheme and found that it was properly applied in rejecting Qwest’s petition.

According to opponents of reclassification, post-Qwest forbearance is difficult to justify. For example, Fred Campbell, a former FCC official, argues that

The new standard requires a painstakingly detailed, static competitive analysis that does not account for the ways in which current regulations inhibit competition or create disincentives to investment and which assigns little weight to predictive judgments regarding competition in the future. As a result, the deferential forbearance decisions touted by Net Neutrality advocates no longer apply.

Supporters of forbearance respond to this argument saying that the Qwest case dealt with a forbearance from two particular rules and was “market-specific [and] service-specific (UNE and special access).” They point to two recent forbearance decisions which invoked older, pre-Qwest criteria in allowing forbearance to proceed. In the most recent of these decisions, the FCC said “as the D.C. Circuit has held, Section 10 ‘imposes no particular mode of market analysis or level of geographic rigor,’ but rather ‘allow[s] the forbearance analysis to vary depending on the circumstances.’” (quoting EarthLink Inc. v. FCC). In a footnote, the Commission specifically cited its own Qwest forbearance decision as supporting the point.

The other major argument made by forbearance opponents is much more complicated. Oversimplifying the argument somewhat, they say that as a matter of law the Commission cannot forbear from requiring telecommunications service providers to submit tariffs and thereby be subjected to rate regulation of some kind under Section 203 of the Communications Act. They argue that under reclassification, ISPs are “terminating monopolies,” and that the Commission may only forbear when it finds adequate competition. Reclassification supporters respond that the argument is based on flawed premises, and that the Commission’s forbearance authority is more flexible than portrayed by the other side.

If the Commission does, indeed, choose to reclassify broadband it will be an important test of whether a law that is more than 20 years old has within it the flexibility to address changed technology that has become central to commerce, speech and everyday life.

Andrew Jay Schwartzman is the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation (IPR). Schwartzman, who led the Media Access Project for 34 years, is recognized by many as the “dean” of public interest communications attorneys. Schwartzman writes monthly for Benton's Digital Beat blog, find his articles at http://benton.org/blog/andy-schwartzman