What Did the FCC Win in the Net Neutrality Decision?

In losing a battle, did the Federal Communications Commission win a war? In the aftermath of the United States Court of Appeals for the District of Columbia Circuit striking down key elements of the FCC’s Open Internet rules (commonly known as network neutrality), C|Net’s Marguerite Reardon raises important issues concerning the court’s finding on the FCC’s statutory authority to regulate the Internet: Before this decision was handed down from the court, there was some haziness about the true role of the FCC in regulating the Internet; but since the court's decision, it's crystal clear: the FCC -- and even state public utility commissions -- can now impose regulations on the Internet. How far does that authority go?

After the court issued its decision, Verizon stressed the point that the court had rejected the company’s position that Congress did not give the FCC jurisdiction over broadband access. The court, you see, agreed with the FCC's arguments that Section 706 of the Communications Act, a provision adopted in the Telecommunications Act of 1996, gives the FCC authority to regulate broadband networks, including imposing net neutrality rules on these operators.

As we pointed out last week, Sec 706 states:

"The [FCC] and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment." The law defines "advanced telecommunications capability" as “high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology.” [emphasis added]

The court ruled that the law “vests [the FCC] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure.” The provisions “empower [the FCC] to promulgate rules governing broadband providers’ treatment of Internet traffic.” (1) The court also said that the FCC has the authority "to regulate broadband providers' economic relationships with edge providers if, in fact, the nature of those relationships influences the rate and extent to which broadband providers develop and expand services for end users." The court defines “edge providers” as those who, like Amazon or Google, provide content, services, and applications over the Internet, while end users are those who consume edge providers’ content, services, and applications.

The Phoenix Center’s Larry Spiwak notes that the court accepted the FCC’s “virtuous cycle” theory of broadband investment: edge providers create demand for new supply from the core network suppliers and disruption of this demand deters additional investment in broadband networks. The court agreed with the FCC that “broadband providers represent a threat to Internet openness and could act in ways that would ultimately inhibit the speed and extent of future broadband deployment.”

The decision certainly has critics -- including Spiwak who questions the FCC decision finding that broadband is not being deployed on a reasonable and timely basis to all Americans. In addition, Judge Laurence Silberman, a member of the court’s three-member panel dissented even though he was part of the 2-1 majority. He said this reading of the Communications Act, "would virtually free the Commission from its congressional tether." Judge Silberman concedes that Sec 706 is “a grant of positive regulatory authority,” but Sec 706 “requires the [FCC] to identify ‘barrier[s] to infrastructure investment’ or a measure that ‘promote[s] competition’ in the broadband market -- which it has not.” He continues, “Congress required the agency to identify an actual barrier to infrastructure investment or a threat to competition, and the agency must have evidence that the barrier or threat exists.” If there is anything like a blueprint for the FCC from Judge Silberman, it is that the Commission should present evidence -- local market by local market -- of broadband providers having undo market power -- capable of restricting consumer choice and creating barriers to broadband investment.

But, even with Silberman's admonitions, the FCC’s regulatory authority has been greatly expanded on the basis that broadband service providers have both the ability and incentive to disrupt the virtuous cycle of investment. "The FCC has far more power than it did before this decision," said Harold Feld, Senior Vice President with Public Knowledge. "Before it was always unclear what the FCC's limitations were." Feld said this could have huge implications for every facet of the Internet and the FCC's authority could even extend to content providers who use the Internet to distribute content. Not only should this scare broadband providers, but, he said, edge providers should be concerned about the unfettered power the court has given the FCC. "That kind of authority has to be really tempting," Feld said.

Feld says the court's decision creates uncertainty, uncertainty that should bother any company or individual on the Internet. "No one got what they wanted out of this decision," Feld said. "Confusion over the proper role of the FCC is greater than ever."

Why? With the appropriate legal arguments, the FCC could not only tell broadband providers they can't block or discriminate against traffic on their networks -- that is, to enforce the elements of the net neutrality rules that were struck down -- but the FCC could also regulate broadband rates, as well as the pricing for all services connected to the Internet, from streaming video services like Netflix to Internet-based home surveillance services. For these purposes, the “appropriate legal arguments” would show courts that whatever regulations the FCC is adopting will "encourage the deployment ... of advanced telecommunications capability."

How far will the FCC go with this authority? FCC Chairman Tom Wheeler, in the wake of the court decision, said the Commission “is not going to take over the Internet. It is not going to dictate the architecture of the Internet. It is not going to do anything that gratuitously interferes with the organic evolution of the Internet in response to developments in technology, business models, and consumer behavior. But the FCC also is not going to abandon its responsibility to oversee that broadband networks operate in the public interest.” However, even before the court's ruling Free State Foundation President Randolph May argued the law's "'public interest' standard ... grants the [FCC] too much unconstrained discretion that enables too much regulatory micromanagement." In arguing for an update to the Communications Act, May proposes "replac[ing] this indeterminate, and, therefore, elastic delegation of authority with a competition standard grounded in antitrust-like jurisprudential principles. This competition-based standard would force the FCC to focus, before deciding to regulate, on whether a market failure exists that is actually harming consumers."

We’ll be back next week with more news on net neutrality and developments from the FCC’s January open meeting. Til then, we’ll see you in the Headlines.

Notes:

1. The court also gave the FCC a blueprint to revise its argument so that the network neutrality rules would pass court review in the future: The FCC can simply reclassify broadband services as telecommunications services under Title II of the Communications Act. These are the rules that have governed telephone service since the Communications Act of 1934.