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Wednesday, April 14, 2010

Reclassification of Broadband Internet Access: No Slam Dunk
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I was invited to participate in an April 13th conference call hosted by Kelly Cobb on behalf of the Internet Freedom Coalition to discuss the D.C. Circuit's recent decision in Comcast v. FCC and its impact on the FCC's Open Internet rulemaking proceeding. My task was to offer an explanation of the procedure by which the FCC might attempt to impose the Communications Act's "Title II" regulations on the Internet without congressional authority or approval, and what judicial challenges might emerge from such an action. What follows are my remarks, as prepared for presentation.


To impose Title II regulations on the Internet, the FCC would need to establish a rational evidentiary and sound legal basis to bring Internet service providers under its Title II authority through an act of regulatory "reclassification."

To accomplish this procedurally, the FCC will have to:

  1. Adopt either a Notice of Inquiry or Notice of Proposed Rule Making proposing that the FCC reverse four of its own prior orders directly on point, one of which has been upheld by the U.S. Supreme Court in NCTA v. Brand X, so that it could declare Internet services to be "telecommunications services."
  2. Receive public comment on its proposal creating a record that on balance supports its proposed reclassification.
  3. Adopt either a Declaratory Ruling or a Report and Order providing a reasoned factual and legal basis for changing the classification and regulatory treatment for Internet services.

To survive a challenge in court, the FCC will have to:

  1. Demonstrate why reclassification of Internet access service from an "information service" to a "telecommunications service" is not arbitrary and capricious.
  2. Demonstrate that it has Congressional authority to regulate the provision of Internet access service as a common carrier offering;
  3. Demonstrate that its action does not infringe the constitutional rights of Internet service providers.

"Reclassifying" broadband Internet access service, in whole or in part, as a telecommunications service will not be easy and the FCC would face many hurdles in gaining judicial acceptance of such a move.

The FCC Will Need to Establish a Record to Support Reversal of Four Recent FCC precedents, including the Cable Modem Declaratory Ruling Upheld by Supreme Court in Brand X.

In the Comcast decision, the DC Circuit recognized that Congress had granted the FCC no explicit regulatory authority over Internet service providers.

The court rejected the FCC's broad claim that it had plenary jurisdiction to regulate the network management practices of Internet service providers under the doctrine of implicit or "ancillary" authority.

The court's decision flowed from the FCC's prior determinations that, under the Act's service and technology-specific regulatory framework, Internet service providers should not be treated as providers of "telecommunications service." The legal question in each case turned on whether broadband Internet access simply provides a mechanism for transmitting user-generated content, like traditional telephone service or whether it functionally integrates the ability to generate, acquire, store, transform, process, retrieve and/or utilize data by offering, for example, personalized settings, ISP-provided e-mail, content storage and security functions.

In four separate rulings over a five year period, the FCC concluded that broadband Internet access service fit the statutory definition of an "information service" regardless of the underlying technology (cable modem, wireline broadband internet access, broadband over power line Internet access, or wireless broadband Internet access services). In each decision, the FCC compared the service characteristics to the statutory definitions, keeping in mind market characteristics, the level of actual and likely competition, and congressional policy goals contained in various provisions of the Act.

In each case it concluded that broadband Internet access service provided on a functionally integrated basis should not be treated as a telecommunications service. Or, as the FCC put it, the transport, data processing and content elements of the end user service were "inextricably intertwined."

The FCC found not only that the service characteristics best fit within the definition of information services, but also that sufficient actual and planned market entry would ensure that consumers were protected such that it need not regulate the services under the more restrictive framework of Title II. These rulings were consistent with over 30 years of FCC precedent. The FCC has never treated Internet service providers as common carriers. It has always treated them as "enhanced" or "information service" providers not subject to Title II regulation.

Congress codified this approach in the Telecommunications Act of 1996 when it created the statutory definitions of "information service" and "telecommunications service." When it added the category of information service to the Act, Congress did not also add a separate "Title" giving the FCC authority to regulate information services such as Internet access. Information service is defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications..." "Telecommunications" is defined as "transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." Telecommunications service is defined in terms of an offering this capability to the public, for a fee.

The key to the FCC's decisions classifying broadband Internet access classifications as an information service were it determinations, in each case, that although broadband Internet access contained a telecommunications component—"via telecommunications" being part of the definition—the providers were not separately offering telecommunications service, to the public, for a fee.

Most importantly, the FCC determined that, in the case of cable modem service, it would not " tease out" that telecommunications element and treat it as if the cable operators were offering it separately for the purpose of treating cable modem service as a telecommunications service.

The Supreme Court upheld the cable modem ruling in its Brand X decision. The Court ruled that the FCC acted reasonably when it classified the cable modem service as an information service rather than a telecommunications service on the basis of the integrated functionality offered to the end user.

Following the Brand X ruling, the FCC removed its Computer Inquiry requirements that had compelled wireline carriers to offer a the pure transmission component to third-party ISPs, on the basis of changed market characteristics. There being no separate telecommunications service component, the FCC classified wireline broadband Internet access service as an information service, as it had the cable modem service, based on the integrated functionality provided the end user. The FCC nonetheless left open the option for carriers to continue to offer broadband transmission service on a common carrier basis, if they so desired.

  • Undoing this series of decisions will require the FCC to effectively disprove each of its earlier factual findings and demonstrate why elements of broadband Internet access service are no longer "inextricably intertwined," why it should now force providers to offer the telecommunications functionality on a common carrier basis, and why the competitive forces it cited in its earlier Orders are no longer present in the marketplace.
  • Following the Comcast ruling, it will also need to show how it could be precluded from regulating Internet service providers under its ancillary jurisdiction, but can now bring them within its regulatory authority by "relabeling" their actions.
  • The courts may have a very hard time accepting such arguments.
    • This is particularly true of the U.S. Supreme Court, which would now effectively be told with respect to arguments the FCC had made in support of its opposite conclusion in Brand X: As SNL's Emily Litella would say, "Never mind!"
    • Acceptance of jurisdiction-by-reclassification would mean that the FCC had essentially unfettered discretion to regulate the Internet as it sees fit, free of any Congressional restraints.
    • The DC Circuit just rejected such an unbounded view of FCC authority, ruling that the FCC may not give itself powers which Congress has denied it in the Act.

The FCC Will Need to Convince the Courts that it is Reasonable to Apply Unchanged Law to Unchanged Facts and Reach A Different Outcome

Regulatory classification is a mixed question of law and fact, to be guided by statutory policy. Administrative agencies like the FCC may change their regulatory policies concerning how they will implement statutory mandates, but the courts require that that they are neither "arbitrary" nor "capricious" in making those changes.

Under the recent Supreme Court ruling in FCC v. Fox Television Stations, to pass this test, the FCC must both acknowledge that it is changing its policy and provide a reasoned basis for the change and must take account of reliance interests stemming from the earlier policy.

When the question presented is a change in regulatory classification, presumably there is some underlying factual circumstance, or "truth" that is not subject to change by FCC dictate.

For example, a provider either is or is not offering a pure transmission path to the end user, or a provider either is or is not, offering an information and data processing service that involves changes in the form and content of the information sent and received. These are not policy questions; these are factual determinations, to be made within the legal framework of the Act.

In the case of Internet access, the provisions of the Communications Act are unchanged, and express Congressional policy in Section 230(b)(2) of the Act specifically states that "It is the policy of the United States ... to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation."

Regulatory policy may guide an exercise of regulatory authority, but the FCC's ability to make purely policy choices is constrained by the words of the Act, and its explicit regulatory authority does not extend to the Internet or interactive computer services.

The pertinent terms of the Communications Act have not changed since 1996. To support a change in regulatory classification, as opposed to a change in regulatory policy, the FCC will have to show that the broadband Internet service offered today over cable, wireline, power line and wireless networks is factually different today than it was three years ago, when the FCC last examined the question.

Yet, there is no empirical basis for the FCC to say that broadband Internet access service—which continues to provide all of the functionality of a statutory information service—is no longer offered as a "functionally integrated" information service, but rather as a stand-alone, pure transmission service.

This would be more than a change of policy. This would be an act of regulatory alchemy, and it would be the essence of an "arbitrary and capricious" action.

  • The courts will defer to the reasoned judgments of expert administrative agencies like the FCC, but they are not going to turn a blind eye to an attempt to end-run settled law by "relabeling" services.

The FCC Will Need to Show that it has the Authority to Force Common Carrier Status on Non-Carriers.

The regulatory definitions in the Act are written in terms of what providers are offering the public, not in terms of what the FCC thinks they should be providing. The courts have made clear that the FCC may not impose Title II regulation based simply on its notions of good policy. In the NARUC I decision, 525 F. 2d 630 (1976), the D.C. Circuit rejected portions of an FCC order concerning special mobile radio systems "which imply an unfettered discretion in the Commission to confer or not confer common carrier status on a given entity, depending on the regulatory goals it seeks to achieve."

Although advocates describe the action as one of "relabeling" or reclassification, the practical result would be the involuntary imposition of common carrier status on Internet service providers.

If a company wants to offer service on a common carrier basis, it may do so without seeking FCC permission. An entity becomes a common carrier, under the terms of the Act, essentially by acting like one. The circularity of the statutory definition requires the FCC and the courts to consult the common law of carriers.

The two part definition developed by the D.C. Circuit in NARUC I and NARUC II for communications common carriers looks to whether the entity: (1) holds itself out to serve indifferently all potential users, either voluntarily or under legal compulsion; and whether (2) the system be such that customers "'transmit intelligence of their own design and choosing.'" In other words, the test looks to whether the entity is offering a transparent transmission service.

Once undertaken, the regulatory obligations and rights of Title II automatically attach. But nowhere does the Act expressly give the FCC the power to compel a non-common carrier to offer its service on a common carrier basis.

The question thus becomes whether the FCC has the legal authority to force common carrier status on non-carriers. In Section VI.B., of my Open Internet comments, I suggest that the FCC does not possess such unbounded discretion under the Act. While the matter is not free from ambiguity, it may be that only Congress can provide the legal compulsion for a company to serve as a common carrier, and not the FCC.

Because the ISPs are not now "holding themselves out" as common carrier providers of pure transmission service, any move to reclassify their service so that it can be regulated under Title II would result in the de facto imposition of common carrier status by the FCC.

  • The courts have not allowed the FCC to do this in other contexts, such as forcing a telephone company to offer "dark fiber" service on a common carrier basis when it was not the practice of the company to do so.
  • These precedents may provide another basis for challenging an FCC action that imposed common carrier status on Internet service providers.

The FCC Will Need to Avoid Infringing First Amendment Rights of ISPs

The First Amendment status of Internet service providers has yet to be conclusively established by the Supreme Court. Insofar as ISPs provide content as part of their service offerings, they will likely be considered First Amendment speakers and afforded a significant level of protection against government interference.

If the FCC reclassifies them as common carriers, thus forcing them to transport the content of others, it would arguably infringe upon their right of free speech.

Whether such infringement would be found to violate the First Amendment is an open question, but precedents concerning cable must-carry rules suggest that the action would be subjected to at least intermediate scrutiny so that the FCC would have to justify that its infringement of ISP speech rights is necessary to promote an important government interest.

  • The FCC may have a hard time satisfying this standard.
  • The government may have an important interest in preserving the free flow of information over the Internet, but there is no evidence of a present danger to that interest.
  • The ISP market is effectively competitive, even by the FCC's own reckoning.
  • The imposition of common carrier rules that disregard the autonomy of broadband ISPs as speakers, within this competitive context, can further no important or compelling government interest, and would more likely be found to violate, rather than promote, First Amendment freedoms of speech, and of the press.

posted by Barbara Esbin @ 1:52 PM | Broadband , Cable , Communications , Net Neutrality , Neutrality , The FCC , Wireline

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I'm all for anything that guarantees net neutrality, whether it's done through regulation by the FCC or an act of Congress.

What we don't want to see is the big players regulating themselves, which in view of the recent Google-Verizon deal, could be in the offing.

At any rate, it seems reasonable to me for the FCC to reclassify internet access service as telecommunications because there are many companies now, such as Skype, Vonage and Ooma Telo, that provide telephone services over broadband internet connections.

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