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Tuesday, May 4, 2010

FCC: Toothless Regulator or Cop on the Beat?
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I was invited to participate in a May 4th panel discussion hosted by the New America Foundation entitled "Federal Communications Commission: Toothless Regulator or Cop on the Beat?" We were asked to address whether the FCC has the authority to enforce its Network Neutrality principles, redirect the Universal Service Fund to promote broadband, or promote competition, in the wake of the D.C. Circuit's ruling in Comcast v. FCC, without taking the controversial step of "reclassifying" broadband Internet as a Title II common carrier service. The underlying premise being that the Comcast decision "threw a huge legal roadblock in the path of the FCC's National Broadband Plan—and President Obama's promise to preserve a non-discriminatory, open Internet—with its ruling this month that the Commission lacks the authority to prevent cable giant Comcast from blocking certain peer-to-peer applications." What follows is my analysis, as prepared for presentation.


  • The D.C. Circuit's ruling in Comcast v. FCC did not render the FCC a "Toothless Regulator."
  • Reclassification of broadband Internet access as a Title II common carrier service to evade the consequences of this decision would be legally suspect and unlikely to survive on appeal.
  • The justification offered to reclassify broadband Internet service as a common carrier telecommunications service--insufficiency of market forces to protect consumers--would also preclude the FCC's ability to regulate broadband Internet service "lightly" through statutory forbearance.
  • The FCC should use its "Open Internet" docket to prepare a report to Congress on the state of the broadband Internet marketplace, and the need, if any, for additional regulatory authority.

The Comcast decision did not throw a huge legal roadblock in the path of the FCC's National Broadband Plan or render the agency "toothless."

The premise that the Comcast decision throws a "huge legal roadblock" in the path of the FCC's National Broadband Plan is incorrect.

  • The National Broadband Plan is not in any sense an actual "plan." It is a staff report containing hundreds of recommendations for the FCC and other government offices for advancement of broadband deployment, adoption and other "national purposes."
  • The Plan does not recommend that the FCC adopt network neutrality or "Open Internet" rules.
  • Each recommendation in the Plan for FCC action must be accomplished by a vote of the full Commission, pursuant to statutory authorization.
  • Reasonable arguments have been advanced that the FCC may redirect Universal Service Support funding obligations and dispersals either by resolving certain ambiguities in the text of the statute, or by reliance on its ancillary authority.
  • The FCC has announced an ambitious schedule of actions to implement those portions of the Plan within its control, and has already begun work on these items.
  • The FCC's implementation of the Plan appears to be moving full steam ahead rather than resting dead in its tracks.

The Comcast decision only rejected arguments concerning the FCC's implied or "ancillary jurisdiction" to regulate Internet services based on the legal theories advanced in the appeal by the agency.

  • The court left intact all of the FCC's expressly delegated regulatory powers over common carriers, broadcasters and cable operators.
  • The FCC may still take actions pursuant to its ancillary authority if it can establish a proper factual record and ties its exercise of such authority closely to some specifically delegated regulatory power.
  • There is simply no need for the FCC to overreact to the Comcast decision by attempting to reclassify broadband Internet access service from a Title I "information service" to a Title II common carrier "telecommunications service."

Reclassification of broadband Internet access as a Title II common carrier service would be legally suspect and unlikely to survive on appeal.

Reclassification of broadband Internet access for the purpose of regulating it more pervasively under Title II, without change in the underlying facts or law following an unfavorable court decision, would likely be met with extreme skepticism by the courts.

  • Reclassification would effect a huge change in regulatory law and policy as the FCC has never regulated Internet access service as a common carrier offering under Title II.
  • In four separate orders, concerning cable modem, wireline, power line, and wireless broadband Internet access, the FCC classified all forms of broadband Internet access service as "information service[s]," because that classification best fit the characteristics of the service offered to end users.
  • The first of these decisions, finding that cable modem service fit the statutory definition of an information service rather than a telecommunications service, was upheld by the Supreme Court in NCTA v. Brand X, based "on the factual particulars of how Internet technology works and how it is provided:"
    • Broadband Internet access service is an information service because it provides a functionally integrated capability to the end user to generate, store, transform, process retrieve and/or utilize data, rather than a pure transmission telecommunications service that does not act upon the user's information.
    • The statutory definition of an information service provides that such data processing capabilities be provided "via telecommunications," whereas the statutory definition of a telecommunications service dictates that the transmission be provided to the public for a fee without change in the user's information.
    • The definitions are, as the FCC itself found in a 1998 Report to Congress, "mutually exclusive." A single service cannot be both a telecommunications service and an information service, and an information service cannot be classified as a telecommunications service simply by virtue of the fact that it is provided "via telecommunications."
  • The Supreme Court upheld the first of the four rulings in its Brand X decision, finding that the FCC's interpretation of the service under the Act was reasonable.
    • The Court noted the unreasonable results that would flow from the opposite conclusion: that the "telecommunications" component of the service turned the entire information service into a telecommunications service.
    • That reading would render any entity that uses telecommunications in the provision of its own information services a telecommunications carrier, a result that would be at odds with the statutory language.
    • This is precisely what would result if the FCC were to reclassify Internet access service as a telecommunications service--the logic of the ruling would apply to all information service providers, including Google, Amazon, and Netflix.

Undoing this series of decisions will require the FCC to effectively disprove each of its earlier factual findings and demonstrate why the elements of broadband Internet access service are no longer "inextricably intertwined," show why it should now force providers to offer the telecommunications functionality separately, on a common carrier basis, and why the competitive forces the FCC cited in its earlier orders as adequate to protect consumers and competition are no longer present in the marketplace.

  • Under the Supreme Court's recent decision Fox v. FCC, an agency may change course on policy, but when its "new policy rests upon factual findings that contradict those which underlay its prior policy" or "its prior policy has engendered serious reliance interests," it must provide a "more detailed justification than what would suffice for a new policy created on a blank slate."
  • Regulatory classification is not a pure question of policy. It is a mixed question of fact and law.
  • The pertinent terms of the Act have not changed since passage of the Communications Act of 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 is factually different today than it was three years ago, when the FCC last examined the question.
  • There is no empirical basis for the FCC to say that broadband Internet access service—which continues to provide all 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 in policy. This would be an act of regulatory alchemy, and it would be the essence of an "arbitrary and capricious" action.
  • 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 on an unfavorable court ruling by simply "relabeling" the service in question.

Following the Comcast ruling, the FCC 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 calling the identical service something else.

  • Significantly, in the Comcast decision, the D.C. Circuit accepted the FCC's concession that the Communications Act did not give it express authority to regulate the network management practices of Internet service providers.
  • Acceptance of the doctrine of "jurisdiction-by-reclassification" would mean that the FCC has essentially unfettered discretion to regulate the Internet as it sees fit, free of any Congressional restraints.
  • The D.C. Circuit has just rejected such an unbounded view of the FCC's authority, ruling that the FCC may not give itself powers over the Internet which Congress has denied it under the Act.

Finally, to succeed in reclassification, the FCC also would have to show that it has the authority to force common carrier status on non-carriers.

  • 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.
  • The reclassification inquiry thus becomes whether the FCC has the legal authority to force common carrier status on non-carriers.
  • 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 common-law test looks to whether the entity is offering to the public, for a fee, a transparent transmission service.
  • Once the status is undertaken, the regulatory obligations and rights of Title II automatically attach.
  • 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 courts have made clear that the FCC may not impose Title II regulation based simply on its notions of good policy.
    • In my Open Internet comments, I suggest that the FCC does not possess such unbounded discretion under the Act.
    • The courts have not allowed the FCC to compel common carrier status 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.
    • 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.

To the extent the FCC has successfully imposed common carrier status in the past, it has either demonstrated that the service provider has substantial market power, or justified its actions on the basis of the monopoly provision of an essential input (Policies and Rules Concerning Local Exchange Carrier Validation and Billing Information for Joint Use Calling Cards, CC Docket No. 91-115, Second Report and Order, 8 FCC Rcd 4478, (1993)).

  • Starting in the late 1990s, the FCC has repeatedly found that markets for advanced telecommunications capability and broadband Internet access are marked by competitive forces, rather than monopoly or even significant market power.
  • Most recently, the National Broadband Plan found that "Today's broadband ecosystem is vibrant and healthy in many ways."
  • This consistent record of findings of a healthy broadband Internet service marketplace will pose substantial impediments to any attempt to now impose common carrier status on broadband Internet service providers.

Even assuming the FCC could compose a record demonstrating the opposite to support the imposition of common carrier status on broadband Internet service providers for the first time, those findings would effectively preclude the agency from being able to exercise its statutory forbearance authority and regulate the service "lightly" under Title II.

  • In its 1998 Report to Congress, the FCC dismissed the merits of classifying broadband Internet access as a telecommunications service and then attempting to use Section 10 forbearance authority as that would "effectively impose a presumption in favor of Title II regulation of such providers" that "would be difficult to overcome."
  • Forbearance under Section 10 is available for any telecommunications carrier or service where the FCC determines that market conditions are such that enforcement of any provision of the Act is not required to ensure that rates, terms and conditions of service are just and reasonable and not unjustly or unreasonably discriminatory and that consumers will otherwise be protected.
  • In making this determination, the FCC is to consider whether forbearance will promote competitive market conditions and enhance competition among providers.
  • If the rationale for reclassification is the lack of adequate competition and market forces to ensure just and reasonable behavior on the part of broadband Internet service providers, the FCC will not simultaneously be able to forbear from very many, if any, provisions of Title II.
  • We would be left, instead, with a "Full Monty" of Title II common carrier regulation. This would include, just to mention a few:
    • The obligation to provide service upon reasonable request. (Section 201)
    • The duty to provide service on just and reasonable rates, terms and conditions, without undue or unreasonable discrimination in connection with like communication service, or giving any undue or unreasonable preference or advantage to any person or subject any person to undue or unreasonable prejudice or disadvantage. (Section 202).
    • Tariff filing obligations. (Section 203).
    • Obligations to submit to FCC inquiries into transactions and management. (Sections 215, 218).
    • Duty to submit to FCC requirements concerning accounts, records, books and depreciation charges. (Section 220).
    • Line extensions authorizations. (Section 214).
    • Duty to protect the privacy of customer information. (Section 222).
    • Duties concerning telecommunications services for hearing-impaired and speech-impaired individuals. (Section 225).
    • The duty to interconnect, either directly or indirectly, with other telecommunications service providers. (Section 251(a)(1)).
    • The duty not to install network features, functions, or capabilities that do not comply with guidelines and standards established pursuant to Sections 255 and 256. (Section 251(a)(2)).
    • Duty to contribute to the Universal Service Fund. (Section 254).
    • Duty to ensure that service is accessible by persons with disabilities. (Section 255).
    • Submission to FCC oversight for coordination for interconnectivity. (Section 256).

The FCC should use its "Open Internet" docket to prepare a report to Congress on the state of the broadband Internet marketplace, identifying any market failures or gaps in consumer protection, and making recommendations for any additional regulatory authority the FCC believes is required to address deficiencies.

In conclusion, the FCC should not attempt to reclassify broadband Internet access service as a Title II service. There is scant empirical evidence that network neutrality rules are required for the protection of competition or consumers, yet there is sufficient debate over the matter that it should be resolved somewhere, and that the best place for such resolution is the legislature.

The FCC should use the record gathered in its "Open Internet" docket to prepare a report to Congress on the state of the broadband Internet marketplace, identifying any market failures or gaps in consumer protection, and making recommendations for any additional regulatory authority the agency believes is required to address such deficiencies.

In the meantime, the agency is well within its rights to work with the broadband Internet providers, consumer groups, Internet content, applications, services and device makers to attempt to achieve consensus solutions to identified problems of network congestion and consumer disclosure and privacy concerns. The FCC can play an important role in informally mediating disputes and bringing participants in the Internet ecosystem to consensus on best practices and the best path forward from the network neutrality morass.

With respect to the National Broadband Plan, those staff recommendations that the FCC wishes to move forward by rulemaking must each be evaluated against the FCC's express and ancillary jurisdiction. If, in the appropriate rulemaking proceeding, the FCC determines that it lacks the requisite statutory authority to adopt a recommendation that it believes necessary in the public interest, it should ask Congress to grant it such authority.

Such a course of action would respect the limitations of agency power and the preeminent role of Congress in promulgating our nation's laws. As I have written previously, "the time has come for our elected representatives to take up the question of whether and how the FCC should regulate the provision of Internet services." As a legal and policy matter, these issues are too important to be left to the vagaries of administrative law and agency discretion.

posted by Barbara Esbin @ 4:28 PM | Broadband , Net Neutrality , Neutrality , Regulation , The FCC

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