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Monday, May 10, 2010

Will Brand X Really Save the FCC's "Third Way" Plan?
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mobius.jpgAs previously noted, the Federal Communications Commission's Chairman has announced that the agency intends to pursue a "Third Way" and attempt to create a narrowly-tailored framework that would apply portions of Title II to those portions of broadband Internet service that the agency "re-defines" as telecommunications service.

The impetus for this action is the D.C. Circuit's recent ruling in Comcast v. FCC, rejecting the FCC's implied or "ancillary jurisdiction" to regulate Internet service services based on the legal theories advanced in the appeal by the agency. The FCC's General Counsel has described the new course of action as "A Third-Way Legal Framework for Addressing the Comcast Dilemma."

The "Third-Way" legal framework set forth in the General Counsel's white paper posits that the FCC can establish a "stronger legal foundation" for its proposed network neutrality regulation and certain aspects of the National Broadband Plan by re-defining the transmission component of broadband Internet access service as a stand-alone "telecommunications service" under the Communications Act. This would reverse its findings and conclusions in four separate earlier rulings that there was no separately cognizable "telecommunications service" embedded within broadband Internet access services so that the service only 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).

The Third Way white paper asserts that:

Applying a few foundational sections of Title II to the transmission component of broadband Internet access service would establish a strengthened legal basis on which to implement the consensus policy for broadband access. If broadband access service is found to contain a separate telecommunications service, as [U.S. Supreme Court] Justices Scalia, Souter and Ginsburg believe was the only plausible view [in NCTA v. Brand X] , then the Commission may protect broadband consumers by grounding its authority in Title II directly as well as in Title I as ancillary authority. This belt-and-suspenders approach—relying on direct statutory authority in addition to ancillary authority—puts the Commission in an inherently more secure position than the Title I approach, which allows only assertions of ancillary authority.

I suppose that security is in the eye of the beholder. I don't believe that re-classifying all or a portion of broadband Internet access service will be either a slam dunk or even an easy shot. But what intrigues me most about the Third Way white paper is the apparent claim that "the Commission's decision to adopt Justice Scalia's classification of broadband access would be permissible." It bears mention that Justice Scalia was writing for the dissent in NCTA v. Brand X, not the majority, and that his "classification of broadband access" —if one may even call it that—failed to garner the support of a majority of the Justices hearing the matter. The majority opinion in the case, of course, upheld the FCC's conclusion that the service at issue—cable modem service—was a single, unitary offering to the public of Internet access, which included a transmission component integrated with an array of interactive computer processing and information capabilities, and proprietary content, consistent with the definition of "information service" in the Act.

The FCC's conclusion that cable modem service is an information service was "unchallenged" before the Court; only the question whether the FCC reasonably concluded that cable companies providing cable modem service were not providing a "telecommunications service" in addition to an "information service" was presented for review. The Brand X majority found the FCC's conclusion that cable operators did not separately "offer" the underlying "telecommunications" used to transmit this service was a reasonable interpretation of an ambiguous term—the word "offer" as used in the definition of telecommunications service—and was therefore due deference by the court under the Chevron doctrine.

Justice Scalia took particular issue with this view of "offer" in his dissent. Nonetheless, Justice Thomas, writing for the majority, found the construction consistent with the FCC's historical approach to "basic" and "enhanced" services under the Computer Inquiry decisions. Justice Thomas noted a significant problem with the contrary interpretation of the statute offered by respondent MCI: that the Communications Act unambiguously classifies as telecommunications carriers all entities that use telecommunications inputs to provide information service. "As MCI concedes, this argument would subject to mandatory common-carrier regulation all information service providers that use telecommunications as an input to provide information service to the public," even if they owned no transmission facilities.

The problem, according to Justice Thomas, was that the FCC had never classified as "offerors" of basic transmission service, and therefore common carriers, enhanced service providers who used similar basic transmission inputs under the Computer II regime. "We doubt that the parallel term 'telecommunications service' unambiguously worked this abrupt shift in Commission policy."

The dissent took the opposite point of view on the FCC's interpretation of the term "offer." Justice Scalia reasoned that the transmission component of broadband Internet access possessed "sufficient identity to be described as separate objects of the offer," and was not, as the FCC and majority posited, "so changed by combination with" the information components of broadband Internet access service so that it is no longer reasonable to describe it any other way.

It is this "classification" of the transmission component of broadband Internet access service that the FCC plans to use for its Third Way approach, imposing some provisions of Title II on "facilities-based providers that offer access transmission to the public at large," in the words of the General Counsel.

As I have said, "good luck with that." While most of the first portion of the Brand X dissenting opinion addresses infirmities with the FCC's and the Supreme Court majority's reasoning concerning the appropriate regulatory treatment of broadband Internet access, it is the concluding paragraphs of this section that I believe bear most directly on the FCC's overall approach to its regulatory authority.

The overall approach of the "Third Way" appears quite similar to the FCC's approach to regulation of Internet service providers generally, and to what I call "Le Affaire BitTorrent," specifically. That is the apparent belief that the FCC has nearly unbounded discretion to implement the provisions of the Communications as it sees fit, largely free of any meaningful statutory constraints. I have written at length about why this view is at odds with both the statutory framework and years of judicial precedents.

Justice Scalia's final observation on this matter is telling:

Finally, I must note that, notwithstanding the Commission's self-congratulatory paean to its deregulatory largesse ... it concluded its Declaratory Ruling by asking, as the Court paraphrases, "whether under its Title I jurisdiction [the Commission] should require cable companies to offer other ISPs access to their facilities on common-carrier terms." ... In other words, what the Commission hath given, the Commission may well take away—unless it doesn't. This is a wonderful illustration of how an expert agency can (with some assistance from credulous courts) turn statutory constraints into bureaucratic discretions. The main source of the Commission's regulatory authority over common carriers is Title II, but the Commission has rendered this inapplicable in this instance by concluding that the definition of "telecommunications service" is ambiguous and does not (in its current view) apply to cable-modem service. It contemplates, however, altering that (unnecessary) outcome, not by changing the law (i.e., its construction of Title II definitions), but by reserving the right to change the facts. Under its undefined and sparingly used "ancillary" powers, the Commission might conclude that it can order cable companies to "unbundle" the telecommunications component of cable-modem service. And presto, Title II will then apply to them, because they will finally be "offering" telecommunications service! Of course, the Commission will still have the statutory power to forbear from regulating them under § 160 [Section 10] (which it already has tentatively concluded it would do) ... Such Mobius-strip reasoning mocks the principle that the statute constrains the agency in any meaningful way.
After all is said and done, after all the regulatory cant has been translated, and the smoke of agency expertise blown away, it remains perfectly clear that someone who sells cable-modem service is "offering" telecommunications.

Reasonable minds may differ on that last point, but it is hard to fault Justice Scalia's cogent analysis of the interpretative games that regulatory agencies play in order to bend the law to fit their policy goals. At some point, however, they don't simply bend but absolutely shatter the bounds of the statute. In the final analysis, there is a factual reality about how broadband Internet access service is "offered" to the public, and I remain of the view that there is not, factually speaking, separate "information" and "telecommunications" services offered to the public, but a single service offered "via telecommunications," and that this has not changed in the years following the FCC's Cable Modem Declaratory Ruling, or any of its other three classification decisions.

That aside, it also seems that the Third Way hews quite closely to Justice Scalia's recounting of the FCC's methods: the Third Way includes a "self-congratulatory paean to its deregulatory largesse," followed by plans for the imposition of a new regulatory framework though a change in the underlying facts—a carving of the integrated broadband Internet access offering into two parts for classification purposes—thus changing and increasing the regulatory obligations of the service providers, which the FCC may then, in its discretion, ameliorate via selective application of its forbearance authority. As Justice Scalia stated, "Such Mobius-strip reasoning mocks the principle that the statute constrains the agency in any meaningful way."

It is very likely that the courts reviewing this latest attempt to create regulatory authority through such extenuated interpretative contortions will also be seen as mocking the principle that the Communication Act constrains the agency in any meaningful way. Rather than bring needed regulatory stability and certainty so that providers may upgrade and expand their broadband Internet offerings, I fear that the Third Way will impair network investment incentives and halt forward progress for years while the courts work through this latest regulatory gambit.

(Image: mobius, a Creative Commons Attribution (2.0) image from fdecomite's photostream)

posted by Barbara Esbin @ 5:35 PM | The FCC

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