Three-Vote FCC Majority Endorses Sweeping Net Neutrality Rules

The order imposes rules requiring transparency and prohibiting blocking and unreasonable discrimination in wireline broadband, and transparency and anti-blocking rules in wireless. The order was approved 3-2. Copps concurred with the order and Clyburn issued a partial concurrence.

"Today, for the first time, we are adopting rules to preserve basic Internet values,” said FCC Chairman Julius Genachowski, the only commissioner who enthusiastically endorsed the whole order. “For the first time, we'll have enforceable rules of the road to preserve Internet freedom and openness.” The order provides “a strong and sensible framework -- one that protects Internet freedom and openness and promotes robust innovation and investment,” he said.

McDowell and Baker complained that commissioners did not receive the latest version, which included many changes, until just before midnight Monday. “It’s inexcusable,” Baker said. “This proceeding did not need to be done in such a rushed and ill-considered manner.”

Genachowski told reporters that the commission adopted the rules based on “very strong” legal authority “that gives us the authority we need and that I'm confident will win in court.” He was asked about criticism that the rules for wireless don’t go far enough. “Like a lot of other parts of this there are people who think it goes too far and people who think it doesn’t go far enough,” he replied. “What we tried to do is focus on the real issues … the real differences between mobile” and wired broadband. The order recognizes “there are ways in which fixed and mobile are different and where more work needs to be done,” Genachowski said. “Our great hope is that the pace of innovation grows and there won’t be a need” for further government action.

McDowell filed a blistering 35-page dissent, saying nothing is “broken” in the Internet access market for the FCC to fix. “Some are saying that instead of acting as a cop on the beat the FCC looks more like a regulatory vigilante,” he said during the commission’s meeting. “The agency is also angering Congress by ignoring increasing calls for a cessation of its actions and choosing, instead, to move ahead just as members leave town.” The FCC “dumped” 3,000 pages of documents into the record shortly before the start of the Sunshine period a week ago, he said. “All of these extreme measures, defying the D.C. Circuit, Congress, and undermining the public comment process, have been deployed to deliver on a misguided campaign promise,” McDowell said.

Approval of the order “marks one of the darkest days in recent FCC history,” McDowell said. “I am disappointed in these ends justify the means tactics and the doubts they have created about this agency. The FCC is capable of better.” In the world created by the rules, companies instead of innovating will have incentives to take complaints to the FCC in search of a three-vote majority to regulate rivals, he said. “Precious capital will be diverted to pay lawyers’ fees. The era of Internet regulatory arbitrage has dawned.”

"It is not a consumer-driven or engineering-focused decision,” Baker said of the order. “It is not motivated by a tangible competitive harm or market failure. The majority bypasses a market power analysis altogether, and acts on speculative harms alone. The majority is unable to identify a single ongoing practice of a single broadband provider that it finds problematic upon which to base this action. In the end, the Internet will be no more open tomorrow than it is today.”

Baker complained that the FCC has wasted months on the order, while more pressing issues such as Universal Service Fund overhaul and spectrum reform went unattended to. She also said the FCC will distort how the Internet evolves by imposing rules now. “At best, there is a burned-out bulb in the Christmas lights,” Baker said. “We endeavor to replace the entire electrical system to fix it. There is no systemic problem -- no crisis of magnitude -- to justify the majority’s overreach."

McDowell and Baker questioned whether the order will survive legal challenge. “In 2008, the FCC tried to reach beyond its legal authority to regulate the Internet, and it was slapped back by an appellate court only eight short months ago,” McDowell said. “Today the commission is choosing to ignore the recent past as it attempts the same act. … The FCC is not Congress. We cannot make laws.”

"The majority … tries the everything-but-the-kitchen-sink defense -- 24 different claimed statutory bases,” Baker said. “The majority elects sheer quantity to make up for quality, and, in doing so, contorts the letter and spirit of the [Communications] Act to try to justify rules adopted in a result-orientated process.” The decision relies too heavily on what it calls a grant of authority under Section 706(a) of the act, attempting to “twist a 14-year old deregulatory policy statement into a grant of direct authority,” she said.

Copps, widely viewed as the key swing vote, concurred with the order but said he had considered voting against it. “Today’s action could -- and should -- have gone further,” he said. “Going as far as I would have liked was not, however, in the cards. The simpler and easier course for me at that point would have been dissent -- and I considered that very, very seriously. But it became ever more clear to me that without some action today, the wheels of network neutrality would grind to a screeching halt for at least the next two years."

Copps said he made “some progress” in toughening the order, though “not nearly so much as I had hoped.” He highlighted changes in the order that make clear “pay for priority” arrangements “would generally violate our ‘no unreasonable discrimination’ rule.” He also said many definitions, such as that of “broadband Internet access service,” had been changed to make the order more effective. “We insisted on providing greater context to the definition so that broadband companies cannot easily evade the open Internet protections,” he said. “We have expanded our transparency requirements to give consumers the information they need to make an informed choice by requiring disclosure on the broadband provider’s website and also at the point of sale."

Commissioner Mignon Clyburn said the FCC should have extended all the rules to cover wireless. “There is evidence in our record that some communities, namely African American and Hispanic, use and rely on mobile access much more than other socio-economic groups,” she said. “While this order does not go as far as I would like in protecting mobile consumers I am pleased that it is quite clear that we are not preapproving any action by mobile providers that would violate the fixed rules and the general principles of Internet openness.” Clyburn said the FCC also should have prohibited all pay-for-priority arrangements. “The order stresses the various harmful effects of these arrangements, including the serious threat to innovation on the Internet,” she said. “I believe that prohibiting such arrangements would be more appropriate based on the evidence before us. “

Top FCC staffers offered a brief overview of the rules, since the complete order won’t be available for several days. The commission published the rules and provided excerpts from the order on its website Tuesday afternoon.

The rules will ensure “that the Internet continues to flourish” and will “provide clarity for broadband providers,” said Wireline Bureau Chief Sharon Gillett. Anti-blocking rules prohibit carriers from blocking “lawful content, applications, services or nonharmful devices” based on the first three net neutrality principles in the FCC’s current policy statement, consolidating three of the rules proposed by the FCC in a notice of proposed rulemaking, Gillett said. A third rule prohibits wireline providers from unreasonably discriminating in transmitting lawful network traffic, she said. “The record in this proceeding convinced us there are some forms of differential treatment of traffic that are beneficial and some that are harmful, so an unreasonable discrimination standard is preferable to the bright-line nondiscrimination rule the commission proposed in the notice,” she said.

Wireless Bureau Chief Ruth Milkman said openness is as important for mobile networks as it is for other platforms. “There are, however, important differences between mobile and fixed broadband,” she said. “Mobile broadband is an earlier stage platform and is quickly evolving.” The order offers a lighter-handed approach for wireless but imposes the same transparency requirement, Milkman said. It imposes some anti-blocking requirements, saying wireless providers “may not block access to lawful websites” or “apps that compete with their voice or video telephony service.” But it allows mobile providers to manage their networks and specifies that the rule does not apply to app stores, she said. The order also makes clear the commission’s intention to continue monitoring mobile markets.

Paul de Sa, chief of the FCC Office of Strategic Planning and Policy Analysis, said the order is pro-business. “Since 1995 venture capital funds have invested almost $250 billion in Internet related industries,” he said. “The historical openness of the Internet … has made this massive investment possible by eliminating barriers to innovation and by giving even the smallest business access to national and global markets.” By codifying principles under which these companies have long operated, “the rules that we propose today will bring increased certainty to this vital sector of the U.S. economy while preserving flexibility broadband providers need to keep improving their networks,” de Sa said.

The FCC will allow aggrieved parties to file complaints at the commission, based on the expectation the agency can handle concerns on its own through an expedited proceedings process, FCC officials said. The new Technical Advisory Committee is expected to help the commission sort through network management issues.

Net neutrality advocates Public Knowledge and Free Press emerged as two of the toughest critics of the order approved Tuesday. The FCC’s actions “fell far short of what they could have accomplished,” said Public Knowledge President Gigi Sohn. “With just three modest changes that we and others suggested, the Commission could have established clear rules that would give more protections to Internet users than the one approved today. Instead, these rules will be subject to manipulation by telephone and cable companies. The Commission will have to be very serious about the enforcement of these rules in order for them to succeed."

The order goes too far to address the concerns of AT&T, said Free Press Managing Director Craig Aaron. “We are deeply disappointed that the chairman chose to ignore the overwhelming public support for real Net Neutrality, instead moving forward with industry-written rules that will for the first time in Internet history allow discrimination online,” he said. “This proceeding was a squandered opportunity to enact clear, meaningful rules to safeguard the Internet’s level playing field and protect consumers.”

The rules “are riddled with loopholes” and will lead to litigation, said Andrew Schwartzman, senior vice president of the Media Access Project. “They foreshadow years of uncertainty and regulatory confusion, which … carriers will use to their advantage,” he said. “Those seeking to innovate and invent new uses for digital technologies face the prospect of being blocked, bilked, or intimidated by the carriers who control the pipes."

AT&T and Verizon disagreed over the order. AT&T had been part of an industry coalition supporting the compromise put forward by Genachowski. AT&T Senior Executive Vice President Jim Cicconi said he understood the objections expressed by McDowell and Baker. “Theirs is, we feel, a position supported by the factual record in front of the Commission, and by law,” Cicconi said. But AT&T also saw reasons to support the order, he said. “In this circumstance, which is not ideal, our overarching concern is to bring market certainty so that investment and job creation can go forward, while ensuring that we can still meet the expectations of our customers,” he said. “Though a final view must await a careful reading of the FCC’s order, we believe the Chairman’s compromise can provide this certainty while taking steps to preserve flexibility for investment and innovation."

"The FCC’s majority breaks with years of bipartisan communications policies that recognized that Internet innovation and investment -- and the jobs they create -- thrive without government intervention,” countered Verizon Executive Vice President Tom Tauke. The FCC’s “assertion of authority without solid statutory underpinnings will yield continued uncertainty for industry, innovators, and investors."

Kyle McSlarrow, president of NCTA, the other leading industry supporter of the compromise, said it has long been clear that Genachowski had the votes needed to approve net neutrality rules. “Months of negotiations and discussions have led to a rough consensus of rules that we believe can accomplish those goals and avoid the extreme and counterproductive demands for rate regulation, unbundling of networks, and reclassification under Title II,” McSlarrow said. “While we will reserve final judgment until after we have an opportunity to closely review the text of the Order once it is released, it appears that the rules themselves contain that compromise consensus."

Skype, also part of the industry coalition, supported the order. “In any complicated FCC rulemaking, there are going to be trade-offs and compromises,” said Chris Libertelli, senior director of government & regulatory affairs. “On balance, this decision advances the goal of keeping the Internet an open and unencumbered medium for Skype users.” Sprint Nextel Senior Vice President Vonya McCann said that “it is our hope that the FCC’s vote will ensure broadband providers the flexibility to manage their networks, give consumers innovative services and keep their prices affordable.” The Communications Workers of America also supported the order.

"We appreciate the Commission’s observation that its long-standing, light touch regulatory approach has fostered significant broadband investment and innovation, due in large part to the regulatory certainty provided by this framework,” said TIA President Grant Seiffert. “Today’s decision recognizes TIA’s assertion that reclassification under Title II would stifle this growth.” Dish CEO Charlie Ergen said the order offers a “solid framework for protecting the open Internet."

"While we agree with Commissioners McDowell and Baker that net neutrality rules are unnecessary … we recognize that the Chairman has attempted to bridge the differences among the various stakeholders,” said CTIA President Steve Largent. CEA said, “We commend the Commission for wisely avoiding Title II broadband reclassification. Our fragile economy is dependent on broadband for stability and growth."

But the order also faced criticism from the right. “The FCC’s action doesn’t bode well for the future of an Internet free from government control and management,” said Free State Foundation President Randolph May. “The agency insists on regulating Internet providers under the type of common carrier regime that was applied to monopolistic telephone and telephone companies last century."

"This concludes a significant round in the open Internet debate affecting broadband providers and application/content developers that ride over the Internet,” Stifel Nicolaus said in a research note. “However, because the rules are very high-level, their meaning and impact will be determined by how the facts on the ground develop over the next few years, and thus we expect the battle will continue in the marketplace and through FCC case-by-case enforcement, as well as in Congress and the courts."

The FCC’s new policy “could evolve over time in response to regulatory interpretation and agency enforcement of new open-internet rules,” Medley Global Advisors said. “But it’s also possible the new policy could be short-lived if a legal challenge is lodged and a federal appeals court subsequently determines the FCC lacked authority to make a decision that represents Genachowski’s biggest victory to date.”