Net Neutrality Order Expected to Face One or More Court Challenges

"Not only does the policy outcome of the order make it ripe for appeal, but the glaring legal infirmities provide a target-rich environment for potential appellants,” FCC Commissioner Robert McDowell said in an interview Wednesday. “I would be very surprised if there’s not an appeal.” McDowell and fellow Republican Commissioner Meredith Baker Tuesday both questioned the legal underpinning of the order, with its reliance on Section 706 of the Communications Act (WID Dec 22 p1). McDowell’s written dissent includes an extended legal analysis of flaws in the order, which goes into more detail than his statement at the meeting. Industry and FCC officials agreed Wednesday it’s too early to predict where the appeal will come from, especially since the agency has yet to publish the full order.

Verizon is “going to look at the order and look at our options and see where we go from there,” spokesman Ed McFadden said. “Beyond that, everything is just conjecture and hypothetical -- much like net neutrality itself.” One Verizon official said that company executives are unhappy Chairman Julius Genachowski’s order didn’t have sunset provisions that were in aborted neutrality legislation by Rep. Henry Waxman, D-Calif. The rules themselves were “things that we've been living with and under anyway,” but Verizon had hoped they would be in place only while “the broader policy issues were being addressed” by Congress, the official said.

USTelecom issued a strong statement on the order, calling it “an expansive assertion of regulatory authority over the Internet: one that goes far beyond the Waxman legislative proposal, assumes prerogatives that are more appropriately the province of the Congress, and is arbitrary in its application of disparate mandates to competing Internet services, applications, and technologies in ways that have nothing to do with protecting consumers.” Some observers read that as a sign USTelecom could provide the challenge. Association spokeswoman Anne Veigle said Thursday the group is not considering a lawsuit. “Any discussion of challenging the final order in court would be highly premature,” she said.

CLECs are likely to wait for a bigger company to challenge the net neutrality order before joining in, two industry officials said. The odds-on favorite for the first challenge is Verizon, the officials said. They said RLECs and CLECs are most upset by the disparate treatment of fixed wireline and wireless.

"Once we see the order, we will give serious consideration to seeking review of the disparate treatment of wireless and wireline,” said Andrew Schwartzman, senior vice president of the Media Access Project. “I think judicial challenge to the rules by opponents is inevitable.” Even if Verizon decides not to go to court, “there are hundreds, perhaps even thousands, of other affected parties with enough resources to go to court,” he said. “This has become such a big issue for libertarians and some conservatives that there could well be a challenge from those groups as well.” Free Press will look closely at the order when it’s released, said Policy Counsel Aparna Sridhar. “We are keeping all options open."

"Somebody, somewhere,” will challenge the order in court, predicted Sanford Bernstein analyst Craig Moffett. “But there are big risks for anyone who takes that step,” he added. “For the left, opposing the order is a matter of the bird in the hand. A court rejection could very plausibly leave the left with nothing at all. For Verizon, challenging the order risks re-opening a Pandora’s box where outcomes could be worse instead of better.” Moffett said some groups focus on politics and principles more than real-world outcomes: “They're the ones most likely to pull the trigger on a challenge.”

"It’s pretty likely to be challenged, but exactly who files will be interesting,” said Paul Gallant, analyst at MF Global. “Someone like Verizon sends a slightly different message to the court than smaller players.” Gallant agreed a challenge could also come from public interest groups: “It’s not clear … to me that a victory in court would actually be a win for them in practice."

Based on history, an appeal seems likely, said Free State Foundation President Randolph May, who was opposed to the order approved Tuesday. “Reading between the lines of the ISPs’ press statements, you might think Verizon is the most likely candidate. But I wouldn’t bet on it, because I am sure they are under a lot of pressure from the chairman’s office not to appeal.” May doubts public interest groups like Free Press will appeal, he said. “I think they'll take a breather for the holidays, and then gear right back up to push the commission to implement the new rules in as harsh a pro-regulatory fashion as possible.” Scott Cleland, chairman of Netcompetition.org, said “It would be amazing if one of the roughly 2,000 broadband providers affected did not avail themselves of their legal rights to due process and fair treatment to sue to overturn the FCC’s Open Internet rules."

Independent Telephone and Telecommunications Alliance Vice President Joshua Seidemann reiterated his group’s view that the net neutrality rules were “not necessary.” “If the incentive for bad behavior has been there for so long, then you should have seen more of it,” Seidemann said. “There have been a handful of conflicts that have arisen and they were all resolved in favor of the complainants."

Whether anyone challenges the new rules, Genachowski’s position has become “untenable,” Public Knowledge spokesman Art Brodsky said on a panel Wednesday. “He’s out there on a limb.” Congressional Republicans don’t like the rules, industry doesn’t like them and the public interest sector doesn’t like them, Brodsky said.

Net neutrality advocates have more to risk than opponents in staging a challenge, said Medley Global Advisors analyst Jeff Silva. “If a pro-net neutrality entity were successful in getting the Title I compromise struck down in court, the odds wouldn’t necessarily be good for a stronger framework subsequently being put in place in light of the revamped, post-midterm political landscape in which Republicans will have a greater congressional presence amid a sluggish economic recovery and prolonged high unemployment.”