D.C. Circuit Strikes Down Net Neutrality Rules, New Reclassification Battle Looms
For the second time in four years, the FCC failed to convince the U.S. Court of Appeals for the D.C. Circuit that it had authority to impose net neutrality rules on broadband ISPs. The anti-discrimination and anti-blocking rules in the agency’s December 2010 net neutrality order were indistinguishable from prohibited common carrier restrictions, said the decision (http://1.usa.gov/1m0UQPi). Chairman Tom Wheeler’s FCC has already faced renewed calls to reclassify broadband Internet as a Title II service.
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"Even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates,” wrote Judge David Tatel. “Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order."
The decision is not a total loss for the FCC. The court left intact the transparency requirement that requires ISPs to disclose their network management practices. Verizon didn’t argue those rules constitute common carrier obligations, “nor do we see any way in which they would,” the court wrote. The court also gave its blessing to the commission’s broad reading of Telecom Act Section 706’s grant of authority over the Internet space. The implication, said Senior Judge Laurence Silberman, is that if the FCC reclassifies broadband Internet as a telecom service under Title II, it could try to rest its entire statutory authority on Section 706. Silberman, who agreed the net neutrality rules were forbidden common carriage violations, dissented from the idea that Section 706 does everything the FCC wants it to do.
The FCC is examining all options, including taking the decision to the Supreme Court, Wheeler said. “The D.C. Circuit has correctly held that ‘Section 706 ... vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure’ and therefore may ‘promulgate rules governing broadband providers’ treatment of Internet traffic,'” he said (http://bit.ly/1eHnn97). “I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."
FCC Republicans Ajit Pai and Mike O'Rielly released statements hailing the decision and urging the commission to back off. “It is time for the Commission to take no for an answer,” Pai said (http://fcc.us/1aCpJ8a). “Unless Congress acts, we should stay our hand and refrain from any further attempt to micromanage how broadband providers run their networks. We should focus on removing regulatory barriers to broadband deployment, not imposing unnecessary rules that chill infrastructure investment.” O'Rielly said the decision once again confirms “that the Commission’s authority to regulate is not boundless” (http://fcc.us/1gFRBbW). “Rather than continue to test those boundaries with ‘prophylactic’ regulations, the Commission should look for ways to remove regulatory obstacles to the broadband innovation and investment that will benefit all consumers.”
But Democratic Commissioner Mignon Clyburn suggested the FCC must react. “Our actions should preserve consumer access to content of their choice, and our policies should advance competition, investment and innovation,” she said (http://fcc.us/KhmAjC). “The FCC’s public interest obligation requires us to seek solutions that are guided by these principles.” Commissioner Jessica Rosenworcel is pleased the court “recognized the Commission’s authority to encourage the deployment of broadband infrastructure,” she said (http://fcc.us/1a4H8bD). “I look forward to further studying the court’s opinion and working with my colleagues to ensure that the great ecosystem the Internet supports continues to create jobs, opportunity, and digital age prosperity."
Verizon, which appealed the order, said the court’s rejection of the rules won’t affect consumers. “One thing is for sure: Today’s decision will not change consumers’ ability to access and use the Internet as they do now,” said General Counsel Randal Milch in a written statement. “The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet which provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court’s decision."
Other ISPs promised consumers would not be harmed by the decision. “AT&T has been committed to the open Internet since our endorsement of the FCC’s statement of Internet freedoms in 2004,” the company said in a statement. “We worked constructively to help craft the FCC’s net neutrality rule, and testified in support of it in the Congress. As the FCC assesses the impact of today’s court decision, AT&T can assure all of our customers and stakeholders that our commitment to protect and maintain an open Internet will not change.” Time Warner Cable said it has long “been committed to providing its customers the best service possible, including unfettered access to the web content and services of their choice. This commitment, which long precedes the FCC rules, will not be affected by today’s court decision.”
Classic Common Carriage
The court was sympathetic to the agency’s policy goals. “The Commission has adequately supported and explained its conclusion that, absent rules such as those set forth in the Open Internet Order, broadband providers represent a threat to Internet openness and could act in ways that would ultimately inhibit the speed and extent of future broadband deployment,” it said. The FCC also “convincingly detailed” how ISPs have the economic power to set down barriers to entry for would-be competitors, said the decision.
But the court said its role is not to “assess the wisdom” of the regulations, but rather to determine whether the agency had the statutory authority to impose them. It said the FCC did not: “Given the Commission’s still-binding decision to classify broadband providers not as providers of ’telecommunications services’ but instead as providers of ‘information services,'” the agency violates the Communications Act by regulating broadband providers as common carriers.
The court distinguished its December 2012 data roaming decision, in which it upheld an FCC rule requiring carriers to offer roaming agreements on “commercially reasonable” terms (CD Dec 26/12 p1). The data roaming rule imposed no per se common carriage requirements because it left “substantial room for individualized bargaining and discrimination in terms,” the court said. That’s not the case with the net neutrality rules, which apply common carrier duties indistinguishable from those described in sections 201 and 202 of the Communications Act: “Given the Open Internet Order’s anti-blocking and anti-discrimination requirements, if Amazon were now to make a request for service, Comcast must comply,” the court said. Tatel’s objections were telegraphed during September’s oral argument, and many industry observers then thought Tatel would be tough to convince (CD Sept 10 p1). “What saved digital roaming in Cellco was flexibility,” Tatel had said in reference to the data roaming case. “I haven’t heard a basis for distinguishing this case from the classic common-carriage."
The language of the FCC’s anti-discrimination rule “mirrors, almost precisely, section 202’s language establishing the basic common carrier obligation not to ‘make any unjust or unreasonable discrimination,'” the court said in its opinion. Unlike the data roaming rule, which built in “considerable flexibility” to determine whether a roaming agreement is commercially reasonable, “the Open Internet Order makes no attempt to ensure that its reasonableness standard remains flexible,” the court said. “Instead, with respect to broadband providers’ potential negotiations with edge providers, the Order ominously declares: ‘it is unlikely that pay for priority would satisfy the “no unreasonable discrimination” standard.'"
Title II Reclassification?
The court’s decision is likely to reignite the debate at the FCC on whether to reclassify broadband as a Title II common carrier service, which dominated discussion at the agency four years ago, industry officials agreed Tuesday. In May 2010, then-Chairman Julius Genachowski said that rather than reclassify, the agency would embrace a “third way” on broadband regulation and recognize that the transmission component of broadband service “and only this component” would be classified as a Title II service (CD May 7/10 p1). A sharply divided FCC approved the net neutrality order in December 2010, over objections by the commission Republicans -- then-commissioners Robert McDowell and Meredith Baker. Both warned that the order was likely to be overturned in court.
"This is a great day for Internet freedom and Internet consumers,” McDowell told us. “Today the D.C. Circuit put the FCC back in its jurisdictional box and the issue is best left to Congress should there be a problem to address, which there isn’t. In the meantime, this sends a strong signal to the international community that there should be less government intrusion into the Internet’s affairs and not more. In the meantime, there are plenty of laws already on the books to protect consumers.”
McDowell said he hopes the FCC will avoid round two of the Title II fight. “That would be counterproductive and ultimately harmful to consumers’ interests,” he said. “Instead, the commission should work with other government agencies to compile an inventory of all of the laws that already exist to protect consumers in case ISPs act in an anticompetitive way.” Wheeler will face substantial pressure to impose “ancient laws written for extinct telephone and railroad monopolies onto the Internet,” McDowell said. “Chairman Wheeler has to do what is pragmatic and constrictive and that is to resist such calls and look for alternative ways to protect consumers.”
Former Commissioner Michael Copps, an enthusiastic supporter of reclassification in 2010, said in a statement the FCC should now take the step it should have taken four years ago. “The Court’s decision today is poised to end the free, open, and uncensored Internet that we have come to rely on,” said Copps, now a special adviser to Common Cause’s Media and Democracy Initiative (http://bit.ly/19sqvpD). “People depend on the Open Internet to connect and communicate with each other freely. Voters need it to inform themselves before casting ballots. Without prompt corrective action by the Commission to reclassify broadband, this awful ruling will serve as a sorry memorial to the corporate abrogation of free speech.”
A lawyer and longtime FCC watcher said Wheeler realizes that reclassification would mean “World War III,” which he will be eager to avoid. “Knowing Tom Wheeler, he won’t go to reclassify. He'll come up with something like ‘we're going to watch and be ready to act if anybody does anything bad.'"
A former FCC legal adviser said the court left the FCC with two options, do nothing or reclassify. “It teed the issue up perfectly for the chairman,” the official said. “In his first few months, the chairman has tried to establish his consumer credentials. This is the ultimate consumer issue, and it’s binary. If he reclassifies, he is protecting consumers. If he doesn’t, he is yielding to business interests. In terms of an appeal, there are not strong grounds to get it overturned. The only reason for an appeal would be to buy more time and figure out whether to reclassify or not."
Meanwhile, the pressure is on Wheeler and the FCC from some interest groups to move to reclassify. “Wheeler has been surprisingly proactive on the matter -- from his very first statement, released before he was even sworn in, to recently traveling out to Silicon Valley to extol the importance of rules to ensure ‘Internet openness,'” said a former FCC spectrum official. “Reclassification may in fact be the path he chooses to make his left flank happy.” Harvard Visiting Law Professor Susan Crawford said in a tweet that it’s “time to reclassify high-speed Internet access so US can move ahead."
Section 706
The court gave its seal-of-approval to the agency’s broad reading of Section 706 of the Telecom Act of 1996. That section directs the FCC to “take immediate action to accelerate deployment” of broadband if it’s not being deployed in a timely manner. It was one of “a plethora of statutory provisions” the FCC relied on for authority to adopt its net neutrality rules, the court said, but -- absent the common carriage problems -- it would have been enough. “We start and end our analysis with section 706,” the court said, which “furnishes the Commission with the requisite affirmative authority to adopt the regulations.”
The court spent several pages discussing the power of Section 706. The commission’s “current understanding” of the rule as a grant of statutory authority is a “reasonable interpretation of an ambiguous statute,” it said. The FCC had argued its net neutrality rules advance broadband deployment by first promoting edge-provider innovations and end-user demand. “Verizon derides the Commission’s justification as a ’triple-cushion shot,'” the court said. “In billiards, however, a triple-cushion shot, although perhaps more difficult to complete, counts the same as any other shot.” The commission “more than adequately supported and explained its conclusion” that edge innovation leads to expansion of broadband infrastructure, the court said.
"The D.C. Circuit dropped a big rock in the pond, the ripples are going to overturn a lot of boats,” Public Knowledge Senior Vice President Harold Feld told us. “This impacts every aspect of the PSTN [public switched telephone network] Transition. This is huge.” The implications of the opinion affect much of what is before the agency, he said. “On the one hand, it is a blank check for the FCC on everything but common carriage and interconnection,” he said. “Want to regulate the online video market? Section 706 says it’s totally cool if that’s what encourages broadband adoption and broadband use. Want to have an interconnection mandate similar to the data roaming rule? Sure. Section 706 gives the FCC clear authority to regulate the Verizon/Cogent dispute. But you want IP-to-IP interconnection for VOIP? Not unless you classify VOIP as Title II. Want to regulate intercarrier compensation and see the [intercarrier compensation] rate reduced to zero? Not if it’s VOIP, because that is common carrier.”
Silberman concurred with the general conclusion that the net neutrality rules impermissibly treat broadband ISPs as common carriers, but disagreed on the power of Section 706. That section is “a grant of positive regulatory authority, but it doesn’t come close to sanctioning the Commission’s regulation,” Silberman wrote. That’s important, he said, “since the majority opinion suggests possible regulatory modifications that might circumvent the prohibition against common carrier treatment."
It’s hard to predict what course Wheeler and his staff will decide to pursue, said Richard Bennett of the American Enterprise Institute. “He’s made some kind of contradictory statements in the last couple of weeks regarding Internet regulation,” he said. “At Ohio State University he said some things that were fairly deregulatory, but in Oakland and Silicon Valley last week ... he made some comments that were kind of more on the regulatory side.” Bennett said the chairman should focus on “the particular outcome that he wants to see happening in the Internet space."
"I don’t necessarily see this becoming a front burner issue for Wheeler,” said a telecom lawyer and former top FCC official. “Before deciding how to respond, he might explicitly want to see if the dog barks, so to speak. That is, in the current marketplace, will there be definable bad things happening that necessitate regulation? That would better inform next steps -- and it also puts some pressure on for companies to act reasonably and defensibly."
"Chairman Wheeler finds himself standing upon a crumbled legal foundation left for him by his predecessors,” said Free Press Policy Director Derek Turner. “He obviously recognizes this, and recognizes as the court did, that if the FCC had not made those shortsighted classification decisions, and instead followed Congress’ blueprint, there would be no controversy here. He certainly understands the history of how we got into this mess, as the court enumerated. Mr. Wheeler is certainly facing a moment where he will have to make politically uncomfortable decisions. We think he has it inside himself to do the courageous thing and restore the foundation that the prior FCC’s destroyed."
"The court’s decision strikes a serious blow to a free and open Internet,” said Delara Derakhshani, policy counsel for Consumers Union. “It leaves consumers at the mercy of a handful of cable and phone providers that can give preferential treatment to the content they profit from. Chairman Wheeler needs to take action quickly to keep the Internet accessible and competitive, and Congress should get in the game."
"The court’s ruling highlights the need for regulatory modernization,” said Fred Campbell, director of the Communications Liberty & Innovation Project and former chief of the Wireless Bureau. “Internet access is far more competitive and consumer driven today than when the net neutrality debate began over a decade ago, and the largest edge companies now dwarf many broadband providers. In the current environment, it may be wiser to consider two-sided Internet issues in the broader context of the IP transition and the Communications Act update rather than immediately embark on another one-sided net neutrality crusade.”
"If Tom Wheeler were determined to try to reimpose the vacated anti-discrimination and anti-blocking rules in anything resembling their current common carriage-like form, he might opt to try to go the Title II reclassification route,” said Free State Foundation President Randolph May. “But I suspect he won’t do this. In essence, imposing Title II on broadband providers is going back to the same regime applied to the monopoly Bell System and, for that matter, to the railroads in 1887. ... Wheeler is obviously the key, and I suspect he [will] try hard to resist the pressure brought to bear by some to adopt the ‘nuclear option.’ I hope so.”
Hill Reaction
Among lawmakers, Democrats lamented the decision while Republicans saw vindication. The news sent several ripples throughout Capitol Hill and prompted one Senate Democrat to threaten legislation. Several Democrats see hope in the court’s recognition of FCC broadband authority.
Sen. Ed Markey, D-Mass., now plans to introduce a bill to clarify what he feels is ambiguity about the FCC’s authority, he said. “As one of the primary authors of the Telecom Act of 1996, I know the Communications Act gives the FCC clear authority to oversee the operation of broadband networks, and has the power to intervene in its effort to preserve competition and safeguard consumers,” Markey said in a statement. “We must ensure that as the Internet continues to evolve, it remains a level playing field guided by the principles of openness and competition.” His office said he decries the court ruling.
"The D.C. Circuit affirmed what never should have been in question -- the FCC can protect consumers, innovation, and competition online,” House Commerce Committee ranking member Henry Waxman, D-Calif., said in a statement. “Now the Commission must act expeditiously to exercise the authority the court has recognized."
Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., is “disappointed” and plans to “closely” monitor the issue, he said in a statement. “Network neutrality is a bedrock principle of the Internet, one that has allowed it to grow and flourish into the ultimate marketplace of ideas.” The Internet cannot become a place “based on a financial relationship with a broadband provider,” he added.
The FCC “clearly has the authority to protect consumers and preserve an open Internet -- as acknowledged by the D.C. Circuit Court,” said Sen. Richard Blumenthal, D-Conn. “I urge the Commission to use that authority aggressively and responsibly.
Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., expressed pleasure that the court recognized the FCC has some authority to issue consumer protection rules for broadband networks and cited the agency’s responsibility to regulate communications networks for the “public interest and consumers everywhere,” in a statement. “I urge the FCC to consider all viable options to accomplish these objectives, and to make sure that that both consumers and competition are protected through a free and open Internet,” said Rockefeller, D-W.Va. “I stand ready to assist the Commission in that endeavor."
Rep. Doris Matsui, D-Calif., also said she wants to work with the FCC to “ensure a free and open Internet, one that promotes innovation and consumer choice in the marketplace.” Matsui is “pleased” the court affirmed FCC authority to oversee broadband services, she said in a statement, saying it’s “imperative” that people have “access to all available content.”
Republicans defended the decision. “The court today delivered a victory for jobs and innovation,” said House Commerce Committee Chairman Fred Upton, R-Mich., and Communications Subcommittee Greg Walden, R-Ore., in a joint statement. “This ruling stands up for consumers and providers alike by keeping the government’s hands off the Internet.” Now the government can’t play “traffic cop” for the Internet, they said. Subcommittee Vice Chairman Marsha Blackburn, R-Tenn., called the decision “a historic victory for America’s innovators and the free market.” Rep. Joe Barton, R-Texas, also praised the ruling. “If strict regulation of the Internet was warranted, Congress would have taken appropriate action,” he said, expressing hope the White House no longer pursues “this misguided policy."
"The practical effects of today’s decision, as well as any potential response by the FCC, remain to be seen,” said Senate Communications Subcommittee Chairman Mark Pryor, D-Ark., in a statement. “What is clear, and most important, is that the FCC retains the ability to promote a competitive marketplace, protect consumers online, and protect their ability to communicate freely with one another."
Rep. John Dingell, D-Mich., said the FCC’s net neutrality rules “did not pass muster” and backed congressional updates. “Instead of further tortured legal reasoning by the Commission, Congress should instead take definitive action to protect consumers and drive innovation,” he said in a statement. He called it “apparent” that communications laws must be updated.