Whether to Appeal Net Neutrality Order a Big Decision for Wheeler

During a speech to the Minority Media and Telecommunications Council, Wheeler didn’t say definitely whether the agency would appeal. Industry lawyers say they expect that decision after Wheeler and his general counsel have had a chance to look at all angles of the ruling. “The court invited the commission to act and I intend to accept that invitation,” Wheeler said. “We've noted with great interest the expressions from many Internet service providers to the effect that they will continue to honor the open Internet order’s concepts even though they may have been remanded to the commission. That’s the right and responsible thing to do and we take them up on their commitment.”

The FCC will revisit the structure of the rules the court vacated, Wheeler said. “Those who embrace change become transformational forces,” he said. “That’s the new network opportunity that we have before us today. Never in the life of anyone in this room has there been greater opportunity to exploit the new networks for ownership diversity and content diversity and that’s what the make the open Internet so damn important.” Broadcast ownership issues were critical in that past because they involve access to a highly controlled medium, he said. “We will not let that kind of control take over the Internet, period,” Wheeler said to applause.

Wheeler also gave additional detail on his stance on net neutrality this week in a blog post (http://fcc.us/1fCo2M1). “The government, in the form of the FCC, is not going to take over the Internet,” he said. “It is not going to dictate the architecture of the Internet. It is not going to do anything that gratuitously interferes with the organic evolution of the Internet in response to developments in technology, business models, and consumer behavior.

"But the FCC also is not going to abandon its responsibility to oversee that broadband networks operate in the public interest,” Wheeler said. “It is not going to ignore the historic reality that when a new network transitions to become an economic force that economic incentives begin to affect the public interest. This means that we will not disregard the possibility that exercises of economic power or of ideological preference by dominant network firms will diminish the value of the Internet to some or all segments of our society.”

At an FCBA Wireless lunch Thursday and other events around D.C., lawyers said it’s hard to predict what choice Wheeler will make. “I think you'll see Wheeler spend some time making a decision, with his general counsel,” said a wireless carrier executive.

"Given that the opinion was joined by two of the more pro-regulatory judges on the court, the chances of obtaining rehearing en banc approach zero,” said public interest lawyer Andrew Schwartzman, a party in the case. “Even so, the Solicitor General often insists that agencies do so as a prerequisite for agreeing to seek certiorari.” But Schwartzman considers an appeal likely. “My own view is that the commission has very little to lose by seeking Supreme Court review,” he said. “While the Court of Appeals did, indeed, give a very expansive reading to Section 706, those powers are of relatively little importance given the holding with respect to discrimination and blocking. If Wheeler wants to go to the Supreme Court, I'm quite confident the Solicitor General would agree to do so. The prospects at the Supreme Court are very unclear. I can imagine the case going either way."

"The FCC Democrats probably don’t view the court’s limits on net neutrality rules as ideal,” said Guggenheim analyst Paul Gallant. “But given the scenario of potentially losing all power under Title I, and perhaps being confronted with a ‘Title II or nothing’ choice, I suspect the commission will stand down and just move forward with writing new rules that reflect the court opinion."

A former FCC legal adviser said an appeal stands little chance of succeeding and would be a “huge waste of time” if pursued by the agency. “The only reason they would do it is to delay having to make a decision,” the lawyer said. “The dissent said the majority didn’t go far enough.” Conservative Senior Judge Laurence Silberman partially dissented, saying the commission’s authority to act under Section 706 is more constrained than the majority found. “I disagree with the majority’s conclusion that §706 otherwise provides the FCC with affirmative statutory authority to promulgate these rules,” he wrote. “I also think the Commission’s reasoning violates the Administrative Procedure Act. These differences are important since the majority opinion suggests possible regulatory modifications that might circumvent the prohibition against common carrier treatment.”

"I suspect the D.C. Circuit’s net neutrality ruling may have created a legal conundrum of sorts for the commission,” said Jeff Silva, analyst at Medley Global Advisors. “The more one understands and appreciates the majority opinion’s treatment of Section 706 and its implications going forward, the less it seems a Supreme Court appeal by the FCC is necessarily inevitable or perhaps even desirable. On closer inspection, Section 706 could give the FCC more broadband regulatory options and flexibility than initially suspected. It’s not out of the realm of possibility that a majority of this Supreme Court might not only affirm the lower court’s rejection of anti-discrimination and anti-blocking net neutrality provisions but also eviscerate broadband oversight under Section 706 in accordance with Judge Silberman’s partial dissent in the D.C. Circuit decision."

"I wouldn’t be surprised if the commission votes to seek en banc review, but I would be more surprised, if that fails, if it decides to seek Supreme Court review,” said Free State Foundation President Randolph May. “I don’t see the D.C. Circuit’s decision vacating the anti-discrimination and no-blocking rules as particularly vulnerable if the case goes to the Supreme Court. And there is some chance the court could decide the appeals court’s interoperation of the FCC’s authority under Section 706 is too broad. I don’t know what the commission will do, but I hope that stand down and don’t try to reinstate the vacated rules. If they do this, it will certainly suck a lot of oxygen out of Tom Wheeler’s plans to focus on the incentive auction and IP transition."

Several former FCC chairmen reacted to Wheeler’s comments in their subsequent panels. “I personally think it would be a big mistake to wade into a common carrier regime,” said former FCC Chairman Richard Wiley. Former Chairman Reed Hundt said Wheeler “absolutely guaranteed an open Internet.” Though Wheeler’s comments don’t make it clear how he plans to accomplish that, Hundt said the D.C. Circuit decision had left the commission with several avenues to do so. “The FCC has won in the following really important sense: It’s the center of action for this debate now.” “I don’t think any side could declare complete victory,” said former FCC Chairman and current NCTA President Michael Powell. He said critics of the decision shouldn’t be so quick to push the FCC to reclassify the Internet as a Title II service. That shift “gets treated as a technicality” but would cause massive upheaval in the industry, he said, “dramatically” reducing investment. “Stricter regulations won’t lead to more investment,” he said. Cable companies should stick to the principles of the open Internet even without the net neutrality rules, he said.

"Nothing is off the table" for the FCC’s efforts to maintain the open Internet, said Special Counsel-External Affairs Gigi Sohn: “We're looking at all options.”

Though some public interest groups want reclassification, analysts, cable and telecom lawyers, and association executives said a more likely approach for now by the commission is to continue Wheeler’s stated approach of addressing any net neutrality complaints as they arise. A public-interest official who helped organize a meeting in Oakland last week where Wheeler spoke noted that he acknowledged the agency’s role in net neutrality, though she’s unsure what he'll do next. The FCC should act “expeditiously to assert its authority under Title II,” said the official, General Counsel Jessica Gonzalez of the National Hispanic Media Coalition. NHMC sponsored the event with Wheeler (CD Jan 13 p1) with the Center for Media Justice, ColorofChange.org and Free Press.

Rather than pursue reclassification, the FCC may examine what it can do under Section 706 of the Telecom Act, authority which the D.C. Circuit ruling upheld, predicted association executives and other industry officials in interviews Thursday. They said a Section 706 tack, which could include workshops and other sessions for the commission to get feedback from stakeholders before deciding how to proceed, wouldn’t invoke the fierce opposition from some ISPs and Capitol Hill Republicans that reclassification surely would. Given the “pushback and political fallout on reclassification” that’s likely, the agency will first “look for other ways within the bounds of what the court defined” to advance net neutrality goals, said NTCA Senior Vice President-Policy Michael Romano. “If there is a way to do this without reclassification” under the ruling, “the FCC will look to do that first,” he predicted. Many others said the same.

Amid public-interest group pressure to reclassify, the more likely path for the FCC

is to “sit back for the time being and address issues as complaints arise,” said Independent Telephone & Telecommunications Alliance Vice President-Regulatory Affairs Micah Caldwell. While the outcome from the D.C. Circuit decision is “anybody’s guess,” ITTA thinks the agency likely will continue to watch data-policy developments among ISPs, said Caldwell, whose group supported Verizon in the case. For NHMC, “reclassification was the most solid way to move forward” at the time of the 2010 net neutrality order, said Gonzalez. It’s “really important that all people have the right to be heard on the Internet,” she said.

Expect the FCC to “move fairly cautiously” on next steps, said Cinnamon Mueller cable lawyer Barbara Esbin, whose clients include the American Cable Association. It may take “some months to decide,” she said. “I think they're going to want to explore in some formal way the scope of this authority” on Section 706 to ensure “an open and innovative Internet,” she said. “I expect they'll hold a lot of stakeholder meetings” and otherwise get input, said Esbin. ACA continues to back the FCC’s 2005 open Internet principles, the spirit of which was embodied in the net neutrality order five years later, said Esbin. NTCA began a working group of members Tuesday about the stance the association will take after the D.C. Circuit decision, said Romano. He and the other officials interviewed for this story said they expect ISPs won’t change data policies anytime soon.

It’s “wishful thinking” that the FCC “can rely on Section 706” to “protect the open Internet on a case-by-case basis,” said Free Press officials of what they called “shrinking authority” that won’t “be enough to stop the worst abuses.” The D.C. Circuit ruling shows “the FCC truly has no ability to protect the open Internet without reclassifying broadband and treating access providers as the common carriers they obviously are,” wrote Policy Director Matt Wood and Research Director Derek Turner on Free Press’s blog Thursday (http://bit.ly/1aaSWZW). “It’s clear there is a Beltway campaign to sell this argument” that relying on Section 706 is sufficient, they said.

"If Wheeler goes the reclassification route, it will set off congressional fireworks of a sort that will land him and the FCC in a protracted war with telecom companies, and Republican legislators, without any guarantee of success,” wrote Media Institute President Patrick Maines on the blog of the group that promotes First Amendment rights and often opposes regulation (http://bit.ly/1db2G0y). “The best way for the FCC to address the issue of net neutrality is to accept the decision” of the D.C. Circuit, Maines said by email. It should “drop any further attempt to restore these regs,” he added.

It’s most likely Wheeler will “accept the decision and move forward,” wrote Credit Suisse analyst Joseph Mastrogiovanni. He cited “the potential for negative outcomes from all other options.” Wheeler could let this “ruling play out, and revisit it only if there is a demonstration that it results in anticompetitive activity,” wrote Mastrogiovanni. The most likely course is for the FCC to “simply accept the court’s findings and move on to (re)establishing the basic net neutrality principles so the industry can move forward,” wrote Guggenheim Partners’ Paul Gallant. Wheeler seems likely to keep the Title II reclassification docket open, without initiating a proceeding there, said analysts and industry lawyers. Keeping it open would be “a reminder to carriers that the FCC possesses more expansive power over broadband than what the D.C. Circuit just laid out,” wrote Gallant. “Actively pursuing Title 2 would be a very aggressive move against the politically powerful carriers and likely would disrupt the Chairman’s spectrum and IP transition goals.” ,