Net Neutrality Proposal to Allow ‘Commercially Reasonable’ ISP Deals

Wheeler released a statement Thursday rebutting allegations of a “turnaround” in established agency priorities. “Reports that the FCC is gutting the Open Internet rule” are “flat out wrong,” he said. Wheeler clarified the proposed new rules in a blog post Thursday (http://fcc.us/1f7n7n9), criticizing the “great deal of misinformation that has recently surfaced.” The notice “does not change the underlying goals of transparency, no blocking of lawful content, and no unreasonable discrimination among users” established in the earlier rule, Wheeler said. The FCC would stop any conduct it found to be “commercially unreasonable,” he said. “The Notice will propose rules that establish a high bar for what is ‘commercially reasonable.'” The order responds to Verizon v. FCC, which threw out key parts of the FCC’s 2010 net neutrality order.

In a press call Thursday, FCC officials portrayed the chairman as trying to quickly fill the “gap” caused by the January decision from the U.S. Court of Appeals for the D.C. Circuit that threw out most of the 2010 Open Internet order. The traditional net neutrality rules of no-blocking and no-discrimination “do not exist,” an official said. Wheeler wants enforceable rules in place by the end of the year “so that this gap would be erased,” the official said.

The NPRM proposes to look at four factors to determine if ISP action is commercially reasonable, the official said: Is the conduct anticompetitive? Is it bad for consumers? Does it infringe on the free exercise of speech? And has the carrier engaged in “good faith efforts” to act reasonably? The notice doesn’t propose a “flat ban” on pay-for-priority connections, the FCC official said. A prioritized connection to a heart rate monitor might be a good thing for patients at home, he said. The agency will use a case-by-case approach when determining reasonableness, he said. One area of confusion has been that the 2010 rules prohibited all discrimination, but that is not the case, the official said. The rules only prohibited “unreasonable” discrimination.

The rules proposed for wireless are largely the same as the 2010 rules, imposing the same transparency and no blocking restrictions, but as in 2010 the discrimination rule would not apply to mobile, the FCC official said.

Turnaround?

"So far, net neutrality is a battle about theory and not about practice,” said former FCC Chairman Reed Hundt. “The chairman is absolutely right to want to follow the methods of the antitrust laws, which are to make law on a case-by-case basis. That’s the way the Sherman Act has been interpreted for 120 years and that’s the way net neutrality law should be shaped. I think he’s exactly right to address the matter on a case-by-case basis."

"I think investors will wait to see the report rather than rely on ... leaks that might not have the complete or accurate picture,” said BTIG analyst Walter Piecyk.

"The FCC’s proposal does not come as any surprise,” said professor Christopher Yoo of the University of Pennsylvania Law School. It simply “follows the path” that the D.C. Circuit “implied would withstand judicial scrutiny,” he told us. “Those who claim it represents a turnaround are most likely disappointed that the FCC did not take the bolder step of bringing broadband Internet access within the scope of common carriage regulation that has historically governed the telephone system. In fact, reclassifying Internet access would have represented an even bigger ’turnaround’ than what the FCC actually proposed."

"Nothing I've heard thus far is remotely surprising,” said TechFreedom President Berin Szoka. “This is precisely what we've expected the FCC to do.” Any “outrage” by public interest groups is either “contrived to push the goal posts of the debate” or “driven by simple ignorance of just how much the FCC can do under the Verizon decision,” he said. “The decision clearly allows the FCC to ensure that non-neutral deals are reasonable and non-discriminatory. While it’s not entirely clear what that means in this context, as opposed to data roaming, it does mean that reclassification wouldn’t gain the agency all that much -- while even with the promise of forbearance, the negative effects on infrastructure investment of even beginning the reclassification process could be severe."

"This is not so much a turnaround as it is an evolution in the FCC’s efforts relating to the notion of network neutrality,” said Michael Santorelli, director of the Advanced Communications Law and Policy Institute at New York Law School. “If the FCC moves forward with what has been discussed over the last few days, it will have taken a step in the right direction, toward a path that embraces the disruptive ethos of the Internet, that encourages robust business model experimentation, and that seeks to enhance, rather than micromanage, innovation throughout the broadband ecosystem."

The NPRM sets out three methods for complaining about unreasonable carrier conduct, the FCC official said: an “informal” complaint, a “formal” complaint, and the FCC investigating a practice on its own. The FCC “reads blogs,” the official said. The FCC will gather information form a variety of places to look for potential problems, the official said.

The FCC is particularly concerned about harm to competition, the official said. Abuse of market power is the kind of harm that the ‘commercially reasonable’ test won’t tolerate,” he said. Other than that, though, the FCC wants to have a broadband public debate before deciding a lot of specifics about what should and should not be OK, he said. How would a practice affect people in daily life? Is there room for new kinds of business models?

Manufactured Outrage?

"The draft is in line with what most folks have been expecting, and with sound legal and economic analysis,” said Gus Hurwitz, assistant professor at the University of Nebraska College of Law. “That said, and I think this is the real story, it’s really quite troubling to me the speed and anger with which advocates and the press have mobilized in response to this leak,” Hurwitz told us. “We don’t even have the actual text yet. ... This is particularly true because the entire purpose of the NPRM is to provide notice and solicit comment on the proposed rule. This is the beginning of the public consultation process.”

"It is always appropriate to be outraged when the FCC doesn’t do the right thing,” said John Bergmayer, senior staff attorney at Public Knowledge. “Maybe more to the point, not everyone who is interested in protecting net neutrality follows the rumors about what the FCC’s expected approach will be.” That’s all the FCC’s planned course of action was until now, Bergmayer said: rumors. “It was by no means certain."

"There’s no ploy here on our part, and nothing inevitable about the Chairman’s path,” said Matt Wood, senior policy director at Free Press. Wheeler has “promised to prevent discrimination while adhering to a path that makes it impossible for him to do that. He can choose to go down that path if he wants, but he can’t pretend he’s preserving the Open Internet by doing so."

"We are working every day to make sure” the public knows what could happen if net neutrality falls, said Sarah Morris, senior policy counsel for the Open Technology Institute at the New America Foundation, in a reddit post Thursday. “Unfortunately, we are dealing with powerful industry interests and apparently an FCC Chairman who is still tied to those interests (that he used to represent),” she wrote.

Title II

"This is certainly not the Open Internet we need,” said former Commissioner Michael Copps. Copps said he hoped for “a clear commitment to Title II, equal opportunity for innovators and Internet users alike, and content diversity that would expand our democratic dialogue.” The court decision “opened the way for such an approach,” he told us by email. “We had an opportunity here to get away from the half-measures and ‘creative’ new approaches which never seem to get the job done or to pass muster with the courts.” The decisions made in the months ahead represent a “true inflection point for Internet policy,” and will determine “whether we will ever have an Internet that lives up to its opportunity -- creating and democracy-expanding potential,” he said.

But Title II may not be the panacea its supporters hope for. “Even Title II regulation (which many have sought and which remains a clear alternative) only bans ‘unjust and unreasonable discrimination,'” Wheeler said in his blog post. An FCC official said: “Even Title II, which we're not using, doesn’t contain a flat prohibition on discrimination.” That said, the Title II docket is staying open, and the NPRM will seek comment on whether Title II should be used, the official said. Wheeler will look at Title II for net neutrality rules “in the future, if there is no other way to proceed,” the official said before retracting the statement, acknowledging he wasn’t sure if that was Wheeler’s official position.

"The FCC can’t prevent discrimination online, or other practices that are bad for Internet users and innovators, without returning to the solid footing of our bedrock common carrier principles for broadband communications networks,” Wood said.

The FCC could take a middle ground that’s short of Title II obligations but still more stringent than the “commercial reasonableness” standard, Bergmayer said. “The FCC has Chevron deference on the definition of ‘common carriage’ and could exercise it to clarify that open Internet rules by themselves are not common carriage, which means the D.C. Circuit’s reasoning does not apply,” he said.

The Verizon ruling didn’t require the particular set of rules that Wheeler has circulated, said Geoffrey Manne, executive director of the International Center for Law and Economics. “There was every reason to expect” that the FCC rule would “preclude prioritization as much as possible,” Manne told us. “That the agency either couldn’t or didn’t come up with rules that on their face do more to preclude prioritization is, I think, a surprise.” That said, ICLE and others expected the case-by-case approach, he said. “It will be in the enforcement of the rules that the real work may be done."

May Agenda at Risk?

The FCC already has a big agenda for the May 15 meeting, with commissioners also slated to vote on service rules for the TV incentive auction and spectrum aggregation rules (see related story in this issue), both of which are complicated items with many moving parts. Former FCC commissioners and staffers disagree on whether the commissioners will be hard-pressed to handle net neutrality on top of the two auction items.

"Commissioners offices are very lean with three legal advisors while the chairman has hundreds of professionals at his disposal,” said former FCC Commissioner Robert McDowell. “It is extremely challenging for eighth floor offices to try to metabolize and try to shape a large number of complex big ticket issues all at once,” he said. “Historically, that can be a tactical advantage for any chairman wanting to push through as much policy as he sees fit quickly."

"It’s clearly a huge lift for the other offices and conceivably could give the chairman something of an advantage,” said Paul Gallant of Guggenheim Securities. “But in the end I don’t really see the other offices conceding important points just because they have fewer resources than the chairman."

"Handling all of those items will be a heavy lift, no doubt,” said Rick Kaplan, executive vice president of NAB. “My suspicion is that one or more commissioners will politely ask the Chairman to put off either the net neutrality or incentive auction/mobile spectrum holdings items until the June meeting. Neither set of issues requires an immediate decision and thus it probably makes sense, at the end of the day, to split them. From our perspective, we don’t have a strong feeling when the incentive auction order should be voted, just that the commissioners are permitted the time and space to seriously consider the myriad issues at play in this first-in-the-world spectrum incentive auction.” Kaplan is former chief of the Wireless Bureau and was an aide to both a chairman and a commissioner.

Wheeler should “hold off doing anything right now regarding a new net neutrality proposal,” said Free State Foundation President Randolph May, a former FCC associate general counsel. “Putting the net neutrality item on the May agenda certainly does put a big load on the commissioners and their staffs when there is no reason for any urgency. That said, I don’t want to say that they can’t handle the items if pressed to do so. My sense is that a lot of the meetings that take place just involve repetitions of the same information over and over again. Maybe the commissioners and staff will decide to schedule fewer meetings if need be in order to be fully prepared to grapple with the proposals.”

On the aggregation rule, “everyone there has been thinking and talking about that for a year,” Hundt said. “I don’t see any problem here. In fact I think the chairman is exactly right to get all the golf balls on the tees right away, which is what he is doing.”

Former FCC Chief of Staff Blair Levin, who worked for Hundt, said the workload for the June meeting is no more demanding than the work commissioners had to do to implement the Telecommunications Act of 1996. “We were routinely doing these kinds of complicated items every month,” he said. “It’s doable.”