Much Still Must Be Revealed as FCC Moves Forward on Net Neutrality Rules

On Monday, FCC officials clarified that interconnection would be part of the rules, The Wall Street Journal reported, as expected (see 1501270030). The FCC is slated to vote on the rules at its Feb. 26 meeting. Free Press released a statement Monday saying Wheeler appears to be heading in the right direction. “Title II is the best legal means to ensuring everyone's right to connect with everyone else online,” said Free Press President Craig Aaron.

Former Commissioner Robert McDowell, now at Wiley Rein, said he has fielded dozens of calls from different companies asking about the implications of reclassifying broadband as a Title II Communications Act service, while forbearing from all but a few parts of the title. “The biggest unknown is how the commission is going to write the order so that it can be sustained on appeal,” he said. “How do you make the economic and factual case for classification under Title II while also making the case for forbearance from the vast majority of Title II?” The FCC will have to address these “mutually exclusive” concepts without structuring rules that could be found to be “arbitrary and capricious” in court, McDowell said. “There are a number of kind of gimmicks they could try, including the use of further notices and shrouding parts of the order in language that would appear that it’s an interim solution.” A big question is when the order will become effective, as that determines when complaints can be made or the order appealed in court, he said.

Forbearance

The rules on forbearance are key, said University of Pennsylvania Law professor Christopher Yoo, saying FCC precedents on forbearance don’t offer much clarity. “Forbearance is a key lynchpin to making Title II reclassification politically feasible, because without it the Internet would be subject to the full brunt of a regulatory regime that everyone agrees would be unduly burdensome.” A lack of “workable standards” governing forbearance adds to the risks the order will be overturned, he said. Probably the biggest unknown is how the FCC will regulate interconnection, if it chooses to do so, Yoo said. “Until the past year, interconnection had not been regarded an aspect of the network neutrality debate,” he said. “Including interconnection would radically expand the scope of regulation and subject a much broader range of companies to FCC regulation. The problem is that the proceeding to date has shed precious little light on what any rules governing interconnection would look like.”

Two of the most important uncertainties are the treatment of interconnection and wireless, said Paul Gallant, analyst at Guggenheim Partners. “They're new areas of FCC regulation, so the tone on both will be pretty important for a number of companies.”

Public Knowledge Senior Vice President Harold Feld said there are three votes for reclassification, but "there are still some interesting questions" about the rules. "There are a lot things where the FCC is just not going to be able to be too precise," he said. Andrew Schwartzman, senior counselor at Georgetown University Law Center’s Institute for Public Representation, said he's watching how the order treats zero rating and the details of forbearance.

Presumptive Bans?

“We just don't know what the rules will be and how they potentially stifle innovation by presumptive bans,” said Recon Analytics analyst Roger Entner. Among his big questions are how the FCC will propose to regulate interconnection and peering, whether the FCC will ban things like sponsored data or zero rating, the specific network management controls that will be put in place for mobile versus fixed broadband, what wireless carriers will have to disclose relative to transparency obligations and whether the wireless rules will apply to unlicensed services.

There are some big unknowns that will affect the process, said Gus Hurwitz, a professor at the Nebraska College of Law. “Will the order include forbearance determinations that could end up in court quickly, or will it put some or all of these decisions off to a future proceeding?” he asked. “Will the approach to wireless be based on a reclassification of CMRS as private services to avoid the common-carrier exemption, and if so on what grounds?” The biggest question may be whether the FCC issues an order or an interim order and further NPRM since that will “substantially affect the timing and substance of any judicial challenges, including to what extent this will be an issue in the 2016 election,” Hurwitz said.

Larry Downes, project director at the Georgetown Center for Business and Public Policy, predicted the rules won’t get into the specifics of zero-rating or mobile network management, but will rely on more general phrase such as “reasonable network management” or “paid prioritization.” That would leave the agency “room to interpret itself in subsequent adjudications,” he said. “The accompanying report may go into more specifics on a few particular network management techniques or services, but that will still leave for future cases the determination of what exactly will and won’t be allowed,” Downes said. “Nothing will be settled, in other words, precisely the outcome that Chairman Wheeler has always acknowledged the need to avoid at all costs.”

Downes sees FCC assertion of authority and how it justifies the order as key. Getting around Section 332’s explicit prohibition of Title II treatment of mobile “will require the kind of creative lawyering that the courts have laughed away in several previous FCC cases,” he said. “The net result will be that in a year or two, the federal courts will issue an opinion that, regardless of their effect on the latest incarnation of net neutrality rules, will profoundly redefine the basis for the FCC’s authority over most of its current zones of influence, all of which are converging on the Internet.”

Many of the “unknowns” won't be clear for years, as various parties and their lawyers seek to exploit ambiguities to gain advantage over rivals, said Randolph May, president of the Free State Foundation. On May’s immediate list of unknowns is the extent to which the order will suggest new regulation of usage tiers, zero-rating plans, new network construction plans, interconnection rates and greater disclosure requirements. “Pro-Title II advocates have advocated for additional regulation in each of these areas, and you'd have to say that, regrettably, Wheeler appears to have bought into their worldview pretty much lock-stock-and barrel,” May said. “The extent of forbearance remains unknown."

Many questions remain, especially on how the FCC will handle forbearance, said Doug Brake, telecom policy analyst at The Information Technology & Innovation Foundation. “Whether we should expect a market-by-market analysis or a blanket industry-wide analysis is unknown,” he said. “Flexibility for wireless is huge, as is zero rating. I worry that the FCC has a great opportunity to throw a huge curveball and dramatically undermine the remarkable growth and innovation we’ve seen in wireless broadband. Here especially the legal details matter.”

AT&T filed its Title II closing arguments at the FCC Monday, said a blog post by Hank Hultquist, vice president-federal regulatory. “Given that this decision seems driven by political considerations, I hold out little hope that the FCC will alter its course, but the letters nonetheless try to set out what we see as significant infirmities with reclassification,” he said.