I had to laugh when I saw Marc Andreessen’s comment in a press release on “President Obama’s Plan to Regulate the Internet” issued by FCC Commissioner Ajit Pai’s office last week. While most of the comments were along the lines of “If it ain’t broke, don’t fix it”, “global Internet will suffer”, lack of transparency and “an unusual attempt by a President to influence a legally independent agency”, I thought Andreessen’s “free ponies” comment pretty much sums up the current goat rodeo in Washington.
On Thursday February 26, we expect the FCC to agree to new rules that re-adopt and expand the previous Open Internet rules that were thrown out by the Court of Appeals in early 2014. The previous rules were relatively simple and carried forward the policy of a “light regulatory touch” first articulated when Democrats controlled the FCC under President Clinton:
- Transparency. Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services;
- No blocking. Fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services; and
- No unreasonable discrimination. Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.
These rules were all subject to “reasonable network management.” The Court of appeals had vacated the discrimination/blocking rules, however, because the FCC claimed authority under Section 706 to adopt the rules, but those rules were “common carrier”-type regulations, which was inconsistent with the FCC’s classification of Internet access services as an “information service.”
In response to the court decision, the Commission originally proposed to tweak the rules so they would pass Court review consistent with the 2014 court decision and the FCC’s authority under Section 706. Unfortunately, succumbing to political pressure, including unprecedented intervention by the White House, the FCC will decide instead to reclassify Internet access services as “telecommunications services” under Title II, and to apply the new rules equally to fixed and mobile broadband. Such a reclassification does allow the FCC to impose utility-like regulations on Internet access providers, but also carries with it regulations applicable to telephone services dating back to 1934. The FCC is attempting to limit the application of some of these anachronistic regulations by “forbearing,” but many of the more burdensome provisions — including after-the-fact rate regulation and the specter of class action lawsuits — remain.
The new rules specifically adopted in the FCC order to govern Internet access service would provide:
- No Blocking: broadband providers may not block access to legal content, applications, services, or non-harmful devices.
- No Throttling: broadband providers may not impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices.
- No Paid Prioritization: broadband providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration – in other words, no “fast lanes.” This rule also bans Internet service providers (ISPs) from prioritizing content and services of their affiliates.
- A Standard for Future Conduct: Because the Internet is always growing and changing, there must be a known standard by which to determine whether new practices are appropriate or not. Thus, there will also be a general Open Internet conduct standard that ISPs cannot harm consumers or edge providers.
- Greater Transparency: The proposal enhances existing transparency rules, which were not struck down by the court.
- Reasonable Network Management: For the purposes of the rules, other than paid prioritization, an ISP may engage in reasonable network management. This recognizes the need of broadband providers to manage the technical and engineering aspects of their networks.
- Interconnection: For the first time the Commission would have authority to hear complaints and take appropriate enforcement action if necessary, if it determines the interconnection activities of ISPs are not just and reasonable, thus allowing it to address issues that may arise in the exchange of traffic between mass-market broadband providers and edge providers.
The good news is that the Tier 2 and Tier 3 service providers who are accustom to operating in a regulated environment should remain on track with their plans to leverage the Connect America Fund (CAF) subsidies. These subsidies provide funds to build out broadband networks to greater and greater speeds. The recent CAF 2 Order increased the required broadband speeds from 4/1Mbps to 10/1Mbps and the FCC recently changed the definition of broadband from 4/1Mbps to 25/3Mbps.
The rules themselves create confusion because of their ambiguity. An ISP contemplating a new offering cannot know whether the FCC will decide that the service “harms consumers or edge providers.” For example, AT&T’s sponsored data plan, where the content provider pays the usage charges of the customer, has been challenged as violating “net neutrality,” despite the fact that it’s just like toll-free calls, which have been perfectly legal (and beneficial to businesses and consumers) since the 1960s. In addition, the FCC would allow prioritization of “specialized services,” but that is another vague term. In sum, the uncertainty of knowing what conduct/services may be deemed unlawful is likely to deter ISPs from making investments in new services. The threat of after-the-fact rate regulation will also deter investment in new facilities.
The FCC’s rules are likely to be challenged at the Court of Appeals as there are significant problems with this FCC rulemaking. On a number of occasions, the FCC had examined how to classify Internet access services, and each time they decided it was an “information service” and thus outside of Title II. The FCC is reversing all of those previous decisions, even though none of the salient facts have changed. In addition, there is a very difficult statutory problem with the FCC’s application of Title II to mobile broadband, because it is not connected to the Public Switched Network. There may also be challenges to their forbearance decision, since the FCC is not following its own standards of undertaking a granular, market-by-market analysis. On top of those substantive problems are the procedural irregularities, including the influence of the President (which is also the subject of a Congressional investigation).
Following the release of the Open Internet Order by the FCC, we anticipate that the Tier 1 Telcos, MSOs and Wireless industries will begin litigation. The FCC’s order will also be challenged by net neutrality advocates that want more extensive regulation, including unbundling. We also believe that the FCC’s Order will be eventually found to be unlawful. These industries will petition to stay the FCC Order but it is unlikely that tactic will be successful in the courts because of the high hurdle for such judicial relief. In theory, Congress has been studying a legislative fix that would apply “light touch” regulations, but passage of any legislation these days is difficult, and would face a veto in any event.
The bottom line is that we expect the FCC decision on Network Neutrality to inject a lot of uncertainty and confusion into the broadband arena, although we won’t know important details of the new regulation until the text of the decision is released, which could take several months. The long term problem we’re going to face as a telecommunications industry is that the FCC has, sadly, become just another pawn in the disconnected, partisan dog-and-pony show that Washington DC has become.