April 24, 2014

avatar

Is There a Future for Net Neutrality after Verizon v. FCC?

In a decision that was widely predicted by those who have been following the case, the Court of Appeals for the D.C. Circuit has invalidated the FCC’s Open Internet Rules (so-called net neutrality regulations), which imposed non-discrimination and anti-blocking requirements on broadband Internet access providers. The rules were challenged by Verizon as soon as they were enacted in 2010. The court held that, given the FCC’s past (and never reversed or modified) regulatory choice to classify broadband providers under the Telecommunications Act of 1996 as “information services” rather than “telecommunications services,” it cannot now impose on them common carrier obligations that apply under the statute only to services classified as telecommunications. Verizon argued in the case that the Open Internet Rules were not common carrier regulations, but the court didn’t buy it.

A threshold issue in the case was whether the FCC has authority from Congress to regulate broadband providers at all. The court held that it does, under a provision of the Telecommunications Act that directs the FCC to encourage nationwide broadband deployment.  (In prior litigation, the FCC had unsuccessfully argued that it had jurisdiction to regulate under a different provision of the statute.) In its analysis of the jurisdictional question, the court accepted Verizon’s analysis of the broadband market with respect to the likely negative impact of a two-way pricing model (i.e., a model that allows broadband providers to charge both users and edge providers) on broadband deployment. The FCC argued that non-discrimination and non-blocking rules encourage broadband deployment through the operation of a “virtuous cycle” in which low barriers to entry for edge providers (like Google, Netflix, and Amazon) drive the creation of innovative services, which drives consumer demand for better and faster broadband, which drives broadband providers to improve infrastructure, which drives more creation of innovative edge services. Absent those rules, the FCC argued, broadband providers will move to maximize revenue by charging not only users but also edge providers, thus driving up entry costs for developers of innovative web-based applications, flattening consumer demand, and stifling further expansion and improvement of network infrastructure.

If the jurisdictional question had been the only issue in the case, the “virtuous cycle” rationale would have been an ace in the hole for the FCC.  Unfortunately, however, for the FCC and proponents of a “neutral net,” including myself, the FCC’s past regulatory choices continue to haunt it. Following the court’s decision, which certainly comes as no surprise to lawyers at the FCC, the ball is back in the FCC’s court to do what it proposed to do back in 2010 but has so far not had the political will to do: separate, for regulatory purposes, the connectivity component of broadband, which consists of functions that enable the transmission of data, from the information component, which consists of services such as e-mail, access to online newsgroups, and the ability to create a personal Web page. By reclassifying the connectivity component as a telecommunications service, the FCC would be operating squarely within the bounds of its statutory authority to impose anti-blocking and non-discrimination obligations on broadband providers. The FCC has the authority to modify its previous classification, as long as it gives a good reason for doing so, which it can do, if only it has the will.  This is an opportunity for the FCC’s new Chairman, Tom Wheeler, to make good on President Obama’s past promises to support net neutrality.

Comments

  1. Harry Johnston says:

    I see no reason to prevent businesses from offering closed or discriminatory network services, so long as they do not then market those services as internet access. Is it not within the purview of the FCC to define what the phrase “internet access” means when offered to consumers?

  2. Evan Franke says:

    Dear Professor Bridy,

    While I share your concerns with the outcome of the case, your somewhat acid observation that the FCC holds the key to their own common carrier ruling prison does skirt some of the complexity of such a reversal in policy. It is not that the FCC could “just” do it and “poof” like waiving a magic wand all would be well.

    Such administrative reversals require a strong record and clear deliberation by the agency. It is telling that the FCC decided that litigation on their current authorities was “easier” than trying to change course. If they reverse themselves now, they are definitely going to be in for further litigation over the propriety of that change, and it is no slam dunk win, even if they can show good reasons for changing their mind.

    Also, I would not be surprised if there are unintended consequences (or known concerns even) about the impact of such a reversal. While it could bolster their authority to promulgate the net neutrality ruling, there might be further consequences that are not desirable from a policy standpoint.

    Given where they are now, it certainly seems like the FCC strategy for net neutrality has failed, and I am sure there are many options being discussed as far as how to proceed. They could still fight on, and seek an en banc rehearing, or perhaps they will go back to the regulatory drawing board.

    But that could be many months of trying to restructure the regulatory framework, followed by more years of litigation.

    Finally, we should none of us let congress off the hook. The corporate interests that want to see the death of net neutrality will be taking out their checkbooks. I have no doubt that the administration will be looking to see if there is a legislative vehicle to bolster the FCC’s authority here, but the big corporate interests are going to be pushing back.

    Public outcry, followed by targeted activism to members of congress, particularly with upcoming elections, is another way to seek resolution here.

    I won’t say that it is easy and that if people would “just” call their legislative representatives this could all be fixed, but to save net neutrality, we need to press on every front, legislative, judicial and not just administrative.

    Otherwise, thank you for your article and perspective.

    • Annemarie Bridy says:

      The FCC can’t wave a wand here, but from where I’m standing, the path of less resistance is administrative and not legislative. The major obstacles to the partial reclassification I described are political and not procedural or substantive. DSL was already reclassified once in the other direction (from a telecommunications service to an information service), and courts will give the FCC considerable deference when it comes to reclassification. Past Congresses are littered with the carcasses of unenacted legislation on both sides of the net neutrality issue. And Congress can barely keep the doors of the federal government open these days, so I don’t have much confidence in that pathway. The court handed the FCC a big victory on the jurisdictional issue in this case. The FCC lost the battle, but it’s on the cusp of winning the war. I would hate to see it retreat now.

    • Steve Schultze says:

      From the courts’ perspective, it is actually much closer to “poof” than not. As observed ever-so-snarkily by Scalia in Brand X:

      “In other words, what the Commission hath given, the Commission may well take away–unless it doesn’t.”

      To be sure, such a change would require some administrative findings such that it could surmount the “arbitrary and capricious” standard, but as Annemarie says, deference would prevail. Indeed, even this specific opinion goes into great detail discussing the long history of quite-logical Title II classification of last-mile internet service (pp. 7-10).

      The larger hurdle, as Annemarie observes, is not the courts, but congress. When the FCC considered reclassification in 2010, congress threatened to pass a new law blocking it from doing so. The FCC got skittish, and tried this ill-fated approach.

      I wrote up some more history in an earlier post here: Arlington v. FCC: What it Means for Net Neutrality

      • Axel Arnbak says:

        Thanks for a great post and discussion. Yet again, it’s fascinating that the First Amendment hardly plays a role in the U.S. net neutrality debate. When we drafted, lobbied and succeeded in adopting the first net neutrality bill worldwide in The Netherlands, the free speech argument was much more powerful than the innovation argument. Of course, the nature of the First Am is quite different – less horizontally applicable – than the European Convention on Human Rights. But for a nation that rightly so prides itself in a tradition of free speech, you would expect free speech to be given much more weight also in a connected world dominated by intermediaries – at the very least starting at the political level.

        This is how we codified it in The Netherlands: https://www.bof.nl/2011/06/27/translations-of-key-dutch-internet-freedom-provisions/.

        Note this bit in our explanatory memorandum: “Only in certain, limited cases as described in Article 7.4a, first paragraph sub a to da, an exception may be made to the principle that ISPs may not hinder or slow down traffic from end users. Those exceptions must also be interpreted narrowly, whereby the assessment of the necessity must be based on criteria of proportionality and subsidiarity which are similar to criteria established in the context of the application of the European Convention on Human Rights.”

        • NathanT says:

          ” But for a nation that rightly so prides itself in a tradition of free speech…you would expect free speech to be given much more weight…at the very least starting at the political level”

          Alex, there I feel you are wrong, but I agree with the rest. I don’t see that our nation (meaning the politics of the USA) really prides itself at all in a tradition of free speech. I used to think so, but I go back and watch history and see that free speech has always been curtailed when it is speech against the government or against the government’s interests. In this case, the FCC being a branch of the government, they couldn’t care less about free speech. They only care about control of speech, and while they may side with those who want free speech on this issue, it is only the control they care about; and that is why they put weight into the arguments of free speech.

          Now, I do believe that many individuals who are looking for net neutrality are looking for free speech. But, the political level doesn’t give any weight to it because they already don’t want free speech.

          From my perspective the only valuable path for individuals to take is alluded to by Evan “targeted activism” though it should be directed against any company (broadband provider) that does not practice neutral data exchange, and/or any congressman who proposes legislation that curtails such neutrality.

          • Annemarie Bridy says:

            For a very different take on the free speech issues implicated in the net neutrality debate, check out Verizon’s brief in the case. The D.C. Circuit’s opinion didn’t address Verizon’s argument that the Open Internet Rules violate its First Amendment right to decide, without state intervention, whose speech it carries over its private network. Most users, I think, conceptualize the Internet as an open medium for their free and unfettered expression. The corporations that own the Internet’s infrastructure, however, think in starkly different terms about the right to free speech online. Here is how Verizon’s brief described broadband networks: “Broadband networks are the modern day microphone by which their owners engage in First Amendment speech” (emphasis added). The Internet, in other words, is a platform for corporate speech, not the public’s speech. The brief went on to argue that “broadband providers engage in and transmit speech, and the rules—which limit broadband providers’ own speech and compel carriage of others’ speech—cannot survive scrutiny.” Without the Open Internet Rules, there is nothing (besides market forces, such as they are in the relatively non-competitive market for broadband) to prevent Verizon or any other broadband provider from deciding that it doesn’t want to carry speech with which it disagrees. That could be your speech or my speech.