Many have asked about the future of Internet policy and the FCC’s role in that future in light of the recent decision in the Comcast case. Today I have issued a statement that describes a path forward, which will begin with seeking public comment on a narrow and tailored legal foundation for the FCC’s approach to broadband communications services. Our goal is to restore the broadly supported status quo consensus that existed prior to the Comcast decision regarding the FCC’s role with respect to broadband Internet service.
On March 16, the Federal Communications Commission issued its National Broadband Plan (available at www.broadband.gov), a compendium of lofty goals for extending broadband penetration throughout the United States and targeting specific industries and sectors, such as health care and education. As part of the Plan, the FCC explicitly supported the principle of “net neutrality,” that Internet backbone providers may not impose premium pricing or discriminatory access upon content and application providers that use their networks, no matter how heavy their use of the available bandwidth. Three weeks later, the Plan’s future was thrown into doubt by the U.S. Court of Appeals for the D.C. Circuit’s April 6 decision in Comcast Corp. v. FCC. The Court ruled, in a major victory for Internet backbone providers such as AT&T, Verizon and the leading Cable Operators, and setback for net neutrality proponents, including major content and application providers like Google/You Tube, Amazon, E-bay and Facebook and the FCC itself, that the FCC exceeded its "ancillary authority" under the 1934 Communications Act in attempting to restrict Comcast's (the largest U.S. cable provider and prospective acquirer of NBC Universal) network management practices. The case arose when Comcast subscribers discovered that the Cable Operator was blocking their use of certain peer-to-peer networking applications, which allow sharing of files without passing through a central server.
On May 6, 2010, in reaction to the Comcast decision, the FCC announced its intention to reclassify broadband service as Communications Act Title II “Telecommunications Service,” subject to common carrier non-discriminatory access rules. While the decision to reclassify was a victory for net neutrality proponents, it faces the hurdle of the U.S. Supreme Court’s 2005 Brand X decision, which explicitly upheld the FCC’s prior classification of broadband service as Communications Act Title I “Information Service,” not subject to common carrier regulation. At the time, the FCC saw the substantially unregulated Information Service classification as the way to ensure a free and open Internet, and it sought and received the Supreme Court’s approval of that interpretation. Now, five years later, the FCC will be asking courts right up to the Supreme Court to reclassify broadband service as highly regulated Telecommunications Service for the same reason: to preserve a free and open Internet. It does not figure to be an easy sell.
On May 6, 2010, concurrently with the reclassification announcement, Austin Schlick, the FCC General Counsel, published an analysis of the Comcast v. FCC dilemma in which he advocated basing the reclassification justification on Justice Scalia’s dissent in Brand X, which was joined by Justices Ginsburg and Souter. In essence, Justice Scalia had disputed the Brand X majority’s decision that (i) the FCC’s classification of broadband service as Information Service was technologically and as a matter of statutory interpretation reasonable; and (ii) that the reasonable interpretation of an administrative agency in construing the statute it is charged with administering should be treated with deference by courts and not second-guessed, a doctrine known as the Chevron doctrine after the Supreme Court’s decision in Chevron USA v Natural Resources Defense Council. Justice Scalia, by contrast, took the position that because the “telecommunications,” or data transport, aspect of cable modem service could be technically and functionally unbundled from its “information,” or data processing, aspect (a conclusion not conceded by the majority), the two aspects should be unbundled legally as well, with the data transport aspect treated as Telecommunications Service subject to Title II common carrier regulation and the data processing aspect treated as Information Service subject to Title I. Justice Scalia did not think much of the administrative agency deference argument, either.
The FCC is proposing what it terms “a third way” of dealing with Comcast and Brand X, between the Title I and Title II poles, effectively appropriating the “administrative agency deference” piece of the Brand X majority and the “functional separation should yield legal separation” piece of the Brand X dissent. Under the proposal, Title II would apply solely to the data transport aspect of broadband service, leaving the data processing aspects subject to Title I and whatever regulatory jurisdiction the “ancillary authority” power provides. The FCC would then use its “forbearance” power (the mandatory power to forbear from imposing regulation otherwise authorized by statute when forbearance is consistent with the public interest) to tailor the level of Title II regulation as narrowly as possible both to preserve a mostly unregulated Internet but also the net neutrality policy goal. The FCC enumerates six core Title II provisions that it would seek to apply as part of that tailoring, and points out the successful history of similarly tailored Title II forbearance in the case of commercial wireless telecommunications services. In particular, as with wireless, it proposes to forbear from Title II rate regulation.
As we said at the beginning, this will be a tough sell. The argument to separate the “telecommunications/data transport” and “information/data processing” components of cable modem service (as well as DSL service) might have been persuasive had the FCC made them at the time of Brand X. Instead, the Commission took the position that the components were inseparable. The Supreme Court majority in Brand X bought into that view, and held that because there was no Title II authority over the integrated service, there was none over any of its components.
But there is a deeper problem in the proposed third way. Also critically missing from the FCC’s aspirational analysis is that the disparate treatment of Telecommunications Service and Information Service and deemed inseparability of services with aspects of both in the legislative and regulatory structure is not a recent development, which the FCC now regrets, but a dichotomy long pre-dating the mass market Internet. Beginning in 1966, the FCC examined the convergence of telecommunications and computer technology in a series of administrative proceedings called the “Computer Inquiries.” In the First Computer Inquiry decision, in 1971, the FCC distinguished between communications services in which information was transmitted unaltered, as with simple voice telephony, and data processing services, in which information was stored, retrieved, or altered before, after, or during transmission. Communications services were subject to Title II common carrier regulation, while data processing services were not. Common carriers were required to provide “maximum separation” between ordinary communications services and data processing services in order to prevent them from using revenues from their regulated but market-dominant common carrier activities to subsidize and unfairly compete in data processing activities. For “hybrid” services that combined communications and data-processing functions, the Commission decreed a case-by-case analysis to classify the service as regulated or unregulated based on whether it was “primarily” or “essentially” data processing or communications. In other words, the fish-or fowl determination had to be made; no “unbundling” was allowed.
This formula was updated and the case-by-case approach to “hybrid” services was eliminated in the Second Computer Inquiry in 1980. The FCC established a new, ostensibly “bright line” distinction between a regulated “basic” services, in which the transmitted information was not processed or altered in transmission, and a unregulated “enhanced” services, in which processing altered the transmission.
The 1996 Telecommunications Act that amended the Communications Act, preserved the bright line distinction drawn by the FCC, separately defining “Telecommunications Service,” which corresponds with “basic services,” and “Information Service,” which corresponds with “enhanced service.” The former is subject to common carrier regulation; the latter is not. In other words, the Brand X majority, in treating cable modem service as both indivisible by nature and as unregulated Information Service, was upholding not merely a recent FCC rulemaking, but a consistent line of administrative decisions of over forty years’ pedigree.
A period of prolonged litigation over the regulatory territory may be unfolding, reminiscent of the post-1996 Telecommunications Act “local competition” wars, with the backbone Internet providers, like AT&T, Verizon, and leading Cable Operators cast in the [incumbent] ILEC role, and content and application providers and bandwidth users like Google/You Tube, Amazon, EBay and Face Book cast in the [competitive] CLEC role. Needless to say, facing the FCC and the other net neutrality proponents will be all the arguments and evidence they adduced in support of the opposite position in Brand X, the history of the Computer Inquiries and the near certainty that, because of the Brand X precedent, the case cannot be won without going back to the Supreme Court.
To avoid that prospect, rather than looking to Justice Scalia’s Brand X dissent, the FCC should rely upon Justice Thomas’ majority analysis, conducted under the Chevron rules. There, Justice Thomas stated that: “[A]gency inconsistency is not a basis for declining to analyze the agency’s interpretation under the Chevron framework. Unexplained inconsistency is, at most, a reason for holding an interpretation to be an arbitrary and capricious change from agency practice….For if the agency adequately explains the reasons for a reversal of policy, ‘change is not invalidating, since the whole point of Chevron is to leave the discretion provided by the ambiguities of a statute with the implementing agency.’” Net neutrality proponents would be better served by the FCC accepting the Title I framework, going back to court and taking the position that the still-emerging ramifications of its prior Information Service classification of broadband were not clear five years ago, and that deference to its assessment of changing circumstances should be respected in upholding its Title I ancillary authority for carefully tailored broadband regulation. Net neutrality opponents would probably also prefer the earlier closure that would bring.
The explosive growth in the last fifteen years of the Internet as a revolutionary medium of information dissemination, information storage and communication is due to the low barriers to entry content and applications providers have enjoyed coupled with the reasonable incentives to invest in building out broadband networks that backbone providers have had. Net neutrality is a critical policy value; it has to be achieved and preserved. The right outcome here is a moderate level of carrier-like regulation that prevents discriminatory access and blocking and preserves low barriers to entry, while avoiding rate regulation. Non-discriminatory fees do not mean no fees. We can test incentives to invest in broadband networks on an ongoing basis, and the disincentivizing effects of net neutrality may be overstated, as they were when the “fiber glut” of ten years ago was developing.
Of course, what is really needed is legislative action to amend the 1934 Communications Act, as amended by the 1996 Telecommunications Act, to grant the FCC reasonable and limited authority to regulate the network management practices of broadband providers where necessary in the broader public interest. If Congress is ambitious, and a long view is taken, it might even be the occasion to impose the cross-platform- and technology-neutral parity that our patchwork and obsolete legislative and regulatory framework so badly needs and which this writer has for so long urged.
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*Owen D. Kurtin is a founder and principal of private investment firm The Vinland Group LLC and a practising attorney in New York City. He may be reached by e-mail at okurtin@kurtinlaw.com. For background information on the legislative, regulatory and judicial history of broadband regulation, including the disparate treatment of telecommunications and information service, see "U.S. Communications Law and Transactions" (Winter 2010), at www.kurtinlaw.com/articles-whitepapers/.
Mr. Chairman:
With all due respect: This is not a third way; it is a third rail.
The FCC should remember the wise word of FCC Commissioner Kathleen Abernathy, at http://www.fcc.gov/Speeches/Abernathy/2002/spkqa215.html, and consider carefully how the years of legal wrangling, lawsuits, appeals, etc. that are sure to result from this attempt at reclassification will affect Americans. Besides sapping the Commission's attention and energy and diverting its resources from the execution of the Broadband Plan, the regulatory uncertainty inherent in this move will deter investors from providing capital to broadband providers. (I know this firsthand; investors have refused to invest in my ISP due to the spectre of potential regulation.) And all for the sake of attempting to remedy the nonexistent "problems" ginned up by lobbyists seeking "network neutrality" regulation for their corporate clients!
This third way is equivalent to coming to a fork in the road and choosing to drive through the house in the middle, destroying it. Please do not do this.
thanks for casting the darkest cloud over private investment in the history of meddlesome government intervention. Your inability to swallow the Comcast decision apparently prompted you to solve for problems that do not exist. Do you really feel compelled along with your other disconnected FCC commissioners(the ones who support the third way) to have to help Google, Netflix, Ebay, etc. These entitities have built billion dollar assets on the private capital investments made by Comcast, ATT, Verizon etc but somehow you believe you should intervene. At least have the courage to do the honorable thing which is to provide the legal ability for Comcast, AT&T, Verizon, Sprint and other large scale wired and wired carriers to legally collude in order to uniforamally stop any going forward investment in the networks so that your government bailout assistance to Google and the other freeloaders get stiffed. Your public policy approach by sticking the FCC nose into a free market is devasting(look at yesterdays stock impact based on your action--thanks for that by the way)
Quit kissing the pasty rear ends of the the Consumer Federation commies and Move-on etc and act like an american and fulfill your fiduciary obligagtion to let markets thrive. While your at it please get off the lap of Eric Schmidt the Google CEO and go back to your job.
You have failed the communications future of the company and failed at what your organization has been charged to do. One day you should work in the private sector and experience what its like to drive a business and risk capital and futures
Thanks
BRAVO! Thanks for the courage you've shown in standing up to the "big guys"! Keep on truckin'!
Given statements attributed to Comcast's management about wanting to "double-dip" and charge both the end-users for access to the Internet and charge sites for preferential access to those users, there needs to be some move to prevent the mega-providers from choking off sites to their userbase for failure to pay a "user-access toll".
We need more free enterprise and less government intervention in all aspects of our economy and commerce. Please do not interfere.
Please do not interfere while the telecom regional monopolies eviscerate American living standards in order to further price gouge their customers.
And please forget the fact that South Korea, the world leader in per capita broadband access, requires that all ISPs be government-owned and tightly regulated.
seems to me the internet's been doing just fine without undue government regulation. Why the sudden need to regulate it now? The biggest threat to internet freedom is not comcast or a " telecom regional monopoly" who, at the very least must be held accountable for their screwups by the market, but an overweening FCC, aggregating power over our lives to itself. Power corrupts, no matter how well meaning the bureaucrats at the FCC currently are. AND they are not accountable to the American people, being unelected.
Why do you leftists want an unaccountable bureaucracy to control the internet, rather than multiple, competing, accountable, private companies? A private company can't throw you in jail if you do something it doesn't like. A government agency can.
BRAVO! Thanks for the courage you've shown in standing up to the "big guys"! Keep on truckin'!
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Jim Boel
Cheif Editor @ QS Law
http://www.qslaw.com