Thursday, May 25, 2017

Summary of the FCC's Restoring Internet Freedom NPRM



            With the election of President Donald Trump and the appointment of Ajit Pai as FCC Chairman, muscular network neutrality rules soon will evaporate as the Commission reverts to a general promotion of openness and best practices. [1]  Despite judicial affirmance of an earlier reclassification of broadband Internet access as a telecommunications service, subject to common carrier regulation, the Restoring Internet Freedom Notice of Proposed Rulemaking proposes to revert to a looser regulatory classification triggering substantially less government oversight:
Today, we take a much-needed first step toward returning to the successful bipartisan framework that created the free and open Internet and, for almost twenty years, saw it flourish.  By proposing to end the utility-style regulatory approach that gives government control of the Internet, we aim to restore the market-based policies necessary to preserve the future of Internet Freedom, and to reverse the decline in infrastructure investment, innovation, and options for consumers put into motion by the FCC in 2015. [2]

            The FCC now proposes to apply an information service regulatory classification to broadband Internet access [3] and to treat wireless service as private carriage rather than the existing commercial designation established by Congress. [4] The Commission heavily relies on a questionable conclusion that common carriage regulation stifles investment, innovation and employment in the Internet ecosystem.  While offering a passing reference to contrary studies, the FCC opts to accept unconditionally the conclusion in one study sponsored by incumbent carriers that existing regulation imposed substantial marketplace harms.  The Commission espite clear evidence that Internet ventures continue to invest billions in both content delivery plant and content creators who need a robust distribution network to deliver content to consumers. [5] 
            Remarkably, the Commission appears confident that any and all reductions in investment, innovation and employment have resulted directly and exclusively from common carrier responsibilities imposed by a Democratic majority.  It provides no evidence of causation, nor does it even consider other factors that may have contributed, such as the billions of dollars recently invested in content, e.g., Verizon’s acquisition of America Online and Yahoo,  AT&T’s acquisition of DirecTV and several mergers of cable television operators.  Additionally, the Commission conveniently ignores the cyclical nature of facilities investment that, for example, triggers a spike in a new generation of wireless plant, e.g., from 3d generation to 4th generation, followed by a normal reduction capital expenditures as the new equipment becomes operational.
The FCC also ignores the fact that despite operating within a so-called public utility regulatory regime, wireless carriers have invested billions on spectrum and network facilities capable of delivering content as near wireline speeds. [6]
            The Restoring Internet Freedom NPRM devotes substantial space supporting the proposed reclassification of broadband Internet access as an information service.  The Commission considers this classification more appropriate and lawful, going so far as to claim bipartisan support, despite the fact that the previous Democratic majority favored common carrier requirements:
We believe the Commission under Democratic and Republican leadership alike was correct in these decisions to classify broadband Internet access service as an information service and that, 20 years after the passage of the Telecommunications Act, we should be reluctant to second-guess the interpretations of those more likely to understand the contemporary meaning of the terms of the Telecommunications Act.  [7]

            The Commission identifies ample precedent where reviewing courts defer to its technical expertise and statutory interpretation, particularly where the underlying law lacks clarity.  [8] 
           Ironically, reversion to the information services classification will result in two outcomes that can have directly harmful impact on consumers and carriers.  First, reliance on Title I authority does not in and of itself reduce will the regulatory uncertainty which the FCC and stakeholders abhor, [9] because of the potential disincentives for investment, innovation and employment it creates.  The FCC clearly signals that its reliance on Title I will promote deregulation, if not unregulation, but ample case precedent shows that reviewing courts may not trust regulatory agencies to maintain consistency. [10] The FCC clearly seeks to remove regulatory oversight, but it also retains Title I, so-called ancillary jurisdiction to intervene as circumstances warrant, e.g., when a carrier deviates from any of the 2005 Open Internet principles.
            Second, reversion to Title resurrects the view that the FCC can compartmentalize Internet technologies into an air tight, mutually exclusive dichotomy of telecommunications services and information services, [11] despite market and technological convergence.   For example, the FCC already has had to address the fact that wireless devices combine basic, regulated, telecommunications services, such as voice telephony and texting, with unregulated or differently regulated content and information services.  Even during a time when the Commission considered broadband access as constituting an information service, it imposed common carrier type, affirmative duties to deal and interconnect on wireless carriers so that consumers can access Internet services when “roaming” outside their home service territories. [12]
            The FCC also proposes to eliminate the application of a catch-all standard used in the 2015 Open Internet Order that prohibited “current or future practices that cause the type of harms [the Commission’s] rules are intended to address.”  [13] This standard allows the Commission to prohibit practices that it determines unreasonably interfere with or unreasonably disadvantage the ability of consumers to reach the Internet content, services, and applications of their choosing or of online content, applications, and service providers to access consumers.   It also enables the FCC to prohibit any Internet service provider practice that it believes violates any one of the non-exhaustive list of factors adopted in the 2015 Open Internet Order.
            The Commission believes that eliminating a standard of conduct will provide greater clarity to stakeholders, because the current Internet conduct standard “is premised on theoretical problems that will be adjudicated on an individual, case-by-case basis, Internet service providers must guess at what they are permitted and not permitted to do.” [14] The Commission cites the zero rating as an example where the FCC, under a Democratic majority, investigated the lawfulness of subsidized data access, while the new Republican majority quickly shut down the investigation.  Arguably, the regulatory uncertain resulted from different interpretations of the conduct standard, based on political party affiliation, rather than the conduct standard itself.  Removing the standard provides no guidance at all, unless the Commission has signaled that it cannot anticipate a problem with any carrier offer to exempt specific types of traffic from debiting a monthly data allowance.
            The 2017 Restoring Internet Freedom NPRM also seeks comments on whether the FCC should eliminate three carrier conduct prohibitions contained in the 2015 Open Internet Order: blocking, throttling, and paid prioritization.  The Commission strongly hints that it considers these, ex ante safeguards both unnecessary and imposed without evidence that consumers have, or would suffer harm if the prohibitions did not exist.[15] 
            The Commission also seeks comments on whether Section 706 of the Telecommunications Act provides it with direct statutory authority to impose regulatory safeguards, or simply requires the FCC to assess the competitiveness and accessibility of the broadband marketplace and report findings to congress.  This portion of the NPRM may appear insignificant and narrow, but the Commission clearly implies its view that Section 706 provides no statutory authority to impose regulatory safeguards under any circumstances. [16]  Even if the current FCC Commissioners did retain the option of regulatory intervention, an already expressed view that the wired and wireless broadband marketplace operates competitively strongly implies that a majority Republican FCC would never seek to impose regulatory safeguards based on Section 706 authority. 
            For good measure, the Restoring Internet Freedom NPRM  also seeks comments whether any regulatory burden on broadband access providers would violate their First Amendment expression rights, a matter summarily dismissed by the D.C. Circuit Court majority, but raised in a dissent. [17]  Lastly, the FCC expresses a keen interest in applying a disciplined and substantive cost/benefit analysis assessing the financial impacts of its action. [18] While laudable, the FCC’s NPRM provides several instances where the Commission reaches broad sweeping conclusions without the empirical evidence and analysis it now regularly seeks to conduct.


[1]              Restoring Internet Freedom, WC Docket No. 17-108, Notice of Proposed Rulemaking, FCC 17-60 (released May 23, 2017); available at: https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-60A1.docx [hereinafter cited as Restoring Internet Freedom NPRM].  The FCC proposes to treat broadband Internet access as an information service, subject to Title I of the Communications Act, that does not authorize the FCC to impose common carrier regulations.  Instead the Commission has an ambiguous regulatory authority to impose safeguards and to promote goals.  For example, the Restoring Internet Freedom NPRM endorses four principles for Internet freedom to further ensure that the Internet would remain a place for free and open innovation with minimal regulation.   These four “Internet freedoms” include the freedom to access lawful content, the freedom to use applications, the freedom to attach personal devices to the network, and the freedom to obtain service plan information. See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, Policy Statement (2005); available at: https://apps.fcc.gov/edocs_public/attachmatch/FCC-05-151A1.pdf.

[2]              Restoring Internet Freedom NPRM  at ¶5. 

[3]              “Today, we propose to reinstate the information service classification of broadband Internet access service and return to the light-touch regulatory framework first established on a bipartisan basis during the Clinton Administration.” Id. at ¶24.

[4]              “We also propose to reinstate the determination that mobile broadband Internet access service is not a commercial mobile service.” Id. “Furthermore, insofar as mobile broadband Internet access service is best interpreted to be an information service, we believe that likely also would counsel in favor of classifying it as a private mobile service to avoid the inconsistency of the service being both an information service and a common carrier service.  The Commission explained this reasoning when originally classifying mobile broadband Internet access service as both an information service and a private mobile service, and we propose to apply that same reasoning again here.” Id. at ¶60. 

[5]              “We believe that these reduced expenditures are a direct and unavoidable result of Title II reclassification, and exercise our predictive judgment that reversing the Title II classification and restoring broadband Internet access service to a Title I service will increase investment.” Id. at ¶46.  The Commission relies on a single study, prepared by a researcher financially sponsored by stakeholders opposed to network neutrality rules. Id. at n.113.

[6]              The FCC implies that regulatory compliance forces carriers to incur costs that otherwise would have accrued consumer benefits. “Internet service providers have finite resources, and requiring providers to divert some of those resources to newly imposed regulatory requirements adopted under Title II will, unsurprisingly, reduce expenditures that benefit consumers.” Id. at ¶46.

[7]              Id. at ¶39.

[8]              “An agency also is free to change its approach to interpreting and implementing a statute so long as it acknowledges that it is doing so and justifies the new approach. [citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-16 (2009) (Fox); Mary V. Harris Found. v. FCC, 776 F.3d 21, 24-25 (D.C. Cir. 2015)]  Evaluating the change in regulatory approach in the Title II Order, the D.C. Circuit majority in USTelecom applied a ‘highly deferential standard’ to the agency’s predictive judgments regarding the investment effects of reclassification, [citing United States Telecom Ass’n v. FCC, 825 F.3d 674,707 (D.C. Cir 2016), reh’g en banc denied, No. 15-1063, 2017 WL 1541517, at *1 (D.C. Cir. May 1, 2017)] and deferred to the Commission’s ‘evaluat[ion of] complex market conditions’ underlying its rejection of providers’ reliance interests in the prior classification [citing Id. at 710 (quoting Gas Transmission Northwest Corp. v. FERC, 504 F.3d 1318, 1322 (D.C. Cir. 2007)]. Restoring Internet Freedom NPRM  at ¶53.  “The Commission has authority, as the Supreme Court recognized in Brand X, to interpret the Communications Act, including ambiguous definitional provisions.” Id. at ¶52, citing Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).

[9]              The Commission considers Title II regulation as causing substantial regulatory uncertainty despite the greater specificity this Title provides as compared to Title I. “In addition to imposing significant regulatory costs on Internet service providers, Title II reclassification created significant regulatory uncertainty.  USTelecom specifically identified ‘regulatory uncertainty’ as one of the causes of reduced investment.   Id. at ¶48.  Title I provides an ambiguous sphere of regulatory authority which the FCC overstepped when it imposed common carrier responsibilities on broadband service providers then classified as information service providers. See,  See Formal Complaint of Free Press and Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, Memorandum Opinion and Order, 23 F.C.C.R. 13,028 (2008), vacated, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) (FCC deemed to have exceeded its statutory authority when responding to a complaint and imposing network neutrality rules); Preserving the Open Internet, Report and Order, GN Docket No. 09-191, WC Docket No. 07-52, 25 F.C.C.R. 17905 (2010)[hereinafter cited as 2010 Open Internet Order] aff’d in part, vacated and remanded in part sub nom. Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014).

[10]            For example, a reviewing court twice rejected a Democratic majority FCC from imposing consumer safeguards based on a general conferral of jurisdiction over wire and radio contained in Title I of the Communications Act of 1934, as amended.  See Formal Complaint of Free Press and Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, Memorandum Opinion and Order, 23 F.C.C.R. 13,028 (2008), vacated, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) (FCC deemed to have exceeded its statutory authority when responding to a complaint and imposing network neutrality rules); Preserving the Open Internet, Report and Order, GN Docket No. 09-191, WC Docket No. 07-52, 25 F.C.C.R. 17905 (2010)[hereinafter cited as 2010 Open Internet Order] aff’d in part, vacated and remanded in part sub nom. Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014). 

[11]            “The Commission has previously concluded that Congress formally codified information services and telecommunications services as two, mutually exclusive types of service in the Telecommunications Act.   The Title II Order did not appear to disagree with this analysis, finding that broadband Internet access service was a telecommunications service and not an information service.   We believe this conclusion regarding mutual exclusivity is correct based on the text and history of the Act.” Id. at ¶40. “We also believe that mobile broadband Internet access service is not the ‘functional equivalent’ of commercial mobile service. Id. at ¶61.

[12]            Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers
and Other Providers of Mobile-data Services, Second Report and Order, 26 F.C.C.R. 5411
(2011), aff’d sub. nom. Cellco Partnership v. FCC, 700 F.3d 534 (D.C. Cir. 2012).

[13]            Protecting and Promoting the Open Internet, WC Docket No. 14-28, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5659 (2015), aff’d sub nom., United States Telecom Ass’n. v. FCC, 825 F.3d 674 (D.C. Cir. 2016). pet. for en banc rehearing denied.

[14]            Restoring Internet Freedom NPRM  at ¶74. 

[15]            “In the Title II Order, despite virtually no quantifiable evidence of consumer harm, the Commission nevertheless determined that it needed bright line rules banning three specific practices by providers of both fixed and mobile broadband Internet access service: blocking, throttling, and paid prioritization.  The Commission also ‘enhanced’ the transparency rule by adopting additional disclosure requirements. Today, we revisit these determinations and seek comment on whether we should keep, modify, or eliminate the bright line and transparency rules.” Id. at ¶76. 

[16]            “We seek comment on whether section 706(a) and (b) of the 1996 Act are best interpreted as hortatory rather than as delegations of regulatory authority.  Such an interpretation generally is reflected in the Commission’s approach to section 706 prior to 2010.” Id. at ¶101.

[17]            Id. at ¶104.

[18]            Id. at ¶105-15.
       

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