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The FCC’s Open Internet Order – Contradictions and Legal Infirmities

Posted by Andrew Regitsky

Mar 20, 2015 9:49:32 AM

The FCC released its Open Internet Order on March 12, 2015 in Docket 14-28. The Order is designed to ensure all users of the Internet are treated the same (i.e., Net Neutrality). After making my way through all 400 pages, here are my impressions:

The Order is Replete With Contradictions

The Order begins with the Commission lauding the growth in Internet investment and services that occurred under the “carefully crafted” Open Internet rules it adopted in 2011. However, after describing the many ways the Internet has thrived while lightly regulated with broadband Internet access service classified as a Title I information service, the Commission reverses itself and states that, regardless of its current success, broadband Internet access must now be classified as a Title II telecommunications service and more heavily regulated. 

Why does the Commission suddenly change course and push for Title II regulation? Because, as the Commission states in paragraph 8 of the Order, “The record reflects that broadband providers hold all the tools necessary to deceive consumers, degrade content, or disfavor the content that they don’t like.”

If the record demonstrates that broadband providers have all the tools to damage net neutrality, surely there would be numerous examples of these providers actually damaging the Internet while lightly regulated under the current rules. However, the Order contains no such examples. In fact, other than repeating a statement that Verizon made during a court case, suggesting it would negotiate paid priority deals if it could, the Commission provides absolutely no examples of Internet abuse. 

Frankly, it is astonishing that the Commission would attempt to impose a new approach to regulating an entire industry based solely on hypothetical danger. Typically, new regulatory paradigms are based on a through market and competitive analysis. There is no such analysis performed here. Instead, there are repeated warnings about the dangers unchecked broadband Internet access providers could unleash on the Internet without any evidence that they have done so. This is an extremely weak rationale for imposing new draconian rules.

But wait, there are even more contradictions to come! After prescribing Title II regulation as the elixir to protect consumers from the ravages of Internet access providers (ISPs), the Commission then decides to relieve these providers of most of their Title II requirements such as unbundling, tariffing and price controls. If the dangers of unchecked ISPs are so horrible, why relieve ISPs of so many of these industry-saving regulations?

The Order is Procedurally Defective

The Order is likely to be rejected in court because it violates the Administrative Procedure Act (APA). The public was simply not provided with sufficient notice when the Commission, apparently at the last moment, decided to shelve its 2014 draft rules which had proposed continued light regulation of broadband Internet access providers under section 706 of the 1996 Telecommunications Act. When the draft rules were adopted in early 2014, the entire industry expected FCC Chairman Tom Wheeler to continue Title I regulation of the industry. This continued to be the case until President Obama argued strongly for Title II regulation in November. After that speech, the Chairman quickly changed course and began speaking out in favor of reclassification. As FCC Commissioner Pai noted in his dissent to the Order,

Rather than following the proper procedure and issuing a further notice, the FCC charged ahead at the behest of activists who were suspicious of the Commission’s commitment to their cause and thus demanded that agency adopt rules without delay. That is not what the Administrative Procedure Act demands, nor what the American people deserve (Order, p. 350).

The Commission claims that it did provide sufficient notice because in the draft rules it did ask parties to provide comments regarding the feasibility of reclassification for broadband Internet access service.  However, its “notice” was only two paragraphs long and clearly, to the industry, Title II regulation was not the path the Commission was traveling on when it released its draft rules. It is difficult to see how any court will accept that two paragraphs in the draft rules are sufficient notice of the Commission’s change in direction.

The Commission also did not provide sufficient notice when it decided to regulate the traffic exchange between ISPs and edge (content) providers. In the draft rules, the Commission stated that it would not regulate interconnection between these companies regardless of whether they exchanged traffic through peering, or content delivery networks. However, in the Order, the Commission decided it will now review such interconnection agreements on a case-by-case basis to determine if they are unjust or unreasonably damage the ISPs with whom they interconnect. Clearly, there was no notice of this possibility provided to the public before this Order. 

Moreover, such case-by-case review means that all such interconnection agreements could be subject to price regulation, if the Commission decides that the proposed interconnection prices are not just or reasonable. Thus, even while the Commission applauds itself on forbearing from Title II price regulation, it provides a backdoor way for it to control Internet pricing.

Finally, the Commission’s decision to regulate mobile Internet access service as a Title II telecommunications service both violates the APA and is the weakest part of the Order legally. Currently, the Commission regulates mobile services under section 332 of the Act. This section bars the FCC from treating any mobile service, such as mobile broadband Internet access service, as a telecommunications service unless that mobile service is interconnected with the public switched network (PSN). Since the definition of the PSN includes interconnection to North American Numbering Plan (NANP) phone numbers only, the Commission without any notice, decided to change the definition of the PSN to include interconnection to IP addresses. Thus, under this new definition, mobile broadband Internet providers are now providing a telecommunications service under section 332! There is no legitimate argument that the public could have considered such an outcome in advance, thus, the APA notice requirements have clearly been violated. In addition, the Commission does a poor job in explaining why it has the authority to change the definition of the PSN here, when that definition was established an affirmed many times in previous proceedings and by Congress. All in all, even if the courts accept other parts of this Order, it is very likely that the Commission’s attempt to reclassify mobile broadband access service as a telecommunications service will be rejected.

The Order Gives the FCC Authority Unchecked Internet Authority

With all its procedural failures and contradictions, the most egregious aspect of the Open Internet Order is the Commission’s decision to regulate ALL future potential areas of the Internet through a new rule called the “No-Unreasonable Interference/Disadvantage Standard.” According to the Commission, it can use this new standard to:

[P]rohibit practices that unreasonably interfere with the ability of consumers or edge providers to select, access, and use broadband Internet access service to reach one another, thus causing harm to the open Internet. This no-unreasonable interference/disadvantage standard will operate on a case-by-case basis and is designed to evaluate other current or future broadband Internet access provider policies or practices - not covered by the bright-line rules - and prohibit those that harm the open Internet (Order at para 8).

Under this standard, it appears that every time an ISP proposes a new marketing plan or practice or each time an ISP and edge provider negotiate an interconnection agreement their actions could be subject to a lengthy Commission review. What could be more chilling to innovation or investment than a FCC that reviews every new business plan? Why would companies or investors continue spending their dollars in an area where every practice or proposal must pass detailed FCC scrutiny before they can even be attempted in the market? Hopefully such boundless authority will be challenged and rejected by the courts. 

In sum, my impressions are that this is an Order written to meet political objectives and is filled with conclusions that the public had no idea were even under review. It is replete with internal contradictions and provides too much Internet authority for the Commission. As such, it is likely to be overturned by the courts or Congress.

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Topics: regulatory updates, FCC, Net Neutrality, Open Internet

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