What’s Next for Net Neutrality? Part Two

Since the beginning of the year, when a federal court struck down key provisions of the FCC’s “net neutrality” rules,[1] industry observers – from service providers to end users – have speculated how the Commission will respond to the court’s ruling.  Would the Commission decide to regulate broadband access to the Internet as a public utility in order to guarantee “net neutrality”, or would it give carriers free rein to cut commercially reasonable but discriminatory rates with content providers, imposing premium fees for a guaranteed “fast lane” of service?

On May 15, the FCC took a major step toward addressing these questions.  In a Notice of Proposed Rulemaking (“NPRM”), the Commission has invited the public to comment on a new set of rules which, if adopted, would dramatically alter the Internet as we know it.  Broadly, the Commission proposes to (1) expand its existing transparency rule to require broadband providers to provide broader and more specific information to edge providers and consumers; (2) adopt a no-blocking rule that would allow individualized bargaining above a minimum level of access to a broadband providers’ subscribers; and (3) adopt a new rule that would prohibit “commercially unreasonable” practices “that, based on the totality of the circumstances, threaten to harm Internet openness and all that it protects.”  Addressing the court’s critique of its previous net neutrality rules, the Commission also seeks comment on whether it should reclassify broadband Internet access service as a common carrier offering, subject to Title II of the Communications Act.

Passed by a narrow 3-2 margin along party lines, the NPRM has already generated intense debate, and many industry observers been skeptical whether the FCC’s Chairman, who has championed the new regulations, will be able to ensure their final adoption or, even if adopted, the new rules will sustain an inevitable judicial appeal.  At issue is nothing less than whether the Internet, as we have come to know it, will survive.

The Commission’s latest attempt to ensure an open Internet has six key prongs:

  • Scope of Rules.  The NPRM proposes to retain the existing definition of “broadband Internet access service”, which the proposed rules govern, as a “mass market retail service by wire or radio the provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service…”  By its terms, and as interpreted by the FCC, the definition excludes (1) dial-up Internet access service; (2) multichannel video programming; (3) so-called “enterprise services” which are typically offered to larger organizations through customized or individually negotiated arrangements; (4) edge provider activities, such as the provision of content over the Internet; (5) premises operators, like coffee shops or bookstores, which offer internet access services to their patrons; (6) virtual private network services, hosting or data storage services; (7) the exchange of traffic between networks, whether peering, paid peering, content delivery network (“CDN”) connection, or any other form of inter-network transmission of data; or (8) specialized services such as facilities-based VOIP.  The FCC seeks comment on whether it should continue to exempt such services from its net neutrality rules.
  • Transparency.  The NPRM tentatively concludes that broadband providers should be required to disclose “meaningful information” about their services, and that such disclosures should be tailored to the needs of affected parties, be they end users, edge users or others.  Specifically, the NPRM proposes to require broadband Internet access providers to “publicly disclose accurate information regarding the network management practices, performance and commercial terms” of their service in a manner tailored for end users to make informed choices regarding use of such services, and for edge providers to develop, market and maintain Internet offerings.  The NPRM further proposes that providers, in making such disclosures, furnish “meaningful information regarding the source, timing, speed, packet loss and duration of congestion” of their services, and that they “publicly disclose in a timely manner…when they make changes to their network practices as well as any instances of blocking, throttling, and pay-for-priority arrangements, or the parameters of default or “best effort” service as distinct from any priority service.”  The NPRM seeks public comment on these proposals and asks whether broadband providers should be required to disclose specific network practices, performance characteristics (such as effective upload and download speeds, latency and packet loss), and/or terms and conditions of service to end users (such as data caps).
  • No-Blocking Rule.  The NPRM proposes to adopt the text of the no-blocking rule rejected by the Court of Appeals, which generally prohibits broadband access providers from blocking “lawful content, applications, services, or non-harmful devices, subject to reasonable network management.”  To address the concerns of the Court of Appeals, however, the NPRM proposes a “clarification” of the rule that would allow individualized, differentiated arrangements above a minimum level of access to the provider’s subscribers.  So long as broadband providers do not degrade lawful content or service to below a minimum level of access, they will not run afoul of the proposed rule.  The Commission seeks comment on how to define that minimum level of service.  Alternatively, the NPRM seeks comment on whether the FCC should adopt a no-blocking rule that does not allow for priority agreements with edge providers at all.
  • “Commercially Unreasonable Practices”.  In its ruling, the Court of Appeals struck down the Commission’s non-discrimination rule on the ground that it imposed a common carrier requirement on non-common carriers.  In lieu of this approach, and to address potential abuses that might otherwise be permissible under the “no blocking” rule, the NPRM proposes a new separate rule prohibiting “commercially unreasonable practices.” While the proposed rule does not define what such practices might be, it invites public comment on specific factors it should utilize to evaluate whether, on a case-by-case basis, a particular practice satisfies this standard.  Specifically, the NPRM asks for comment on whether such factors should include (a) the impact of a broadband provider’s practices on present and future competition; (b) the extent to which such practices restrict consumer choice or are deceptive; (c) the impact of provider practices on free exercise of speech and civic engagement; (d) the technical characteristics of the service at issue, including its technical feasibility, as well as the technical compatibility of the provider’s network; (e) the extent to which a provider has negotiated arrangements with edge providers and end users in good faith; and (f) prevailing industry practices.  The Commission tentatively concludes that it will adopt a case-by-case approach, considering the totality of circumstances, when analyzing whether conduct satisfies the proposed commercially reasonable legal standard, or another legal standard ultimately adopted.  The NPRM also asks what, if any, types of conduct may constitute a commercially unreasonable practice per se, and on whether any specific types of conduct should fall into a “safe harbor” category, outside the scope of the proposed rule.
  • Fixed vs. Mobile Broadband Internet Access.  The NPRM proposes to apply its transparency requirement to both fixed and mobile broadband Internet access services, but distinguishes between the two categories of providers with respect to its “no blocking” and “commercially unreasonable practice” requirements.  In lieu of the “no blocking” requirement applicable to fixed providers, the NPRM prohibits mobile broadband Internet access service providers from blocking consumers from accessing lawful websites, and from blocking applications that compete with the provider’s voice of video telephony services.  The NPRM further proposes to exempt mobile broadband Internet access service providers from the “commercially unreasonable practice” requirement, but seeks comment on whether it should revisit its differential treatment of mobile broadband Internet access service in light of significant changes in the mobile marketplace since 2010, when the original net neutrality rules were adopted, including how mobile providers manage their networks, the increased use of Wi-Fi, and the increased use of mobile devices and applications.
  • Title II Regulation.  Since 2002, the FCC has classified broadband Internet access service as an “information service”, which is not subject to Title II of the Communications Act and cannot be regulated as a common carrier service.  Consistent with this approach, the Commission premised its legal authority for its original net neutrality rules on Section 706 of the Act, which empowers the Commission to accelerate deployment of “advanced telecommunications capability…by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”  In its January ruling, the Court of Appeals upheld the FCC’s interpretation of its authority under Section 706 of the Act, but determined that the Commission’s “no blocking” and anti-discrimination rules impermissibly regulated broadband Internet access providers as common carriers, and vacated those rules.On remand, in the NPRM, the Commission has proposed to premise its new neutrality rules again on Section 706.  Nevertheless, the Commission states that it will “seriously consider” reclassifying certain activities of broadband Internet access providers as regulated Title II common carrier services, and seeks comment on whether this approach is necessary or desirable.  If it were to pursue this option, the Commission seeks further comment on which, if any, of its common carrier requirements it should forbear from applying to broadband Internet access providers under Section 10 of the Communications Act.

Summary. The FCC’s NPRM commences a significant legal battle, the outcome of which is by no means certain.  New regulations may permit broadband Internet access providers to develop new, lucrative revenue streams through the prioritization of traffic to end users.  Because the proposed new rules appear to apply only to mass market service, it is also possible that broadband Internet access providers may be able to enter into individualized contracts with edge providers and other high volume online service providers willing to pay a premium for improved, premium service.  On the other hand, it is also possible that the Commission may decide, in order to avoid a likely court challenge, to regulate broadband Internet access service, or portions thereof, as telecommunications services, subject to Title II common carrier regulation.  Finally, it is possible that Congress may intercede, as some have suggested, to limit the Commission’s jurisdiction over the Internet or shift it to the Federal Trade Commission.

The FCC has invited interested parties to submit initial comments by July 15, with reply comments due September 10, and has established a special inbox for the submission of comments in this proceeding at openinternet@fcc.gov.

[1]           See “What’s Next for Net Neutrality: The FCC Responds to Verizon v. FCC, http://fishmanadvisors.com/2014/whats-next-for-net-neutrality-the-fcc-responds-to-verizon-v-fcc/.