Broadband Internet as an Information Service

As noted previously, the FCC derives its authority over communications from the Communications Act of 1934, since amended by the Telecommunications Act of 1996.  Communications in the United States falls into neatly defined statutory definitions under the regulatory umbrage of the Act, e.g., “common carrier services” (Title II), “radio transmissions” (Title III), and “cable services” (Title VI).  47 U.S.C. §151 et seq. It is a fairly ordered and predictable means of regulating communications on its face; however, newly developed technologies often don’t*  fit into these neatly defined statutory categories.  Broadband Internet is one such example.

*According the agency’s, the legislature’s, or the courts’ opinion.

The recent Comcast BitTorrent case limiting the FCC’s jurisdiction over broadband Internet is essentially judicial fallout from the the agency’s March 2002 Cable Modem Order.  Under then Chairman Michael Powell (son of former Secretary of State Powell), the FCC determined that Broadband Internet is an “information service”, not a common carrier “telecommunications service” to be regulated under Title II of the Act, or a “cable service” under Title VI.  See 2002 Cable Modem Order, paras. 31-71.  Commissioner Copps at the time warned about the danger of classifying Cable Modem Services as  “information services” wholesale, subject only to Title I ancillary jurisdiction of the Communications Act, because it would lead to “… playing a game of regulatory musical chairs by moving technologies and services from one statutory definition to another.”  2002 Cable Modem Order (Statement of Commissioner Copps, dissenting.). Those concerns are finally now playing out.

Ancillary jurisdiction: ancillary to what?

The FCC’s decision not to classify broadband Internet as a telecommunications service, and as an information service survived a challenge at the Supreme court.  National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005).  In Brand X, the court found that the statutory language of the Communications Act was ambiguous enough for the FCC to be entitled to Chevron deference, when it ruled that broadband Internet should only be subject to Title I ancillary jurisdiction under the Act.  The agency’s interpretation was therefore upheld.  This meant that broadband Internet, then a still nascent industry, was subject to minimal regulations under Title I of the Communications Act.

Ancillary jurisdiction itself rests on a broad statement under Title I of the Communications Act.  Section 4(i) states that “[t]he Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions,” 47 U.S.C. § 154(i).  The great discretion that this provision grants results in a case-by-case determination of whether FCC, testing the limits of its powers under the Act, is subject to constraints imposed by the judiciary.  In the case of broadband Internet, every attempt by the Agency to regulate it would be subject to challenge; those whose interests are at risk from the Agency action are able to challenge first the authority under which the FCC regulates, and also whether the discretion to regulate and adjudicate was taken too far.

Comcast v. FCC: ancillary to nothing

For broadband, the Comcast v. FCC (BitTorrent) case was that scope of discretion determining case.  The dispute came out of Comcast’s 2007 blocking of BitTorrent activity (that took up a disproportionate amount of bandwidth), and defending its policies by echoing the FCC Open Internet Policy that they were only practicing “reasonable network management.”  The ISP would secretly send reset packets (the Internet equivalent to someone intercepting a phone call, pretending to be the person on the other side, saying goodbye and hanging up) to BitTorrent file uploaders, severely hampering their ability to share files.

The FCC eventually made an adjudicatory ruling against Comcast, enjoining them from continuing to block traffic, and requiring them to be more transparent about their network management practices.  2008 Comcast BitTorrent Order, paras. 57-60.  The order, along with strong public backlash (and lawsuits) prompted Comcast to comply with the FCC order.  However, it still challenged the validity of the FCC ruling in court, asserting, inter alia, that the FCC had no jurisdiction to regulate broadband Internet under its ancillary jurisdiction.

A trio of Supreme Court cases** informs the current understanding of ancillary jurisdiction under Title I of the Communications Act.  The holdings have been well summarized into the two-part test that “[t]he Commission . . . may exercise ancillary jurisdiction only when two conditions are satisfied: (1) the Commission’s general jurisdictional grant under Title I covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.”  American Library Association v. FCC, 406 F.3d, 689, 691 (2005). That broadband Internet falls under the general jurisdiction is clear; however, whether FCC has Congressional mandate to regulate broadband Internet depends on the second part of the test.

**United States v. Southwestern Cable Co., 392 U.S. 157 (1968), United States v. Midwest Video Corp., 406 U.S. 649 (1972), and FCC v. Midwest Video Corp., 440 U.S. 689 (1979)

Unfortunately for the FCC, and net neutrality proponents, the D.C. Circuit found that all the bases for ancillary jurisdiction that the Commission argued in the case were, in fact, without support.  The court opined that jurisdiction to regulate broadband Internet under Title I was not given by Congress in the Act, not evident from past FCC policy statements, nor covered in Section 706 on advanced telecommunications services.  The wording of Section 256 “establish[ing] procedures for . . . oversight of coordinated network planning . . . for the effective and efficient interconnection of public telecommunications networks . . .” seemed promising for the FCC, but the Commission’s brief curiously failed to note an important limitation of that section, that “[n]othing in [it] shall be construed as expanding . . . any authority that the Commission otherwise has under law.” 47 U.S.C. § 256.

As the D.C. Circuit enumerated and summarily dismissed the FCC’s increasing tenuous theories of jurisdiction under Section 257, 201, and 623 of the Act, it was clear that the best legal efforts would not be able to salvage ancillary jurisdiction over broadband Internet, when there was no jurisdiction in the first place upon which to find ancillary jurisdiction.  There was only one recourse for the FCC to (rightly or wrongly) reassert regulatory jurisdiction — broadband would have to be redefined under one of the regulated statutory categories of the Act.

The “Nuclear Option” and the “Third Way”

The April 2010 decision forced the Commission to take a hard look at the “nuclear option” — to go back and exercise its general jurisdiction over broadband Internet under the Act, reclassifying it as a “telecommunications service” under Title II.  On the other hand, the FCC promises not to handcuff industry too much by forbearing from heavy handed regulation in a “Third Way.”  Even in the pitched PR battles that accompany high stakes regulation, a “nuclear” option sounds rather drastic, and to use it in a “Third Way” sounds somewhat zen; however, it turns out that the Commission has done both in the past.

Reclassification

Even though the agency has already decided that broadband Internet is an information service regulated under Title I of the Communications Act, overturning old promulgated rules in light of new factual situations is not new.  The Administrative Procedures Act merely requires the agency, when making a rule, to “examine the relevant data and articulate a satisfactory explanation for its action.” Motor Vehicle Manufacturers Association of United States, Inc. v. State Farm Mutual Automobile Ins. Co., 463 U. S. 29, 43 .  And even if a policy is long-standing, it can be overturned.  The agency need not show that the new policies are better than the old; the fact that it is permissible under statute is enough.  See FCC v. Fox Television Stations, Inc., 129 S.Ct. 1800 (2009).   This sets the table for the Commission to re-rule on the classification of broadband Internet under the Act.  See Reclassification NOI, paras. 28-99.

The Commission is indeed laying the groundwork for reclassification, building an administrative record through the Reclassification NOI in June 2010, and a future Notice of Proposed Rulemaking (NPRM).  At the same time, it has girded itself for the PR and political battle yet to come.  The FCC argues on its website that beyond its inherent rulemaking ability, the Supreme Court’s Brand X decision provides a persuasive legal basis for reclassification.  While the majority in the case held that Cable Modem (broadband Internet) service can be properly regulated as an “information service”, they also found that the Commission should receive deference on its classification decision.  Furthermore, Justice Scalia, Souter and Ginsburg opined in dissent the transmission of information and the computing functionality of broadband Internet, should be acknowledged as “separate things[,]”, the former telecommunications, and the latter information.  Brand X at 2715 (2005) (Scalia, J., dissenting). In theory, reclassification satisfies both of these requirements.

Forbearance

But what about the concern that classifying broadband under Title II common carriage rules would impose onerous and burdensome regulations on a still nascent and changing industry?  The agency agrees that it doesn’t want to impose onerous common carrier rules, but at the same time, it doesn’t want big industry players exclude to innovators or competing content.  Imagine what would happen if ISPs were able to block you from Gmail because they wanted you to use/pay for their webmail, or degrade YouTube or other video streaming sites because they want you to pay for a Hulu subscription?

The FCC’s answer to this is a narrowly tailored “Third Way” approach.  It isn’t Title I, but not quite full-on Title II.  The agency explains that it will classify broadband Internet as a ”telecommunications service”, yet forbear from applying many of the Title II common-carrier provisions (only 6 out of 48), as permitted in Section 10 of the Act.  This is similar to what it has done for the mobile phone industry.  Just as importantly, Title II + forbearance establishes a basis on which to assert Title I ancillary jurisdiction over broadband.

Since the Reclassification NOI, various industry members, such as AT&T, have expressed their displeasure with the Commission’s tack, while public advocacy groups such as Free Press and Public Knowledge have praised the possibility of reasserting regulatory authority.  Even former Commissioner Powell has made his opinions on the issue known.

A look ahead

After the recent election results, it appears as if net neutrality laws will sit in legislative purgatory.  A split Congress suggests that no major legislation on broadband is on the horizon, and that any action on telecommunications will only come on the agency level.  In the absence of congressional action, the FCC still has a lot of room to maneuver — the Third Way will likely be the Commission’s way forward.

On the other hand, the election results seem to rein in the FCC’s authority, even if only politically.  The election has been used as political fodder by pundits and political actors as a sign of the public’s opinion on the Open Internet Rules.  There are claims that net neutrality supporters were big losers in their recent election bids, and warnings from some to the agency not to further pursue its regulatory goals.  When the next Congressional session convenes, the House Committees will be reversed, and experienced and savvy lawmakers, such as Rick Boucher, Chair of the Communications, Technology and the Internet Subcommittee will be replaced.  Perhaps in response to these pressures, the most recent November FCC Agenda shows no signs of further moves on the Open Internet rulemaking front.

But despite the adverse political environment, there are rumors that the FCC will forge on with its plan for the Internet.  The Commission may decide that it simply cannot stand by through two years of legislative inaction while the Internet continues to evolve.  Already, we have seen great shifts in the way that broadband Internet is consumed in recent years.  While BitTorrent was the big net neutrality newsmaker back in 2006, players such as NetFlix (whose streams can comprise up to an astonishing 20% of all U.S. Internet traffic, at certain points in the day) have jumped into the fray, advocating for a strengthening of net neutrality.  Would the Open Internet Rules essentially be subsidizing NetFlix’ business model?

It is speculated in some news sources that FCC Chairman Genachowski plans to introduce a vote on the Open Internet Rules in the month and a half before the current lame-duck session of Congress ends.  At the same time, telecom companies beginning to compromise on net neutrality issues have received criticism from free-market politicians on the other side of the political spectrum.  The battle lines are beginning to blur, as stakeholders align more clearly, not with a certain side, but with their own economic and civic interests.

As we engage the world more through the Internet, telecom issues will have an increasing impact over Americans’ day-to-day lives.  Cable companies and phone companies want to avoid being commoditized as “dumb pipes,” and accordingly, lobbying in Washington on telecom legislation has become increasingly active.  Public interest groups are becoming increasingly wary of these interests, as companies continue to exert influence over the political process.  They will all be watching regulatory actions very closely as Congress sits tight in the constantly and rapidly changing technology landscape — and so should you.

UPDATE:

Immediately following the FCC Open Commission meeting on November 30, 2010, the Chairman’s office circulated an internal agenda for the December Open Commission Meeting.  It contains a Draft Open Internet Order (Final Rulemaking) that will be voted on December 21, 2010.  Chairman Genachowski has issued remarks on December 1 addressing the contents of the Open Internet Order, and Commissioners Copps, McDowell, Clyburn, and Baker weighed in with remarks of their own.  It seems as if the reclassification issue will be dropped, but it will be hard to say with certainty, until the Final Order is issued.  Instant reaction to the Draft Order can be found here.

The Case: FCC v. Comcast

The FCC based its legal argument on its 2005 “Internet Policy Statement” (PDF), which declared (among other things) that internet users had the right to freely access the internet content of their choice, subject to the requirements of “reasonable network management.” Comcast, the FCC argued, had violated the Internet Policy Statement by its traffic discrimination against BitTorrent, which did not fall within “reasonable network management.”

Comcast countered by arguing that the FCC had no right to regulate its network management in any way. The Internet Policy Statement was a set of guidelines, not rules, and the FCC admitted its unenforceability within the statement itself. Until the FCC makes the “Policy Statement” an active, binding policy, Comcast argued, the agency had no authority to enforce its rules.

The FCC, in response to sharp questions from the court about the source of its authority and asking which particular statute Comcast had violated, claimed that its “ancillary” power to implement its Congress-granted authority gave it the right to regulate Comcast. This ancillary power comes from Title I of the 1934 Communications Act, which gives the FCC to promulgate regulations “reasonably ancillary” to the agency’s specific duties outlined elsewhere in the Act.

The court did not buy this argument. In its opinion (PDF), the court stated that “ancillary” jurisdiction was not free-floating but had to be related to an explicit statutory grant of power. Finding no express Congressional permission for the FCC to regulate Comcast’s network management, the court threw out the FCC’s order.

The Larger Issue

The FCC’s fight for “net neutrality” is a part of its stated general agenda to make the internet easily accessible to every American. Through its proposed National Broadband Plan (NBP), submitted to Congress on March 16^th, 2010, it intends to make high-speed internet “the country’s dominant communication network.”

Aspects of the NBP include a subsidy for ISPs in rural parts of the country, auctioning broadband spectrum to wireless providers, a “digital literacy corps” to help Americans learn online skills, up to $16 billion for a public safety network to coordinate first responders to disasters and crises, a goal of having 100 million households with 100 megabit-per-second internet access (contrasted with the current average of three to four megabits-per-second) by 2020, and reduction of phone subsidies in favor of internet subsidies.

The FCC faces push-back from the television industry in particular, which is currently using parts of the over-the-air spectrum that, under the NBP, may be auctioned off for broadband use. The FCC already fought and won a similar battle with the enforced end of analog transmissions of TV signals—the spectrum used for over-the-air analog transmission was reclaimed (and all analog TV signals replaced with digital ones) and auctioned off.

What will likely happen next?

The FCC’s public reaction to the recent federal court decision has been unabashed and undismayed. In its release on April 8^th announcing its 2010 Broadband Action Agenda (PDF), an elaboration on the specifics of the NBP, the FCC Chairman Julius Genachowski declared, “The court decision earlier this week does not change our broadband policy goals, or the ultimate authority of the FCC to act to achieve those goals. The court did not question the FCC’s goals; it merely invalidated one technical, legal mechanism for broadband policy chosen by prior Commissions.” The announcement then lists those goals and the steps the FCC proposes to implement them. Ars Technica explains some of the FCC’s plans here.

The FCC may also have another legal option available to protect net neutrality specifically, in addition to implementing the NBP. University of Michigan law professor Susan Crawford persuasively argues that the FCC can easily acquire the legal authority to enforce net neutrality.  In an op-ed column for the New York Times, Professor Crawford points out that the recent federal court decision rests upon the labeling of ISPs as “information services” rather than “telecommunications services.”  Until 2002, the internet was considered a telecommunications service. But under the George W. Bush administration the FCC re-labeled high-speed internet providers as providers of “information services” because they offered services other than internet connection (like e-mail and web-hosting).

Why does this re-labeling matter? Because the Communications Act gives the FCC the authority to regulate “common carriers,” which includes “telecommunications services” and does not include “information services.” Since the FCC is in charge of this labeling process (which is how it changed the label from “telecommunications services” to “information services” in the first place), it is legally empowered to reverse its own decision and simply change the label back to “telecommunications services”—provided that it can offer a good reason for doing so. Professor Crawford argues that the reason for reversing the reclassification is obvious, because people buy internet services based on speed and price, and not because of the extra services some high-speed providers offer (such as e-mail).

At this point the FCC has not declared any intention of undoing the Bush administration-era re-labeling of high-speed internet.  Its legal authority to do so, however, presents an intriguing possible twist in this ongoing battle.