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FCC Releases Outline of Net Neutrality Rules Scheduled for February 26 Vote

By Christopher W. Savage, Michael C. Sloan, and Paul B. Hudson
02.05.15
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On February 4, 2015, the FCC issued a press release describing the Open Internet (or Net Neutrality) rules Chairman Wheeler will bring to a vote at the Commission’s February 26, 2015 meeting. The draft order is now being circulated, and we expect further details to emerge over the next few weeks. Here’s what we know now, based on the press release and an op-ed that Chairman Wheeler published in Wired Magazine.

Key Points:

  • Retail broadband Internet access service will be “reclassified” – from its present status as a largely unregulated “information service” into a regulated “telecommunications service,” subject to Title II of the Communications Act. The rules will apply to both “wired” providers such as cable and telephone companies as well as “Title III CMRS” providers such as Verizon Wireless, AT&T Wireless, Sprint and T-Mobile.
  • The key Title II provisions being imposed are the requirements (under §§ 201 and 202) that carrier terms and practices be just, reasonable and not unreasonably discriminatory. According to the press release, the new rules will expressly ban “blocking” content, “throttling” data rates, and “paid prioritization.” These “bright line” rules appear intended to ensure consumers receive adequate service and to prevent retail broadband providers from making special arrangements with content providers to give particular content preferred treatment on the retail broadband network.
  • Notwithstanding these “bright line” bans, the FCC says broadband providers may use “reasonable network management practices” in light of their need “to manage the technical and engineering aspects of their networks.” The press release emphasizes, however, that any permitted network management must be “used for and tailored to achieving a legitimate network management – and not commercial – purpose.”
  • In addition to the “bright line” rules, the proposed rules will also include a general “standard for future conduct” stating that “ISPs cannot harm consumers or edge providers.”
  • The new proposed rules will recognize that “some data services” – such as cable operator VoIP services – “do not go over the public Internet” and are therefore not part of the “broadband Internet access service” on which the new rules will focus. Broadband providers will continue to be able to offer these types of services (called “specialized services” in the FCC’s 2010 Open Internet ruling), subject to FCC oversight to ensure that they are not offered in a way that undermines the effectiveness of the new rules.
  • The rules will not regulate retail broadband prices, nor will they require retail broadband providers to file tariffs. (That is, the FCC will “forbear” from applying the provisions in Title II that authorize rate regulation and require tariffs.) The FCC said it will also not require retail broadband providers to “unbundle” their networks, i.e., make their high-capacity links to consumers available to competitors at regulated rates.
  • The FCC said that broadband Internet access providers will be subject to the FCC’s privacy/CPNI rules under § 222, although it remains to be seen how the FCC will expand these rules to apply beyond the traditional telephone service context for which they were designed.
  • Broadband Internet access providers will also be subject to the FCC’s requirements for disability access (§§ 225 and 255), and, in a win for Google’s fiber operations, to the extent that a broadband Internet access provider does not already have access to pole attachments and rights-of-way (e.g., ISPs that are also cable operators or telephone companies), ISPs will be entitled to such access under § 224. Finally, the FCC said the provisions of Title II governing enforcement and complaints (§§ 206-209, 216, and 217) will also apply.
  • According to the press release, the proposed rules will also apply to interconnection arrangements between retail ISPs and the “upstream” networks to which they connect in order to obtain content and communications from other parts of the Internet, and the FCC will be available to adjudicate disputes about those arrangements. The press release is obscure with regard to the rules that will apply to connections between an edge provider (such as a commercial web site) and the ISP providing that edge provider with connectivity to the Internet. It states that “wholesale” connections between content/edge providers will be classified as a telecommunications service only if a court finds that doing so is required. (With regard to interconnection, conspicuous by its absence is any mention of the obligation on all “telecommunications carriers” to interconnect their networks, directly or indirectly, under § 251(a), or, indeed, any mention of the local competition and interconnection provisions of §§ 251-252 at all.)
  • The FCC said that retail broadband access revenues will not immediately be subject to “universal service” assessments under § 254 (which are reset quarterly, and are presently set at 16.8% of covered revenue). This is likely intended to defeat claims that the new regime subjects broadband services to new “taxes.” However, with the FCC re-focusing its universal service program to subsidize the deployment of broadband facilities and services, over time there could well be considerable pressure to subject broadband revenues to these assessments as well.
  • Although the press release and Chairman Wheeler’s op-ed in Wired take pains to emphasize the limited nature of the regulation being proposed, the fact remains that with broadband Internet being classified as a telecommunications service subject to Title II, future Commissions would be able to consider imposing new regulations on broadband – for example, by revisiting the now-expected decision to forbear from rate regulation and unbundling obligations.
  • Finally, many things could change between now and the release of the full text of the Order, which might be available near the time of the vote, but which could be delayed until well after the Commission vote on February 26.

Legal/Regulatory Rationale For Treating Broadband Internet Access as Common Carriage
Since the early 2000s the FCC has treated retail broadband Internet access as an “information service” rather than a “telecommunications service.” This classification was based on the FCC’s understanding of the technical characteristics of Internet access, its understanding of what ISPs were “offering” to consumers (a key question under the relevant statutory definitions), and its expectations regarding how the market for broadband Internet access would develop. In the 2005 Brand X case, the Supreme Court held the FCC was permitted to use this approach. Justice Scalia and two other justices disagreed, arguing in dissent that the statutory definitions required treating broadband Internet access as a telecommunications service.

Although the press release did not provide any details, we expect the order to include as robust a discussion as the FCC can muster of the new facts and circumstances surrounding broadband Internet access that warrant rethinking its earlier ruling. The dissent in Brand X will likely provide guidance to the FCC on this point. Parties seeking to challenge the FCC’s decision to reclassify will focus on how effectively the FCC is able to explain what has changed since its original action, and on whether those changes warrant such a significant change in regulatory approach.

Section 706 & State Authority
The press release says that the “proposal finds further grounding in Section 706 of the Telecommunications Act of 1996.” Section 706 directs the FCC to take action if it finds that “advanced telecommunications capability,” which includes broadband Internet access, is not being deployed on a “reasonable and timely” basis. In the Verizon v. FCC decision last year, the D.C. Circuit struck down the FCC’s 2010 no-blocking and nondiscrimination rules, but broadly affirmed the power of the FCC to establish some rules governing broadband Internet access under Section 706. With reclassification, the FCC may not need Section 706 authority at all, but it presumably wants back-up defenses in the expected appeals of the order.

With regard to state authority, Section 706 empowers the FCC “and each State commission” to adopt “regulating methods that remove barriers to infrastructure investment … and encourage the deployment” of broadband. Some state Commissions may take the position that this grants them authority that is coextensive with the grant of authority to the FCC. That said, the Verizon case makes clear that the FCC is the preeminent interpreter of Section 706. The question will be the limits on state commission authority under Section 706 to take action independent of what the FCC does. The focus of Section 706 is encouraging the deployment of broadband facilities, and the Verizon court approved the FCC’s “virtuous circle” theory, under which regulation of retail broadband providers is expected to encourage consumers to demand more broadband, which will, in turn, motivate providers to deploy more facilities. Given this, a state seeking to take independent action in this area will likely look for ways to shoehorn its actions into this “virtuous circle” framework. It is not clear how the final order will specifically address the scope and rationale of preemption of state action.

Open Questions
Much remains up in the air. For example:

  • Will the FCC discuss how the new ruling affects disputes over IP-IP interconnection for the exchange of voice traffic?
  • Will the “just and reasonable” service requirement be extended beyond net neutrality to include other terms on which retail broadband Internet service is offered?
  • How will the “bright line” prohibitions affect quality-of-service arrangements hard-wired into some local networks and used by ISPs to provide their own services (such as DOCSIS VoIP services)?
  • How will the FCC apply its general rule that ISPs may not “harm consumers or edge providers”? Will it entertain individual complaints alleging that such “harm” has occurred?
  • How will the classification of broadband as a telecommunications service affect efforts by the FCC to price § 224 pole attachments for all entities at levels produced using the formula applicable to cable operators?

While some of these questions will likely be answered in the Order, others may not be settled for years.

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