D.C. Circuit Upholds FCC Deregulation of Broadband Service But Opens Door to Possible State Regulation

On October 1, 2019, a divided panel of the D.C. Circuit issued a lengthy per curiam decision that largely upheld the Federal Communications Commission's (FCC) Restoring Internet Freedom order, issued by the agency in early 2018. The FCC's order had deregulated wireline and wireless retail broadband Internet access service by classifying it as an "information service" under the Communications Act.

The 146-page decision was accompanied by separate concurrences authored by Judges Millett and Wilkins as well as a partial dissent by Judge Williams, which together consumed another 40 pages.

The panel upheld the reclassification but vacated the FCC's prohibition of state utility regulation of broadband service. While the court allowed the rest of the Restoring Internet Freedom order to remain in effect, it called out three areas where it found that the FCC's reasoning fell short:

• Pole attachment rights;
• Subsidized Lifeline service; and
• Public safety concerns.

The court remanded the matter to the FCC for further work on those issues. The court also stayed the issuance of the mandate, thereby delaying the decision's immediate effect, pending resolution of expected petitions for rehearing.

Upholding Reclassification

Despite its many pages, at its core the decision boils down to a straightforward application of Chevron deference. Under Chevron, courts uphold an agency's interpretation of its enabling statute as long as the interpretation:

• (a) Does not conflict with the statute's clear terms; and
• (b) Reflects a reasonable interpretation of ambiguous or unclear statutory language.

In the case of broadband service, the Supreme Court held in 2005 (in NCTA v. Brand X Internet Services, 545 U.S. 967 (2005)) that, given the ambiguous definitions in the Communications Act, broadband could be classified either as an information service or as a telecommunications service, and that the FCC had permissibly classified it as an information service.

Thereafter, in 2015 when – as part of its decade-long struggle to fashion legally viable "net-neutrality" rules – the FCC reclassified broadband as a telecommunications service, the D.C. Circuit, relying on Chevron, upheld that ruling. In the case at hand, again relying on Chevron, the court upheld the Restoring Internet Freedom order, which repudiated the 2015 ruling and treated broadband as an information service once again.

In each of the four areas where the court found fault with the FCC's reasoning, the fault lay in the agency's apparent failure to appreciate the full implications of its own reclassification decision.

Vacating Preemption of State Regulation

Even without express legislative preemption, agency regulations adopted pursuant to a delegation of authority from Congress still preempt contrary state laws or rules. The Restoring Internet Freedom order articulated a broad federal policy against significant regulation of broadband providers, and the FCC expressly held that it was preempting any state law that sought to re-impose the type of rules the FCC was repudiating.

The court rejected the FCC's effort at preemption, pointing to a fatal flaw in the FCC's approach: As the majority saw things, the fact that the FCC found that it had no authority to regulate broadband meant that it also had no authority to tell states that they cannot regulate it.

Any power to preempt, the court held, had to either be expressly granted by Congress, or be tied to the exercise of regulatory authority that Congress specifically gave the agency. By resting its entire ruling on the premise that broadband was not subject to FCC regulation, the agency – in effect, automatically – deprived itself of any authority to preempt states.

This reasoning drew a strong dissent from Judge Williams. As he saw it, the FCC was authorized by Congress (under Chevron and Brand X) to treat broadband as either regulated (Title II/telecommunications service) or unregulated (Title I/information service), and that interpretive authority gave the agency the power to impose its decision – here, a policy of deregulation – on the states as well.

Majority Rules Preemption to Be Decided on Case-By-Case Basis

The other two judges on the panel didn't buy that reasoning, pointing out that that very interpretive flexibility meant that the FCC could have continued to treat broadband as a telecommunications service, but then used its forbearance authority to deregulate and preempt. But by treating broadband as a type of service over which it had no regulatory authority, the court found that the FCC deprived itself of any broad preemptive power.

Moreover, the D.C. Circuit's decision may be argued by some to threaten existing preemption of state utility regulation of other information services. (The 8th Circuit previously preempted state utility regulation of Voice-over-IP services after finding that such services are information services; though the FCC also preempted most state regulation of interconnected VoIP service without actually classifying the service).

According to the majority, any potential preemption of state law will have to be decided on a case-by-case basis, looking at particular state enactments and considering whether they conflict with federal law – that is, preemption issues will have to be resolved under the rubric of "conflict preemption," which was discussed at argument and specifically referenced in the opinion.

Remanding for Further Consideration:

Pole Attachment Concerns
Pursuant to 47 U.S.C. § 224, cable operators and telecommunications carriers have a right to place their facilities on privately owned utility poles on regulated rates, terms and conditions for pole attachments that are just and reasonable. The rights of pure information service providers, however – such as Google Fiber and other broadband-only providers – are less clear.

Under the FCC's earlier ruling, treating broadband as a type of telecommunications service, all broadband providers had pole attachment rights. But under the Restoring Internet Freedom order, broadband-only providers were potentially left in limbo.

By contrast, providers who offer "commingled" services – broadband service in addition to telecommunications or cable services, using the same facilities – retain full pole attachment rights, as the FCC and the court both recognized. The FCC acknowledged concerns about broadband providers' pole attachment rights, warning pole owners not to deny access based on how broadband was classified.

The court, however, found the agency had not sufficiently explained what the reclassification meant for the pole attachment rights of stand-alone broadband providers. As the court put it, "Section 224's regulation of pole attachments simply does not speak to information services. Which means that Section 224 no longer speaks to broadband." The court said that the FCC was "whistl[ing] by the graveyard, implying without reasoned basis that Section 224 would continue to govern reclassified broadband."

Given the court's problem with the FCC's reasoning, the court remanded the pole issue with directions that the Commission "confront the problem in a reasoned manner." It bears emphasis that the court's concerns relate only to Section 224 in light of the reclassification of broadband. States that have exercised their authority to "reverse preempt" the FCC and regulate pole attachments themselves, under state law, remain free to extend protections to any class of service provider.

Lifeline Service

Under 47 U.S.C. §§ 214(e) and 254(e), the only entities that are entitled to receive universal service support are "eligible telecommunications carriers." Under the previous regime, with broadband classified as a telecommunications service, there was no problem with including broadband service within the list of supported Lifeline services.

But the Restoring Internet Freedom order held that broadband is not a telecommunications service, which, the court found, eliminates the eligibility of broadband services for Lifeline support.

The FCC argued that it had the authority to support broadband services as long as they were offered using a broadband-capable network that supported voice service. The court rejected that claim, saying bluntly, that it "does not work" – because under Section 254(e), support is limited to telecommunications carriers.

The implication of the court's ruling is that: (a) to the extent that an entity is providing broadband services, it cannot be treated as a carrier, and (b) under Section 254(e), Lifeline support is only available to carriers, so that (c) support cannot be provided to entities with respect to broadband service they provide, even if they are otherwise acting as carriers.

The FCC tried to duck this issue, arguing in the Restoring Internet Freedom order that it could address it in some future proceeding, but the court was not convinced:

"If, as the statute seems to clearly say, the Commission's reclassification of broadband as an information service precludes the agency from solving this problem in future proceedings, the possibility of future proceedings is irrelevant. … So we must remand this portion of the [Restoring Internet Freedom] Order for the Commission to address the issue now" (emphasis in original).

Public Safety Concerns

First responders from Santa Clara County, California, strongly objected to the FCC's deregulation of broadband service. Not only did emergency personnel use wireless broadband to communicate with each other and their central stations, they encouraged members of the public to share information about ongoing emergencies via wireless broadband.

The group asked the FCC to forbid wireless broadband providers from blocking or throttling service – because, in the emergency response context, blocking or throttling could lead to injury or death.

Even though "Administrative Law 101" requires an agency to address all substantial arguments presented to it – even if it rejects them – the Restoring Internet Freedom order failed to address the emergency responders' concerns. Efforts by agency counsel and supporting intervenors to plug this hole in briefing were unavailing, and the court remanded this issue for further consideration.

Next Steps

The court, on its own motion, stayed issuance of its mandate (and thus delayed the effectiveness of its order) until the resolution of any petitions for rehearing or rehearing en banc. Such petitions for rehearing, and ultimately for certiorari, seem all but inevitable, given the enormous controversy surrounding the question of reclassification of broadband service.

Indeed, as Judges Millett and Wilkins suggest in their concurring opinions, the Supreme Court (or Congress) should resolve these issues. Indeed, parties opposing the FCC could seek review of the main ruling sustaining the Restoring Internet Freedom order, while the FCC could seek review of the rejection of its effort to preempt state regulation.

If the court's decision stands, national network operators could be subject to possibly inconsistent state regulation of broadband service depending on the outcome of further litigation addressing "conflict preemption."

The split nature of the decision, leaving neither side entirely satisfied, might – in more cooperative political times – inspire a legislative compromise as a solution. Major Internet service providers have in the past indicated a willingness to support legislation that would secure certain core network neutrality principles.

Even so, legislation on what has become a highly contentious issue may be even less likely than usual as we enter an election season. At a minimum, it is highly likely that one or more interested parties will seek further review in the D.C. Circuit and ultimately the Supreme Court.

Update: Multiple petitions for panel and en banc rehearing were filed, all of which were denied by the D.C. Circuit on February 6, 2020. Unless extended, any petition for certiorari would be due May 6, 2020. In addition, following issuance of the mandate by the D.C. Circuit on February 18, the FCC announced it was soliciting comments to refresh the record on the three issues remanded by the D.C. Circuit to the FCC for reconsideration: Public Safety, Pole Attachments and Lifeline Service. Comments are currently due March 30, with Replies due April 29.