FCC

Shouldering the ‘Undo’ Burden

New FCC chairman Ajit Pai starts reshaping the regulatory landscape 2/13/2017 8:00 AM Eastern

WASHINGTON — New chairman Ajit Pai has a lot on his to-undo list as he takes the reins of the Federal Communications Commission, and he has already started to whack back at what he signaled were last-minute efforts by the previous administration to make some political hay while the sun was still shining.

Internet-service providers, after years of being slammed as the broadband bottleneck in need of government regulation to force them to build out their high-speed networks — and prevent them from using that bottleneck power to nip the burgeoning Web in the bud — now have a booster in the FCC’s big chair.

Pai, a deregulatory-minded Republican commissioner since 2012, has spent almost five years heading up the loyal opposition to then-chairman Tom Wheeler’s regulatory agenda, from a Title II-based Open Internet order to a set-top box remake to the broadband privacy framework.

The clock ran out on set-tops and Pai officially drove a nail into Wheeler’s proposal, taking it out of circulation, where his predecessor had left it.

He also pulled a business broadband regulatory revamp proposal that would have allowed for new rate regulations on cable broadband and other competitors to large telco incumbents.

After the Media Bureau in late December signaled that the zero-rating plans offered by AT&T and Verizon Wireless appeared to be anticompetitive violations of the Open Internet order, Pai fired back: “Any unilateral action taken by the Wireless Telecommunications Bureau at the chairman’s direction in the next 49 days can quickly be undone by that same bureau after Jan. 20, 2017.”

That undo came two weeks ago when the Wireless Bureau rescinded the report and essentially told ISPs to forget about it.

“Going forward, the Federal Communications Commission will not focus on denying Americans free data. Instead, we will concentrate on expanding broadband deployment and encouraging innovative service offerings,” Pai said, drawing cheers from ISPs and jeers from public-interest groups and some Democrats in Congress.

The chairman’s new acting Media Bureau chief also quickly reversed a December decision on noncommercial TV-station reporting requirements, which Pai had disagreed with and thought should have been handled by commissioners. Now it will be.

MFN AND ADM, OH MY

Among the major regulatory overhangs from the last administration, net neutrality and the associated broadband privacy decisions are the biggest. There’s also the question of what to do about the FCC’s proposal to limit most favored nation (MFN) and alternate delivery method (ADM) clauses in programming contracts.

Cable operators are divided over the issue, but Pai is unlikely to push that notice of proposed rulemaking onto the agenda as an order in its present form, though cable critic Sen. Claire McCaskill (D-Mo.) last week was pushing him to do so. He dissented from the proposal in September, calling it an attempt by the FCC to exact regulatory tribute. He said it gave the commission “carte blanche to regulate programming contracts,” something he saw no evidence that Congress intended.

Few doubt Pai’s desire to take a weed whacker to unnecessary regulations. Pai did not break it out on day one, though, instead focusing his first stakeholder meetings and his address to FCC staffers on closing the digital divide. Chairman Tom Wheeler focused on that as well, by using the FCC’s authority under Section 706 of the Telecommunications Act of 1996 (to ensure deployment of advanced telecommunications in a reasonable and timely manner to all Americans), a tool to regulate ISPs as the “gatekeepers” to the home.

The new chairman has been highly critical of that interpretation of FCC authority. He talked about the FCC under a Republican administration at a Free State Foundation event following President Donald Trump’s election.

“I’m optimistic that the FCC will once again respect the limits that Congress has placed on our authority,” Pai said at the FSF event. “We can’t simply enact whatever we think is good public policy. We also have to make sure that we have the power to do so. But the commission hasn’t done a very good job of that recently.”

Pai has also been critical of FCC reports that either fail to draw conclusions — or draw ones that strike Pai and many in the industry as politically motivated. Under Democratic FCC chairs, he FCC’s report on competition has not drawn any conclusions about the competitiveness of the marketplace.

The so-called 706 report on the state of advanced telecommunications deployment has repeatedly concluded that such services were not being deployed in a reasonable and timely fashion because deployment was not universal, which was then used to justify further regulation.

Pai has nixed the draft of the latest 706 report, drawn up under his predecessor, a spokesman for the chairman confirmed, though he added of that and other items pulled from circulation: “All items removed will be reviewed and could be recirculated with modifications.”

“The goalposts kept moving, so that the commission somehow could avoid finding broadband deployment reasonable,” Randolph May, executive director of think tank the Free State Foundation and himself a former FCC official, said. “I suspect that under chairman Pai, the Section 706 reports will be grounded in marketplace realities rather than in preconceived notions.

Added Scott Cleland of NetCompetition, an ISP-backed group: “An important undo is stopping the FCC from serially ducking its responsibility as an expert agency to report to Congress what the FCC’s expert conclusions are on the state of wireless and video competition. What good is a so-called ‘expert’ agency if it won’t or can’t make necessary, customary and expected, expert conclusions?”

Pai will have encouragement, and help, from Capitol Hill. House GOP leaders pushed him to close the docket on the set-top proposal and have been trying to undo regulation of the Internet as a telecom service under Title II of the Communications Act legislatively, though Sen. John Thune (R-S.D) said recently that they “are not there yet.”

‘I’M HERE’

The new chairman essentially had to announce his own appointment to the new position as the Trump administration was “drinking from the firehose,” as one lobbyist put it, in dealing with the enormity of staffing a new administration.

He moved quickly to demonstrate a political canniness that should serve him well.

While various network neutrality groups were slamming Pai with headlines like “worst-case scenario” and warnings that he will be a net neutrality “killer” — Demand Progress called the pick awful and used it to solicit money from supporters for a new network-neutrality campaign — Pai was talking about an issue everyone could agree on: Getting broadband to all Americans, particularly in rural areas such as his native Kansas.

Rather than doubling down on his promises to revisit Title II regulation of broadband and telecom and TV providers’ zero-rating plans and broadband privacy, all of which he has signaled are in his sights, he accentuated the positive. He said closing the digital divide was a priority — as it was for Wheeler — and backed that up with meetings on the issue with stakeholders. He also launched some process reforms and test reforms aimed at making the agency rulemaking process more transparent.

But it didn’t take long for the forest of Wheeler-era decisions to start falling, including access to political advertising files, the zero-rating report and even a not-so-11th-hour March 2014 advisory on how the FCC would handle joint sales agreements.

Adonis Hoffman, chairman of Business in the Public Interest and former chief of staff to the current lone FCC Democrat, Mignon Clyburn, sees Pai’s approach as more than political savvy. “Those who paint a one-dimensional picture of chairman Pai will miss the mark,” Hoffman said. “With his first words addressing the digital divide, Pai signaled a broader agenda than expected. His record speaks to this trend — AM revitalization; encouraging private-sector initiatives to increase minority ownership; standing up for small businesses; and protecting the rights of independent music artists, which has earned him props from the rappers. Of course, that also comes with a healthy dose of less-is-better regulation on most business issues.”

While he has a 2-1 Republican majority, the aforementioned Democrat Mignon Clyburn still has some power to at least hold up commission-level votes intended to undo the Democratic agenda she generally supported — that is, until the FCC is at full strength. It takes three votes for an item on circulation to put the other commissioners on the clock to vote on it, or see it eventually approved without their vote. Until the commission is at five members, the two-person majority can only approve items at a public meeting.

One example: Pai quickly circulated, and fellow Republican Michael O’Reilly voted to support, extending the waiver that lets smaller cable operators avoid the Open Internet order’s enhanced transparency reporting requirements. But it would have taken Clyburn’s vote, which she had yet to cast, to make it official since it did not have three votes. Pai has now placed the item on the public meeting agenda — but even then, if Clyburn chooses not to show up for the meeting, Republicans would be stymied again, because such meetings require a quorum.

Pai’s flurry of actions to undo progress reports and decisions were all at the bureau level, under delegated authority, so no public votes were needed.

Clyburn was not pleased, branding the actions illegal. “It is a basic principle of administrative procedure that actions must be accompanied by reasons for that action, else that action is unlawful,” she said, “yet that is exactly what multiple bureaus have done.”

It remains to be seen how assiduously President Trump respects the independence of the FCC. He appears not to be shy about expressing his wants and desires: witness his reported call to the National Park Service on his first day in office to talk about inauguration crowd estimates.

Pai has shown himself to be a fan of keeping plenty of separation between the FCC chairman and the White House, taking the Obama administration to task for the president’s public push for Title II and calling it the Obama plan.

If the new chairman succeeds in rolling back that reclassification, he will likely not mind having his name on whatever emerges.

SIDEBAR: The Life of Pai

Biographical facts about the FCC’s new chairman

• FCC chairman since Jan. 20, 2017; commissioner since May 7, 2012. Partner, Jenner & Block, 2011-2012
• FCC deputy general counsel, associate general counsel, and special adviser to the general counsel, 2007-2011
• Chief counsel to Sam Brownback (R-Kan.), chairman of the Senate Judiciary Committee Subcommittee on the Constitution, Civil Rights, and Property Rights, 2005-2007
• Senior counsel, Office of Legal Policy, U.S. Department of Justice, 2004-2005
• Deputy chief counsel to Sen. Jeff Sessions (R-Ala.), chairman of the Senate Judiciary Committee Subcommittee on Administrative Oversight and the Court, 2003-2004
• Associate general counsel, Verizon Communications; 2001-2003
• Trial attorney, Antitrust Division, Telecommunications Task Force, Department of Justice, 1998-2001
• Clerk, Judge Martin L.C. Feldman, U.S. District Court for the Eastern District of Louisiana. 1997-1998.
• Graduated with honors, Harvard University, 1994; University of Chicago Law School, 1997.

SIDEBAR: ‘Undo’ Influence

Here are just some of the Wheeler FCC bureau decisions that have been reversed or invalidated by chairman Ajit Pai’s new acting or permanent media bureaus. Most of them were issued during former chairman Tom Wheeler’s waning days at the agency, and Pai characterized most as “controversial orders and reports” objected to by the leadership of the FCC’s oversight committees (that would be Republicans) and two of the four commissioners (they would be the Republicans).

In these moves, Pai had cover from the chair of the House Energy and Commerce Committee, Rep. Greg Walden (R-Ore.), and the House Communications Subcommittee, Rep. Marsha Blackburn (R-Tenn.).

“We commend chairman Pai for yet another step toward much-needed reform at the FCC. For too long, the commission has used the ability to delegate authority to its bureaus as a way to bypass the hard work of coming to consensus on difficult issues,” Walden and Blackburn said following the mass rescissions.

• The Wireline Competition chief in December wrote Comcast a letter “inquiring” about its Stream TV service. Pai’s bureau chief told Comcast the inquiry, such as it was, is closed, and “any conclusions, preliminary or otherwise, expressed during the course of the inquiry will have no legal or other meaning or effect going forward.”

• The Media Bureau had admonished one TV station, an official black mark, and warned others about how they had (or in this case hadn’t) informed viewers about the sponsors of political ads. Forget about it, Pai’s acting bureau chief said. The guidance the FCC provided was rescinded.

• The same acting bureau chief rescinded March 12, 2014, guidance on how the FCC would treat joint sales agreements, guidance that broadcasters said was an effective prohibition on some of those agreements.

• In a report issued less than two weeks before his Jan. 20 exit, Wheeler’s Wireless Bureau had warned AT&T that its DirecTV Now sponsored data plan was probably a violation of net neutrality rules, and advised Verizon that its FreeBee service probably was, too. Pai’s acting bureau chief rescinded the order and Pai said he thought the plans were pro-consumer.

• On Jan. 18, the Wireline Bureau released a report on the E-rate schools and libraries subsidy. The report was withdrawn and “will have no legal or other effect or meaning going forward.”

• On Jan. 17, the FCC’s Office of Strategic Planning and Policy Analysis released a report, “Improving the Nation’s Digital Infrastructure.” Pai’s new management invalidated it, and “any and all guidance, determinations, recommendations, and conclusions contained therein.” It has no legal meaning.”

• The acting chief of the Wireline Bureau rescinded the approval of a handful of companies for Lifeline advance telecommunications subsidies so it could further consider a challenge to those designations (which had been granted in December and January), saying that it was to “promote program integrity by providing the Bureau with additional time to consider measures that might be necessary to prevent further waste, fraud, and abuse in the Lifeline program.”
— John Eggerton

The Big Two

The Federal Communiciations Commission under Ajit Pai and the Republican-controlled House and Senate appear to be on the same page when it comes to rolling back Democratic initiatives, at the FCC and elsewhere. Here is how they could divvy up the duties on some prime rollback real estate.

Network neutrality: The chairman could take a bite out of the Open Internet order immediately by not enforcing the general conduct standard and announcing that unlike the FCC Wireless Bureau, the current commission is not casting aspersions on zero-rating plans.

Pai has already signaled that the FCC would not be enforcing the Open Internet enhanced transparency rules against smaller cable operators, and separately has circulated a waiver renewal that will eventually take effect whether or not Democrat Mignon Clyburn votes the item.

Longer-term, he will need to build a legal case for reversing the reclassification of Internet-service providers under Title II since a court upheld the FCC process that led to that decision.

Congress could also step in to defund implementation or invalidate it using the Congressional Review Act, a weapon they have threatened to use liberally if necessary. Republicans are working on what they pitch as a bipartisan approach, but last week Democrats led by Senate Minority Leader Chuck Schumer (D-N.Y.) announced they were teaming with public advocacy groups to fight back against Republican efforts to roll back the rule.

Broadband Privacy Framework. Cable operators and others have asked the FCC to reconsider the decision — on a partisan vote, with Republicans dissenting — to implement a broadband privacy framework that differs from that imposed by the Federal Trade Commission on edge providers such as Netflix or Google. The Pai FCC could reverse that decision on reconsideration, Congress could reverse it with the Congressional Review Act or it could fall of its own weight if Pai tackles Title II classification, since that is how the FCC deeded itself authority over broadband privacy.

NCTA: The Internet & Television Association, the American Cable Association and other ISP groups have called on Congress to use the CRA to undo Wheeler’s proposal.

SIDEBAR: The Pai Principles

Here are FCC chairman Ajit Pai’s guiding regulatory — or, more appropriately, deregulatory — principles:

• Consumers benefit most from competition, not pre-emptive regulation. Free markets have delivered more value to American consumers than highly regulated ones.
• No regulatory system should indulge arbitrage; regulators should be skeptical of pleas to regulate rivals, dispense favors, or otherwise afford special treatment.
• Particularly given how rapidly the communications sector is changing, the FCC should do everything it can to ensure that its rules reflect the realities of the current marketplace and basic principles of economics.
• As a creature of Congress, the FCC must respect the law as set forth by the legislature.
• The FCC is at its best when it proceeds on the basis of consensus; good communications policy knows no partisan affiliation.

SOURCE : Federal Communications Commission

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