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Title II Settles In as Law of the Land

Court ruling gives FCC free rein to regulate ISPs under more-restrictive regime 6/20/2016 8:00 AM Eastern
TakeAway

A U.S. appeals court has handed the FCC a complete victory in an ISP lawsuit challenging its Open Internet order, meaning ISPs now face common-carrier regulations.

WASHINGTON — The Federal Communications Commission gets to define Internetservice providers — whether wired or wireless — as common-carrier services, and can continue to regulate them accordingly.

 

So said the majority of a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit, providing a boost to edge providers and confirming ISPs as the potential threat to the vaunted virtuous circle.

 

Most court watchers were expecting a partial FCC defeat, thinking the court would perhaps have issues with applying Open Internet regulations to interconnections or, for the first time, to mobile broadband.

 

Nope.

 

The 2-1 decision (released June 14) on ISP challenges to the FCC’s 2015 Open Internet Order included a partial dissent from the senior judge but was a slam-dunk win, if not the end of the legal trail, for FCC chairman Tom Wheeler, the Obama Administration, buoyant Democrats and gleeful network-neutrality advocates.

 

APPEALS ARGUMENTS DENIED

 

“Three separate groups of petitioners, consisting primarily of broadband providers and their associations, challenge the order, arguing that the commission lacks statutory authority to reclassify broadband as a telecommunications service; that even if the commission has such authority, its decision was arbitrary and capricious; that the commission impermissibly classified mobile broadband as a commercial mobile service; that the commission impermissibly forbore from certain provisions of Title II; and that some of the rules violate the First Amendment,” the court said in denying all of those challenges.

 

On the key issue of reclassification under Title II, the FCC’s conclusion that consumers perceive broadband service as both a standalone offering and as a telecommunications service has “extensive support in the record,” the court said, and “[justifies] the FCC’s decision to reclassify broadband as a telecommunications service.”

 

Scott Cleland, chairman of the ISP-backed NetCompetition, said the court’s complete deference to the FCC’s rationale could be problematic: “This Appeals Court decision is a two-edged sword. What three FCC commissioner votes have created in the Open Internet Order, three future different FCC commissioner votes could destroy under the total FCC deference this court decision confers on an FCC majority in the future.” (See Access.)

 

ISP executives were left scratching their heads, strongly criticizing the outcome and planning their next legal moves.

 

Some have already said the decision will be appealed to the full appeals court or to the U.S. Supreme Court.

 

“We have always expected this issue to be decided by the Supreme Court, and we look forward to participating in that appeal,” AT&T said almost immediately after the decision.

 

The American Cable Association, representing small-to-midsized independent cable operators, also signaled it would likely appeal: “ACA expects to seek review of the decision.” The judges made clear they were not ruling on whether the FCC had made the right policy choice with Title II — only that the agency had the authority and had sufficiently justified its use.

 

WHAT COMES NEXT

 

The decision will be appealed first to the full court (en banc). If past is prologue, the decision is unlikely to be reversed. The order would then be appealed to the U.S. Supreme Court.

 

If the High Court takes that challenge, resolution of the legal issues would move into 2017 and beyond.

 

There is no split between different circuit jurisdictions, but the issue — how the government regulates access to the Internet — is clearly of major importance.

 

Tech Freedom, which intervened on behalf of some of the challengers to the Open Internet order, said if the Supreme Court stays at eight justices, any decision would likely be four-to-four, which would leave the lower-court decision in place.

 

In addition, in the Brand X decision that upheld the FCC’s prior classification of Internet access as an information service, the Supreme Court deferred to the agency’s regulatory expertise. Doing the same thing in this case would be upholding the Title II call.

 

Professor Christopher Yoo of the University of Pennsylvania, who filed a brief in support of ISPs, said he thought Supreme Court review was unlikely.

 

Tech Freedom sees a better chance with the en banc appeal, suggesting the way the full nine-judge panel breaks out that would mean only needing to sway one of the judges appointed by Democrats.

 

Meanwhile, congressional Republicans will likely try to introduce legislation to “clarify” that ISPs are not common carriers. That tack is unlikely to go very far, Sanford Bernstein analyst Craig Moffett said last week. “Expect the saber rattling to begin almost immediately,” he said.

 

Moffett does not see anything happening in an election year, particularly given that President Obama would veto any bill that tried to undo the FCC’s rules given how publicly and strongly he supported Title II.

 

House Republicans have tried to block enforcement of the rules until the legal challenges are exhausted by adding a rider to an appropriations bill — probably also doomed to fail.

 

What the decision means for now, and likely for good, is that the FCC can continue to push a host of proposals that were tied to or implicated by the reclassification. (See box.)

 

The FCC will also get to monitor interconnection agreements and step in if concluding they are anti-competitive impediments to the virtuous circle of content flowing from the edge to Internet customers.

 

ISPs have said they could live with the bright-line rules against blocking and throttling content or anti-competitive paid prioritization. They fear the general conduct standard gives the FCC too much room to roam into their business models, discouraging innovation and investment.

 

Flashpoints

With the D.C. Circuit upholding all of the FCC’s new Open Internet rules, the agency can proceed apace on a number of items that were tied to the new Title II authority. They include:

 

New broadband CPNI (customer proprietary network information) rules: The FCC gained authority over broadband privacy, from the Federal Trade Commission, via Title II reclassification.

 

Zero-rating plans and usage-based pricing: The FCC has been reviewing those practices under the Open Internet order’s general conduct standard. The agency could move to restrict them if it concludes they are generally anticompetitive, as was done specifically in the context of the Charter-Time Warner Cable merger.

 

Universal Service Fund contribution reform: A decision on how to do that has been on hold until the court ruled whether ISPs were in fact telecoms, who could be required to contribute to the fund which now that the FCC is migrating the subsidy to broadband, as phone companies have been required to do.

 

Specialized services: The FCC has avoided making any statement about application-specific services supporting VoIP or video services that don’t run over the public Internet, University of Pennsylvania law professor Christopher Yoo pointed out, though it has suggested that attempts to use them to bypass the Open Internet order could run into trouble.

 

Special access (now rebranded “business data services”): The FCC is reforming how it regulates a business’s access to broadband service: to credit-card readers, for example.

 

Data roaming and its impact on access to wireless broadband: The FCC promised to open a proceeding on that issue in the 2015 order, the Competitive Carriers Association reminded the FCC last week.

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