Court Upholds FCC's Net-Neutrality Rules

Appeals panel lets Open Internet order stand on all counts; AT&T signals Supreme Court challenge

WASHINGTON — In a big and sweeping victory for the Federal Communications Commission, agency chairman Tom Wheeler and the Obama Administration, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit has let stand the agency's new Open Internet order.

That includes the definition of Internet-service providers as common carriers under Title II of the Communications Act; the application of the rules to mobile broadband providers; and the finding that the FCC’s order was neither unconstitutional nor violated procedural safeguards.

“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,” said the court, adding that it was denying all those challenges.

The court pointed out that its review was limited to ensuring that the FCC had not abused its discretion or acted arbitrarily, not as to whether the FCC's policy choice was a wise one. Rendering the decision were Judges David Tatel (who was on the panel that rejected the previous net-neutrality rules) and Sri Srinivasan, and Senior Judge Stephen Williams.

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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 providing a telecommunications service have "have extensive support in the record," said the court, and "justify the FCC's decision to reclassify broadband as a telecommunications service."

ISPs had argued that the FCC had not sufficiently justified its switch to a Title II approach, but the court said the FCC's explanation--that after the same court held the commission could not impose bright-line regs without defining ISPs as common carriers--was "a perfectly good reason" for the FCC to change its position on the classification.

The court rejected both arguments--procedural and substantive--against the FCC's decision to regulate interconnection agreements under Title II. The court found the FCC had provided sufficient notice that it was considering applying the new rules to interconnection when it asked in the Notice of Proposed Rulemaking whether it should do so, even though it tentatively concluded it should not.

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On the substantive question of whether the FCC had signaled it could treat interconnections as title II based on the assertion the agreements between companeis were a component of the telecom offering to end users, the court said the FCC had also fulfilled that requriement when it asked whether it should do so.

"By focusing on the threat that broadband providers might block edge provider access to end users at an earlier point in the transmission pathway, the NPRM allowed interested parties to comment meaningfully on the possibility that  the Commission would consider interconnection arrangements to be part of the offering of telecommunications to end users," said the court.

As to applying the rules to mobile, the point on which many thought the FCC might get a partial smackdown from the court, the court instead concluded that "the Commission permissibly found that mobile broadband—like all broadband—is a telecommunications  service  subject to common carrier regulation under Title II of the Communications Act.

MoffettNathanson analyst Craig Moffett was surprised by the extent of the FCC's victory.

'[T]he FCC won in a clean sweep, with the panel of judges upholding the FCC in both the broad strokes and all of the important particulars," he said. "The panel denied petitioner challenges to a ban on paid prioritization and to the FCC’s general conduct rule, and they even denied challenges raised by pro-Net Neutrality petitioners to the FCC’s authority to forbear specific statutes. No one could have expected an FCC victory as thorough as this one."

In his partial dissent, Judge Williams said he agreed with much of the majority reasoning, but said he would have vacated the FCC's order for three reasons: (1) He said justifying the Title II swtich lacked "reasoned decisiomaking; (2) the rules are not justified by the statutes the FCC cites for authority; and (3) its decision to forbear a wide array of Title II provisions is "based on premises inconsistent with its reclassification of broadband."

Asked if it would appeal the decision to the Supreme Court, a spokesperson for the National Cable & Telecommunications Association, which joined in the ISP challenge to the rules, said "we need to review before making decisions about next steps."

But AT&T, which had also challenged the rules, signaled it was definitely headed to the High Court.

“We have always expected this issue to be decided by the Supreme Court, and we look forward to participating in that appeal," said David McAtee, AT&T senior EVP and general counsel.

“Today’s ruling is a victory for consumers and innovators who deserve unfettered access to the entire web, and it ensures the internet remains a platform for unparalleled innovation, free expression and economic growth,” FCC chairman Tom Wheeler. “After a decade of debate and legal battles, today’s ruling affirms the Commission’s ability to enforce the strongest possible internet protections — both on fixed and mobile networks — that will ensure the Internet remains open, now and in the future.”

Public Knowledge, a Washington, D.C.-based advocacy group and major supporter of Title II reclassification, said: “Today, the Court of Appeals has affirmed the FCC's authority to protect consumers and innovation on the Internet. This decision should lay to rest what has become a needlessly contentious issue. Now consumers will be assured the right to full access to the internet without interference from gatekeepers. We hope that rather than refight old battles, Congress and the industry will turn toward the problem of ensuring that all Americans have access to broadband that is ‘fast, fair and open.’ ”

The rules, which went into effect June 12, prevent ISPs from blocking or throttling content, from engaging in anti-competitive paid prioritization, and allows the FCC to regulate interconnection agreements if they impede the virtuous circle of content flowing from edge providers to consumers.

The rules also include a general-conduct standard that allowed the FCC to regulate other practices on a case-by-case basis if it concludes that they impede the open Internet.

The rules also require ISPs to offer enhanced transparency about their network practices — except for smaller providers, which received a waiver — and for the first time apply rules, beyond transparency, to mobile broadband providers.

Various ISPs and others challenged the FCC's decision to reclassify ISPs as telecoms subject to common-carrier regulations, a move pushed by the White House. Oral argument in the case was held Dec. 4.

Both Democrats and Republicans in Congress have been talking about legislation that would clarify the FCC’s regulatory authority over the Internet, but aides on Capitol Hill have signaled that passing such a bill would be a tall order. This decision could spur that effort, though as with legislation on the related issue of broadband rate regulation, general agreement on the need for action doesn’t translate to legislation on the president’s desk.

The three-judge panel’s decision can be appealed to the full court or to the Supreme Court.

This was the FCC’s second attempt to come up with network-neutrality rules. The agency initially came up with network neutrality principles in a Broadband Policy Statement issued under then-FCC chairman Michael Powell, which the same D.C. Circuit found unenforceable.

In 2010, the FCC came up with its first enforceable rules, only the D.C. court found those weren't enforceable either because the FCC had treated ISPs like common carriers when they were not classified as such.

Cable operators had been at the table for the 2010 compromise rules and did not challenge them, but telco Verizon Communications did, essentially forcing the FCC's hand. Cable operator Comcast arguably first set the ball in motion by challenging the principles in 2008, after the FCC ruled that the MSO had interfered with peer-to-peer file-sharing applications.

Initially, Wheeler had proposed trying to justify his new take on Open Internet regulations without reclassifying ISPs as common carriers under Title II of the Communications Act.

The court had had problems with the 2010 rules, saying ISPs would need to be Title II telecoms for the FCC to have imposed outright bans. So, Wheeler proposed framing the rules as allowing the conduct unless it was anticompetitive.

But, with an assist, and some would argue direction, from the White House — plus some high-profile attention from John Oliver on HBO’s Last Week Tonight, as well as pressure from net neutrality groups, Wheeler changed gears and proposed the Title II reclassification.

The reason cable operators had come to the table in 2010, rather than challenged the compromise rules after they were adopted, was that they were better than the “nuclear option” of Title II reclassification. So, this time around with the shift to Title II, ISPs raced each other to court to challenge them.