OBAMA’S ‘NEW DEAL’ - Multichannel

OBAMA’S ‘NEW DEAL’

President: Title II Should Be Ground Rules For Open Internet
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WASHINGTON — Federal Communications Commission chairman Tom Wheeler was heading to work to meet with stakeholder groups about new Internet-neutrality rules last Monday morning (Nov. 10), but before he could put his car in neutral, he was faced with pro- Title II protestors blocking his vehicle and chanting his name.

That was only the beginning.

Later that day, Wheeler received marching orders — or as close to them as independent agencies get — that regulatory authority under Title II of the Telecommunications Act was needed to prevent paid prioritization of online traffic and protect an open Internet. President Obama took to the Internet in a video outlining a Title II plan, saying his idea should be Wheeler’s as well.

The plan — to regulate broadband providers like electric utilities — was not exactly a surprise. The White House had advised the chairman the week before that the Monday bombshell was coming, according to an FCC source.

Wheeler had been expected to push for new network-neutrality rules by a Dec. 11 meeting, but a source at the FCC said some issues with the Title II side of the hybrid approach — how to apply them to mobile broadband service and whether rules would actually ban paid prioritization — were already pushing that expected timetable.

By early last week, it looked like the commission was not going to take any action on network neutrality before early 2015 at the soonest — FCC counsel for external affairs Gigi Sohn, a top Wheeler aide, has signaled as much — and that a Republican- controlled Congress was likely to be hammering Wheeler during that process, and that Title II was gaining even more traction, much to the chagrin of Internetservice providers.

The longer time frame will give cable and telco lobbyists more time to make the case against Title II, but now the president’s thumb is squarely on the other side of the scale.

The FCC is an independent agency, a fact acknowledged by the president and noted by Wheeler in response to Obama’s remarks. But Wheeler was technology adviser to Obama’s transition team and shares the president’s opposition to paid priority.

TIPPING THE SCALES For now, Wheeler has put the Title II card on the table and could very well play it, perhaps in combination with authority under Section 706 of the Telecommunications Act in a new hybrid approach along the lines of one proposed by Mozilla, producer of the Firefox Web browser.

Wheeler said he would take the president’s plan under advisement and make it part of the record. But he also said he agreed with its basic themes and would need time to figure out the best way to accomplish its goals via regulation. And FCC Democrats now know that a vote for anything without Title II attached to it is essentially a vote against the president.

“I can’t imagine that either commissioner [Jessica] Rosenworcel or [Mignon] Clyburn will be willing to vote for anything less than Title II,” one open Internet activist who asked not to be identified said. “If they have to choose between the president and Tom Wheeler, they will choose the president.”

There were reports that Wheeler had told stakeholders last week he was not exactly in line with Obama, but Sohn indicated those reports took the chairman’s words out of context and that was not a safe bet.

ISPs were already facing an uphill battle to prevent the FCC from applying some hybrid form of Title II to Internet-access service in the new network-neutrality rules.

Now, the hybrid proposal in which the very invocation of the name Title II drew vociferous responses from ISPs is looking more like the compromise position.

“With the president to the left of the chairman on the issue and Silicon Valley screaming for no paid priority, Title II hybrid may be the new middle ground, though not middle enough for either side,” a veteran Washington, D.C., attorney said.

Cable and telco ISPs immediately pushed back on Title II, saying the Internet could be protected without it. They also started pushing Congress to get into the act to stop any momentum. The Republican Congress arriving in January is no advocate of networkneutrality rules of any stripe, and certainly not of Title II.

Telco and cable-industry players are pushing back via white papers, seminars and studies arguing that any approach that incorporates Title II would lead to litigation — and even a potential new Internet tax, according to the National Cable & Telecommunications Association. The NCTA, the main cable-industry trade group, blogged about having to contribute to the Universal Service Fund, a cost which would be passed on to customers, potentially adding as much as another $7.25 a month to cable bills.

The NCTA has been sufficiently worried about Title II to launch a social media campaign. Initially a stealth effort, the “Onward, Internet!” campaign suggests the Internet had been doing just fine without heavyhanded regulation.

Full-Court Press

How did Title II grow from a veiled threat to an unsheathed sword? It was the pressure from millions of net-neutrality activists who flooded the FCC, according to Timothy Karr, senior director of strategy at Free Press, a Washington, D.C.-based advocacy group that favors such regulations. “It’s taken nearly 10 years of hard-working advocacy and organizing to get Washington to understand that Title II reclassification is the best and most legally sound way forward for net neutrality,” he said.

One attorney in the fight agrees. The public is more aware of the net neutrality fight, the attorney argued, and better organized by Silicon Valley, than four years ago. For instance, he noted the “a dingo ate my nondiscriminatory access” segment on HBO’s popular satirical series Last Week Tonight With John Oliver, slamming Wheeler and ISPs; it aired June 1 and subsequently generated 6.7 million YouTube views.

The recent maneuvers may now allow the new Republican-controlled Congress to hold hearings and propose legislation — a telecom law rewrite is teed up for next year in the House Energy & Commerce Committee, and will likely get a more welcoming reception in the Senate.

But even a hybrid proposal may get hung up on the words “paid priority”; the phrase has become the line in the sand of activists and others in Silicon Valley, not to mention the president of the United States.

“I cannot recall that a president has ever before made a public statement about a pending FCC rulemaking,” veteran public interest lawyer Andrew Schwartzman said. “This means the president is committed to network neutrality, so that he will feel impelled to veto any legislation or appropriations rider relating to net neutrality.”

Hybrid Concerns The hot-button issues for all stakeholders are paid priority and interconnection. ISPs were clearly concerned, and with reason, about a hybrid model that would use the FCC’s regulatory authority under both Section 706 and Title II.

In recent days, many ISPs have begun arguing more strongly that they have no plans to do paid priority and that the FCC doesn’t need Title II to prevent anticompetitive prioritization. Comcast executive vice president David Cohen blogged that Comcast agreed with the president that paid priority should be disallowed, but not by using Title II to do it. And opponents are hammering on the horrors that will ensue if Title II rears its ugly head, including a loss of innovation and investment in a now-flourishing industry.

Even without the president’s thumb on the scale, Wheeler was taking pains to make clear Title II was in play. Was Wheeler raising the specter of Title II — after proposing rules without it — to appease the pro netneutrality base that took aim at his initial proposal?

Perhaps. But Wheeler is likely looking toward his legacy, not his next job.

Crafting a Compromise

The FCC network-neutrality rules crafted four years ago were themselves something of a political hybrid, the result of negotiations between the agency and major stakeholders. The compromise rules were essentially a shotgun wedding, with the invocation of Title II reclassification as the shotgun.

An FCC source indicated the agency has no plans for a similar compromise confab, though nothing is guaranteed. The chairman has pointed to the series of forums on various proposals the FCC held with stakeholders to illustrate the current effort’s even-handedness. And Wheeler had already scheduled meetings last week with stakeholders to talk about the rules.

The 2010 rules were justified under the FCC’s authority to promote broadband deployment under Section 706. But the U.S. Court of Appeals for the D.C. Circuit said the rules’ ban on unreasonable discrimination was too much like a Title II commoncarrier regulation.

Then-FCC chairman Genachowski ultimately kept the Title II card in his vest after stakeholders were able to support rules that did not employ common-carrier regulations.

Now, Obama appears to be trying to force the FCC’s hand and up the ante with pureplay Title II rules. The hybrid proposal is still on the table, an FCC source speaking on background said, but many questions remain to be worked out. One of the reasons Wheeler is looking at the hybrid model, the source said, is that it isn’t clear whether Title II can cover mobile — which Wheeler may want to bring under the regulatory tent when it comes to discrimination — and that it does not does ban paid priority outright.

With wireless broadband the focus of FCC and Obama administration affections — as well as auctions looking to free up hundreds of Megahertz worth of spectrum and bring in billions of dollars, such as last week’s AWS-3 auction — the agency is being pressured to apply more Internet-neutrality rules to that sector. The last time wireless broadband became a regulatory issue, it dodged the antidiscrimination rule due to its different network-management challenges. Cellular carriers may not be so lucky this time around.

Cable and telco operators remain highly critical of Title II, straight up or with a Section 706 chaser. AT&T chairman and CEO Randall Stephenson spoke to Wheeler earlier this month, telling him that Section 706 is enough to prohibit paid prioritization and that Title II could do a number on Wheeler’s top priority: extending high-speed broadband service. Stephenson echoed that warning to analysts in New York last week.

But Wheeler, an avid student of history, has likened this moment in broadband regulatory history to seminal moments in the regulatory histories of other must-have technologies, like electricity and the railroads.

Wheeler has signaled his belief that broadband is at a seminal moment in terms of its relationship with government. He has made it clear that as so-called “terminating monopolies,” ISPs have the power and incentive to limit competition and access, and that government needs to step in to prevent that from happening. He declined to be interviewed for this story.

Craig Moffett, MoffettNathanson research partner and senior analyst, said he doesn’t think the Title II hybrid is the end of the world for ISPs or investors. He has predicted there would have to be some “grand bargain” that could be included as a template in the pending approval of the merger of top MSOs Comcast and Time Warner Cable.

And rather than seeing it as a “nuclear option,” Moffett suggested the market would welcome an approach that excludes Title II from the consumer side of the market and only applies it to wholesale interconnections.

“It neatly sidesteps the worst case scenarios, and while interconnection regulation is certainly not good news for operators, neither is it a calamity (we don’t know of anyone who had significant interconnection revenue in their models),” Moffett wrote in a blog post.

Working in Wireless Moffett said he expects that wireless will be included in the “grand bargain” regulations if they fly, and a no-paid-prioritization condition on Comcast-TWC, essentially a hedge against something happening to the rules again.

One key may be how Congress reacts, Moffett said. Lawmakers haven’t offered much response to Wheeler’s Title II trial baloon. That’s not surprising, since most legislators were focused on getting re-elected.

Lending credence to Moffett’s argument that ISPs may be able to live with the hybrid option is how much Title II advocates don’t like it. “This Frankenstein proposal is no treat for Internet users, and they shouldn’t be tricked,” said Craig Aaron, president of.

What’s So Bad About Title II?

Why do Internet-service providers and their allies in the network-neutrality debate argue that imposing Title II classification on broadband is a disastrous, tectonic shift that could threaten the Internet rather than save it? Here are some reasons:

(1) Forbearance, forshmearance. Title II fans argue that the FCC can fairly easily forbear (decide not to apply) most of the telephone-era regulations that could mean tariffs and rate regulation and control of market entry and exit. Critics, including Center for Boundless Innovation in Technology chairman Fred Campbell, a former FCC bureau chief, say not so fast: “Given that, one, the FCC’s standard for forbearance is competition; two, FCC precedent says competition isn’t possible with respect to terminating monopolies, and three, the FCC’s justification for net neutrality is that ISPs are terminating monopolies with respect to content providers, forbearance from price regulation after reclassification would appear to be more difficult than ‘easy peasy.’”

(2) Wall Street does not like uncertainty, and plenty of legal uncertainty would emerge if Title II is adopted. AT&T said it will sue, and it is likely not alone. By contrast, only Verizon sued last time around. Suddenlink argued forbearance will bring “all-consuming, overwhelming and costly litigation and uncertainty.”

(3) Do as we say. Imposing Title II common-carrier regulations would compromise the credibility of U.S. arguments against other countries’ regulation of the Internet, a point made by former FCC member Robert McDowell.

(4) Title II could make it harder to do a pro-consumer priority like VoIP, the Information Technology & Innovation Foundation pointed out, while many note that Title II might not ban the paid priority its fans are worried about, a point the FCC is wrestling with.

(5) The FCC may not be able to apply Title II to mobile broadband. Wheeler has signaled it might be time to expand net-neutrality rules to mobile wireless, given its growth. The FCC had decided not to apply antidiscrimination rules to wireless, but said it would monitor the marketplace and could change its mind.

(6) It would discourage investment, the very investment the FCC is trying to encourage to achieve its Section 706 goal of deploying broadband.

(7) Under Title II, the FCC would likely have to start regulating beyond ISPs to currently unregulated Internet entities, such as content-delivery networks (like Netflix) or even search engines (like Google).

(8) It’s consumer-unfriendly. In fear of running afoul of the rules, providers are discouraged from differentiating their services in ways that might benefit consumers.

Source: Multichannel News research, with assists from Center for Boundless Innovation in Technology director Fred Campbell, Precursor LLC president Scott Cleland and Free State Foundation president Randolph May.

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