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Court Loss Resets Clock On Open-Internet Rules

WASHINGTON —The Federal Communications Commission’s network-neutrality rules were vacated by a U.S. appeals court last week, but they are likely to return under another legal guise, one cable operators, in self-defense, may even help craft.

It was a court victory cable operators did not overtly seek, and they were clearly concerned about the repercussions, depending on how the FCC approaches the U.S. Court of Appeals for the D.C. Circuit’s decision to vacate the nondiscrimination and anti-blocking provisions of the its December 2010 Open Internet order and remand them back to the commission.

The court said the FCC had not justifi ed making Internet- service providers adhere to common-carrier regulations imposed on phone companies, but gave the agency a chance to try again with the suggestion it had good reason for trying and legal avenues for succeeding.

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The FCC will now likely open a proceeding on how to recraft the rules. FCC chairman Tom Wheeler said last week he would take the court up on its invitation to do so.

The FCC could appeal the ruling to the full court, but that would delay action on coming up with replacement rules. The FCC could defer to Congress on the authority issue, but the court seemed to uphold plenty of authority, so long as the regulator cites and uses it properly.

Congressional Democrats will introduce legislation to clarify the FCC’s authority — Sen. Ed Markey (D-Mass.) has already signaled he will do so in the coming days — while Republicans will oppose such moves just as vigorously. That means don’t look for any actual legislation out of Congress as long as it remains divided, though there will be hearings and calls for FCC action from the Hill.

In fact, the issue already took up a sizeable chunk of last week’s House Communications Subcommittee hearing with former FCC chairmen, including the current National Cable & Telecommunications Association president, Michael Powell.

One senator is looking for Wheeler to check in with Congress before he tries to revamp the rules.

In written answers to Sen. John Thune (R-S.D.) following Wheeler’s confi rmation hearing last year, the chairman said “yes” when asked whether he would “come to Congress for more direction before attempting another iteration of network-neutrality rules,” if the order was “struck down” in the courts. Thune referred to that response last week in commenting on the decision.

But finessing answers in a nomination hearing is as much art as science.

Wheeler is not expected to wait for congressional approval before launching the review of the rules on remand, and may have some wiggle room in the “struck down” portion of the question, since the court did not vacate all of the rules. For one, it left intact the requirement that the FCC “publicly disclose accurate information regarding the network management practices, performance, and commercial terms of broadband Internet access services.” So whatever ISPs do, they must tell their customers what is happening.

Theoretically, cable operators and other ISPs could now block and discriminate against edge content, but will likely come to the table again — as they did with the compromise Open Internet Order the court just threw out — to avoid classifying broadband under Title II, which the court also said the FCC could do.

Clear concerns emerged about the decision opening the door to blocking and discrimination expressed by computer companies and other net-neutrality advocates who last week were clamoring for immediate FCC action to restore the rules, essentially by any means necessary. The court said broadband providers clearly have “powerful incentives to accept fees from edge providers, either in return for excluding their competitors or for granting them prioritized access to end users.”

While some analysts saw the potential downside if Netflix was coerced into paying extra to gain entry on a high-priority, broadband fast lane, others said fears that ISPs might discriminate against Netflix were grossly overblown.

Netflix, which eats up nearly a third of all downstream traffic on North American fixed broadband networks, could face from $75 million to $100 million in annual content delivery costs to cable companies if they discriminated, George Askew, an analyst at Stifel Nicolaus, estimated in a research note.

Others disagreed. Bernstein Research analyst Carlos Kirjner said that cable operators will be reluctant to throttle Netflix because it doesn’t justify the risks of the PR firestorm and the increased regulatory scrutiny that would likely follow.

An attorney for Verizon Communications during oral argument even suggested that “but for [the Open Internet Order] rules we would be exploring those commercial arrangements,” something the judges noted at the time and again in the decision.

But the FCC is likely to try to reinstate that antidiscrimination provision via its authority under section 706 of the Communications Act. And if not, such a regime would almost certainly bring down the Title II edge of the court opinion’s double-edged sword.

“I don’t think anyone will do anything that would legitimize that ‘nuclear option’ in the forseeable future,” a Washington-based cable government-affairs executive said on background, adding that he sees the no-blocking provision returning in pretty much the same form. The no-discrimination provision could get some more attempted finessing as part of that industry conversation with the FCC, he said.

“Death of network neutrality” headlines notwithstanding , the decision leaves the FCC broad authority to regulate broadband and the impetus to do it, given the Obama Administration’s focus on broadband.

What at first blush seemed a major smackdown of the FCC looked more like an invitation to come up with legal justification for rules to address potential anticompetitive threats for which the court said the FCC had made a good case.

HOLLOW WIN?

If it was a big victory for Verizon Communications — the only challenger of the rule —it was the best example of a Pyrrhic victory since Pyrrhus, former FCC chairman Reed Hundt said last week. He pointed out the court gave the FCC several ways to recraft the rules.

The court went to great lengths to say the FCC had justified its authority to regulate broadband access in the interests of insuring the legislative mandate that broadband was deployed to all Americans in a reasonable and timely fashion under Section 706 of the Communications Act. It said the FCC’s problem was in trying to impose common carrier-like obligations without reclassifying the service, which it said was clearly a violation of the law.

After five successive conclusions that broadband was being deployed in a reasonable and timely fashion, the FCC in 2010, under Julius Genachowski, concluded that it was not, citing its increased speed requirements. The FCC used that conclusion to justify the order.

While the court said the timing was suspicious, the FCC’s argument for why preventing discrimination and blocking of edge providers would promote deployment was reasonable. “Questionable timing, by itself, gives us no basis to reject an otherwise reasonable finding, “ Judge David Tatel wrote for the majority — the decision was unanimous, with the only partial dissent by judge Laurence Silberberg, who thought the court should not have been so quick to uphold the FCC’s authority to regulate broadband.

In fact, for what was being slammed by many net neutrality advocates as a big victory for big ISPs, the court opinion was fi lled with plenty of ammunition the FCC could use if it chooses to reclassify broadband on remand.

That reclassification was viewed by cable operators as the “nuclear option,” and was the reason the National Cable & Telecommunications Association was at the table when the compromise Open Internet Order was crafted in 2010.

NCTA president Michael Powell warned last week that Title II would be applying thousands of pages of regulations to the Internet.

Cable operators were quick to assure all within earshot last week that they were not now blocking and degrading content, and that the decision would have no impact in that regard. But that did not stop net-neutrality advocates from predicting the end of the open Internet and House and Senate Democrats from threatening legislation.

Wheeler was keeping his options open. In the run-up to the decision, he did not close the Title II docket, which his predecessor had left open. And last week he said he remained committed to preserving an open Internet. “We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans,” he said.

Jeff Baumgartner contributed to this report.

TAKEAWAY
A U.S. appeals court vacated the FCC’s network-neutrality rules, but left the door open for their return under different legal justification.

Pledge of Openness Allegiance

WASHINGTON — Internet-service providers last week were pledging to keep on keeping on providing an open and nondiscriminatory Internet experience to their customers in the wake of a federal court’s decision to vacate the heart of the FCC’s Open Internet Order.

National Cable & Telecommunications Association: “The cable industry has always made it clear that it does not — and will not — block our customers’ ability to access lawful Internet content, applications or services. We look forward to working with Chairman Wheeler and the FCC on ensuring that American consumers will continue to enjoy a fast, robust and open Internet experience.”

American Cable Association: “ACA has long held that adopting Open Internet rules was unnecessary because its members had been operating and would continue to operate in conformity with the FCC’s 2005 Open Internet principles,” ACA president Matt Polka said. “That remains true today regardless of the court’s decision.”

Comcast: “Comcast has consistently supported the Commission’s Open Internet Order as an appropriate balance of protection of consumer interests while not interfering with companies’ network management and engineering decisions. As a result, we agreed in the NBCUniversal Transaction Order to abide by the Open Internet rules for seven years even if the rules were modifi ed by the courts. We remain comfortable with that commitment because we have not — and will not — block our customers’ ability to access lawful Internet content, applications or services.”

Time Warner Cable: “Since pioneering the development of high-speed broadband service in the late 1990s, Time Warner Cable has been committed to providing its customers the best service possible, including unfettered access to the Web content and services of their choice .This commitment, which long precedes the FCC rules, will not be affected by today’s court decision.”

Verizon: “One thing is for sure: Today’s decision will not change consumers’ ability to access and use the Internet as they do now. The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committ ed to the open Internet, which provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want.”

— John Eggerton