Title II and Legal Gymnastics

This month, Federal Communications Commission chairman Tom Wheeler formally announced what everyone already knew was a foregone conclusion: At its next meeting, the agency will abandon the bipartisan approach to light-touch regulation of the Internet and reclassify broadband as a common-carrier telecommunications service under Title II of the Communications Act.

Not wanting to be a total killjoy, however, Wheeler said reclassification will not mean your grandmother’s Title II of the old Bell System monopoly era, but rather a “moderniz[ed] Title II, tailor[ed] for the 21st century.” Indeed, according to an FCC fact sheet, while the proposal will prohibit blocking, throttling and paid prioritization — as well as, for the first time, regulate the rates, terms and conditions of interconnection agreements between broadband service providers (BSPs) and edge providers — the FCC also plans to forbear from all tariffing requirements under Section 203.

While we have yet to see its legal rationale, we do know this: To ensure this proposal passes the “giggle test” with a reviewing court, the FCC will engage in more legal gymnastics than a Cirque du Soleil show on the Las Vegas Strip.

The first hoop the FCC must jump through is to explain why its original finding that broadband is a Title I information service (upheld by the Supreme Court in the Brand X decision) is now wrong. While the Supreme Court’s decision in FCC v. Fox Television provides agencies with great latitude to change policies, provided they articulate a clear reason for doing so, it is not clear that reclassification is simply a change in FCC “policy” or a change in facts regarding how the Internet works. It’s a mundane, in-the-weeds distinction, but an important one upon which the entire scheme rests.

Assuming the FCC can get past the Brand X problem, it must then explain forbearing from mandatory tariffing of retail broadband service and for the terminating access service needed by edge providers. In the past, it has granted forbearance from price regulation based on the presence and effectiveness of competition. The rationale is that competition will protect consumers. When the FCC has found a lack of competition, it has denied forebearance on rate regulation.

The problem here is that the agency has rejected the presence of competition in the relevant markets at issue in the Open Internet rulemaking. Earlier, the agency defined (and the D.C. Circuit in Verizon v. FCC upheld) the relevant product market for net-neutrality regulation as “terminating access” and the relevant geographic market as each individual BSP. Thus, as Wheeler likes to gleefully remind us, each BSP is a “terminating monopolist.” As to retail, the FCC’s recent decision to define broadband as 25 Mbps means that half of U.S. households now have only a single provider.

How will the FCC convince the courts that forbearance does not abandon the principles of “just and reasonable” and not “unduly discriminatory” rates? It’s a difficult task that signals a highly contrived legal argument.

Lawrence J. Spiwak is president of the Washington, D.C.-based Phoenix Center for Advanced Legal & Economic Public Policy Studies.