Firm Advisory, June 17, 2016

The U.S. Court of Appeals for the D.C. Circuit earlier this week upheld the FCC’s 2015 Open Internet Order, in which the FCC significantly increased regulation of fixed and mobile broadband Internet access service (“BIAS”) providers.  This historic decision confirms FCC jurisdiction over BIAS providers under Title II of the federal Communications Act − the same section of the Act granting the FCC extensive authority over telephone carriers.  The appeal was brought by large broadband and mobile wireless providers and their trade associations, such as AT&T, the United States Telecom Association, National Cable & Telecommunications Association and CTIA-The Wireless Association, as well as some smaller entities.

The Court addressed challenges to the 2015 Open Internet Order on the grounds that the FCC: (1) lacked statutory authority to reclassify BIAS as “telecommunications services,” (2) arbitrarily and capriciously reclassified BIAS, (3) impermissibly reclassified mobile broadband as a “commercial mobile service,” (4) improperly forbore from imposing many Title II requirements on BIAS providers, and (5) adopted Open Internet rules that violate the First Amendment.

1.) Background

The FCC had historically treated broadband services as “information services” exempt from the Title II regulatory obligations imposed on common carriers, such as telephone companies.  In its 2010 Open Internet Order (“2010 Order”), the FCC promulgated three rules for broadband Internet providers in furtherance of “net neutrality:” (1) a transparency rule, requiring disclosures to customers relating to network management practices, performance characteristics, and terms and conditions of broadband services;” (2) an anti-blocking rule, prohibiting the blocking of lawful content, applications, services or non-harmful devices, and (3) an anti-discrimination rule, prohibiting unreasonable discrimination in the transmission of lawful network traffic.  In 2014, the D.C. Circuit vacated the 2010 Order’s anti-blocking and anti-discrimination rules in its Verizon v. FCC decision, finding the rules “unlawfully subjected broadband providers to per se common carrier treatment.”  The Court upheld the 2010 Order’s transparency rule, however, finding it imposed no per se common carrier obligations on broadband providers.”

Following the Verizon decision, the FCC initiated a new open Internet proceeding and ultimately adopted the 2015 Open Internet Order, which dramatically increased the FCC’s ability to regulate broadband providers by reclassifying fixed and mobile broadband Internet access services as “telecommunications services” subject to common carrier regulation under Title II of the Act.  The FCC created the acronym BIAS, defining this “broadband Internet access service” as:

a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.

Significantly, the FCC simultaneously reclassified mobile broadband service as a “commercial mobile service” subject to Title II, and also applied Title II to interconnection arrangements between BIAS providers and other networks.  The Order did not, however, impose direct regulation on “edge providers” (such as Netflix, Google and Amazon) that “provide content, services, and applications over the Internet.”

The FCC determined that it would “establish a light-touch regulatory framework” to avoid overwhelming the previously unregulated BIAS providers, and thus forbore from applying the vast majority of rules adopted under Title II to such BIAS providers.

The FCC Order adopted the following open Internet rules, which the FCC stated are designed to protect and promote innovation and investment in the Internet and broadband networks:

  1. Anti-Blocking Rule: Prohibits BIAS providers from blocking customer access to “lawful content, applications, services, or non-harmful devices,” similar to the anti-blocking rule adopted in the 2010 Order.
  2. Anti-Throttling Rule: Prohibits BIAS providers from throttling, degrading or impairing customer access to lawful content, applications, services or non-harmful devices.
  3. Anti-Paid Prioritization Rule: Prohibits BIAS providers from favoring certain traffic over other traffic (by, for example, selectively speeding up certain content), whether in exchange for payment or other consideration or to benefit an affiliated company.
  4. General Conduct Rule: Prohibits BIAS providers from unreasonably interfering with or unreasonably disadvantaging “(i) end users’ ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice, or (ii) edge providers’ ability to make lawful content, applications, services, or devices available to end users.”
  5. Enhanced Transparency Rule: Requires that BIAS providers make certain disclosures to customers, such as information relating to network management practices and network performance characteristics, based on the transparency rule adopted in the 2010 Order and upheld in Verizon v. FCC.

2.) D.C. Circuit Decision

In a 2-1 decision, the Court rejected all challenges and entirely upheld the FCC’s 2015 Open Internet Order.  While many aspects of the Order were challenged, a summary of the Court’s key rulings on the central arguments is provided below.

Title II Reclassification Authority.  The Court rejected the arguments that the FCC lacked the statutory authority to reclassify BIAS as a “telecommunications service” subject to Title II regulation.  In so doing, the Court relied heavily on the Supreme Court’s 2005 Brand X decision that “expressly recognized that Congress, by leaving a statutory ambiguity, had delegated to the Commission the power to regulate broadband service,” and held that the Commission does indeed have the authority to subject Internet access services to Title II regulation.

Arbitrary and Capricious Reclassification.  The Court rejected the argument that even if the FCC had the statutory authority to reclassify BIAS, the FCC’s departure from its previous classification of broadband services as “information services” lacked sufficient justification and was therefore arbitrary and capricious.  The Court found that the FCC provided ample support for the reclassification, which rested on the FCC’s determination “that consumers perceive [broadband as] a standalone offering of transmission.”  Thus, the Court held that it had no reason to second-guess the FCC’s factual determinations that resulted in the shift in regulatory treatment since “the court properly defers to policy determinations invoking the [agency’s] expertise.”

Mobile Broadband Reclassification.  The Court rejected arguments challenging the Order’s reclassification of mobile broadband as a “commercial mobile service” subject Title II obligations, rather than a “private mobile service” exempt from such regulation.  The Court found the FCC’s reclassification of mobile broadband was “reasonable and supported by the record.”

Forbearance.  The Court rejected substantive and procedural arguments challenging the FCC’s decision to forbear from subjecting BIAS providers to the mandatory network connection and facility unbundling requirements contained in sections 251 and 252 of the Act.  The Court deferred to the FCC’s interpretation of its own regulations, after finding that the FCC decision was based on a “rational connection between the facts found and the choice made” and was not “plainly erroneous or inconsistent” with the plain terms of the disputed regulation.

Anti-Paid Prioritization Rule.  The Court rejected arguments that the FCC lacked authority to promulgate the anti-paid prioritization rule under sections 201(b) and 303(b) of the Act, or section 706 of the Telecommunications Act of 1996.  Consistent with its decision in Verizon, the Court found that the FCC’s section 706 authority “extends to rules ‘governing broadband providers’ treatment of internet traffic’—including the anti-paid prioritization rule.”  The Court did not address the FCC’s authority under sections 201(b) and 303(b) of the Act.

General Conduct Rule.  The Court rejected arguments that the General Conduct Rule was impermissibly vague and violated the Due Process Clause.  The Court found the FCC Order satisfied due process requirements since the FCC did not seek “retroactively to enforce a new policy against conduct predating the adoption,” and gave “sufficient notice to affected entities of the prohibited conduct going forward.”  The Court further found that the FCC Order provided due process by clearly explaining the rule’s objectives, specifying seven factors the FCC will consider in enforcement cases, and allowing BIAS providers to obtain guidance and resolve any remaining vagueness through an advisory-opinion procedure.

First Amendment & Open Internet Rules.  The Court rejected arguments that the FCC’s Open Internet rules violated the First Amendment by “forcing broadband providers to transmit speech with which they might disagree.”  The Court held that “[e]qual access obligations of that kind have long been imposed on telephone companies, railroads, and postal services, without raising any First Amendment issue.”

3.) Impact of Decision and Appeal Options

In affirming the Order, the Court cemented the FCC’s authority (subject to further review or appeal) to impose regulation on both fixed and mobile broadband providers.  In the near term, the FCC will use this authority to enforce its Open Internet rules.  While the FCC is currently exercising its forbearance authority to avoid imposing many Title II obligations on BIAS providers − including 30 statutory provisions and over 700 codified rules – the FCC could modify that position in the future and potentially subject BIAS providers to a plethora of burdensome regulation.

The Court’s decision also establishes a significant (some say dangerous) precedent in that it affirms the FCC’s authority to reclassify entities as common carriers subject to Title II regulation, even in the absence of clear statutory authority.  The FCC could attempt to rely on such precedent in the future to extend jurisdiction and/or impose significant regulatory obligations on providers of other historically unregulated services.

Many state commissions are evaluating the impact of the now-confirmed Order.  While the Order reflects the FCC’s intent to preempt various state regulation relative to BIAS, NARUC was supportive of the Order, and there is general sense that more rather than less regulatory authority is a positive for regulators as a whole.  Moreover, while many states have deregulated broadband through legislation or regulation, some states are expected to utilize the Court’s validation of regulatory authority over broadband to increase their roles, citing the reference to state commissions in Section 706 and the historic role states have played in areas such as service quality and universal service.  It is important, however, that states not automatically seek to regulate solely for the sake of regulation, but rather evaluate appropriate facts and data and determine if there truly is a problem in need of redress.

Petitioners have several options relative to the Court’s decision: (1) attempt to obtain a more favorable decision from the D.C. Circuit by requesting rehearing, (2) request en banc review of the case before the full D.C. Circuit, or (3) request an appeal to the U.S. Supreme Court.  Several petitioners, including CTIA, NCTA and AT&T, have already expressed interest in appealing the decision.  It is possible Petitioners would seek to utilize a combination of these options, particularly in furtherance of increasing the chances the Supreme Court would grant certiorari by filing the appeal later in the year after possible changes in the political environment and composition of the Supreme Court.

We would be pleased to provide further information concerning this important development as well as Internet or telecom regulation more generally.  Please contact us at:

Andy Klein 202-289-6955 AKlein@KleinLawpllc.com
Philip Macres 202-289-6956 PMacres@KleinLawpllc.com
Allen Zoracki 518-336-4300 AZoracki@KleinLawpllc.com
Susan Goldhar Ornstein 202-289-6985 SGoldhar@kleinlawpllc.com
Mike Gussow 202-289-6966 MGussow@KleinLawpllc.com