Challenges Ahead for FCC Over Internet Rules

D.C. Circuit strikes down 'Open Internet' regulations.

, The National Law Journal

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Reeltender Mo Laussie helps install fiber-optic cable in Louisville, CO.
Reeltender Mo Laussie helps install fiber-optic cable in Louisville, CO.

The Federal Communications Com­mission once again has come up short in its attempt to regulate broadband Internet service providers, but the decision last week by a divided panel of federal appellate judges in some ways also strengthened the agency's hand — and sets the stage for a potentially epic showdown over new rules.

The U.S. Court of Appeals for the D.C. Circuit on Jan. 14 struck down most of the FCC's Open Internet Order on technical ground, ruling in favor of Verizon Communications Inc. and a host of industry supporters. But for the first time, the court established that the FCC holds the authority to issue rules governing broadband providers.

Depending on how the agency chooses to proceed, companies may find revised FCC regulations — ones designed to pass muster with the court — more burdensome than those in place before.

"If it's a victory for Verizon, it's a pyrrhic one, the most pyrrhic victory since Pyrrhus," said former FCC chairman Reed Hundt, testifying before a House Energy and Commerce subcommittee on Jan. 15.

The FCC's net neutrality rules, issued in 2010, were supposed to provide a "third way" — according to then-chairman Julius Genachowski — to give the government a "limited but essential role" to make sure broadband providers didn't block legal content or unreasonably discriminate against network traffic.The appeals court concluded the rules were improper because they treat broadband providers as common carriers. That contradicts the FCC's own, still-­binding decision during the George W. Bush administration to classify them as more lightly regulated information services.

"Even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates," wrote Judge David Tatel, joined by Judge Judith Rogers in vacating the rule. The court, however, upheld the portion of the rule that requires broadband providers to disclose accurate information about their network management practices. Senior Judge Laurence Silberman dissented in part, saying the Internet regulations were outside the scope of the FCC's authority.

The question now is how the FCC will proceed. FCC Chairman Tom Wheeler in an agency blog wrote that the "key message is that the FCC has the authority — and has the responsibility — to regulate the activities of broadband networks," adding that government oversight is "an absolute necessity." As for how the agency will exercise that authority, he wrote, "We will have ample opportunity to debate ways and means, to consider specifics in specific cases as they arise."

'WORST POSSIBLE OUTCOME'

What telecom companies fear is that the FCC will opt for the most direct — and most drastic — option, reclassifying broadband as a so-called Title II service, like monopoly-era telephone companies subject to heavy oversight.

Doing so would appear to resolve the court's concerns in one fell swoop. If broadband providers are classified as Title II common carriers, then the FCC can regulate them as such, with all the attendant obligations to transmit content without discrimination.

Lawyers who represent the nation's telecom giants call this regulatory scenario the "nuclear option."

Reclassification would be "exceedingly damaging — and more than most people realize," former FCC chairman Michael Powell, now president of the National Cable & Telecommunications Association, told members of the House Energy subcommittee on communications and technology last week. "It would be the instant application of thousands of pages of decades-old regulations, instantly to the Internet where they heretofore have not been."

Powell's scenario was perhaps overly dire — the FCC has the power to forebear imposition of specific regulations. But it captures how vehemently broadband providers oppose reclassification.

"In some ways, this is the worst possible outcome for the FCC," said Samuel Feder, chairman of Jenner & Block's communications practice and FCC general counsel from 2005 to 2008. "They got such a win on their authority to regulate aspects of the Internet, but such a loss in terms of what they can do on issues such as paid prioritization. Going for an appeal has real risk, trying to enact new regulations has real risk, and the decision is not bad enough to justify the nuclear option of reclassification."

But former FCC commissioner and acting chairman Michael Copps has no such reservations. In testimony before the subcommittee, Copps, a Democrat who's now a special adviser at Common Cause, bluntly urged the FCC to proceed with reclassification — and "to do it quickly, do it promptly."

"We don't need now to get into months of third ways and fourth ways and fifth ways to thread this needle," Copps said. "We need some clarity."

'GOVERNMENT INTERFERENCE'

The FCC first tried to regulate broadband in 2008, going after Comcast Corp. for interfering with its subscribers' use of peer-to-peer networking applications, which consume large chunks of bandwidth. But Tatel, writing for the D.C. Circuit in 2010, ruled the agency lacked the authority to oversee Internet service providers based on its theory of ancillary jurisdiction.

The FCC tried again later that year, this time asserting the authority to issue rules under Section 706(a) and 706(b) of the Telecommunications Act of 1996. The provisions direct the agency to "encourage the development…of advanced telecommunications" services and empower the agency to take steps to accelerate broadband deployment.

In 2011, Verizon sued the FCC, arguing that Section 706 did not confer authority and that the rules ran afoul of the FCC's decision to classify broadband providers as information services.

Gibson, Dunn & Crutcher partner Helgi Walker, who also represented Comcast in its FCC challenge, argued in the appeal that decisions about the regulation of broadband service providers are up to Congress. "It is not up to the FCC to decide those important and hotly debated questions entirely on its own," Walker told the D.C. Circuit panel.

The company's general counsel, Randal Milch, said in a written statement that "Verizon has been and remains committed to the open Internet. This will not change in light of the court's decision."

While Tatel and Rogers ­concluded it was "quite reasonable to believe that Congress contemplated that the Commission would regulate this industry," Silberman found that the FCC lacked "affirmative statutory authority" to move forward with the Open Internet rule in the first place.

His 18-page dissent shows why an appeal could be risky for the FCC. Section 706 of the federal Telecom­munications Act, he wrote, "doesn't come close to sanctioning the Commis­sion's regulation," which he described as "aggressive," "prophylactic" and "unwarranted government interference in a functioning market."

Contact Jenna Greene at jgreene@alm.com.

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