The Federal Communications Commission's (FCC’s) recent "Net Neutrality Order" is intended to shape the regulatory framework for broadband Internet access services for years to come. By now you are likely aware of the most important aspects of the order:

  • Both wireline and wireless broadband Internet access providers are reclassified as common carriers under Title II of the Communications Act;
  • The FCC adopted three specific “Open Internet” rules: No blocking, no throttling and no paid prioritization;
  • Sections 201 (just and reasonable rates), 202 (no unreasonable discrimination), 222 (customer privacy) and 208 (complaint process) will now apply to Internet service providers (ISPs);
  • Unreasonable interference with or unreasonable disadvantage to consumers or “edge” providers (such as Netflix, Google, Amazon or other websites or streaming services) is prohibited;
  • Because the order also determined that interconnection is part of broadband Internet access service, commercial arrangements for the exchange of traffic with a broadband Internet provider are subject to common carriage, but not to the Open Internet rules;
  • New “transparency” requirements mean broadband providers must always disclose promotional rates, all fees and surcharges and all data caps or allowances;
  • Broadband providers are permitted to engage in “reasonable network management” where justified by technical grounds, but the term does not include other business practices.

The FCC defines “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.”

To prevent circumvention of the new rules, the FCC swept within the definition any service that it finds to be providing a “functional equivalent” of broadband service. Excluded from the definition are enterprise services, virtual private network services, web hosting or data storage services, or to premises operators that offer broadband Internet access service (e.g., Starbucks, conferences, personal hotspots).

ADVERTISEMENT

Cassie IAPP Leaderboard - Future-proofing your data, 2025 and beyond

Background: The FCC’s History of Regulating Information Service Access Providers

Despite the controversy surrounding the Net Neutrality Order, it is consistent with several decades of FCC efforts to regulate facilities-based transmission providers in order to protect competition among services that connect on the “other end” of a transmission. In general, the FCC has sought to protect competition, first in long distance and now information services, by regulating the transmission provider (usually a local telephone company) to prevent it from discriminating in favor of, or cross-subsidizing, its own services.

As the order mentions, elements of the story date back to 1968 and the Carterfone decision, in which the FCC first opened the door to competition in devices that connect to the telephone network. For our purposes, such devices include modems.

But we'll pick up the story in 1970, when the FCC initiated the Computer Inquiry proceedings to consider what rules would apply to the offering of computerized services by telephone companies, which came to be called “enhanced services.”

At a high level, the proceedings, which spanned 16 years, resulted in a regulatory framework that separated “enhanced” information services from the underlying transmission services to which they connected. The latter were regulated as common carriers under Title II of the Communications Act. The framework was designed primarily to prevent monopoly telephone services from favoring their own enhanced services either by cross-subsidization from monopoly ratepayers or by discriminating in how access was provided to enhanced services. Enhanced services were regarded as competitive and left unregulated.

During this same time, the Justice Department’s antitrust litigation against the Bell System came to an end resulting in AT&T divesting the regional Bell Operating Companies while retaining its long distance network. As part of that decree, the local Bell telephone companies were prohibited from providing most information services.

One consequence of this separation was a need for a new regulatory framework to govern how AT&T and emerging rival interexchange carriers (such as MCI and Sprint) accessed the local networks to originate and terminate calls. To that end, the FCC established a system of non-discriminatory “access charges” which required the local exchange carriers to charge the same rates to all interexchange carriers for equal quality connections. An important feature of the access-charge regime was a per-minute charge that long distance carriers were required to pay.

By the late 1980s, independent providers such as PRODIGY, CompuServe and America Online, as well as companies in such disparate businesses as alarm services, were beginning to offer innovative "online services." Customers almost always accessed these services via a dial-up connection using a screeching modem. To the local telephone network, these enhanced service providers (ESPs) resembled long distance carriers because they used the local networks in similar ways.

Given this, it might have been logical to assess ESPs the same kind of usage-sensitive access charges, but ESPs fiercely opposed that idea on the grounds that per-minute charges would gravely hinder the development of online services. Ultimately, the FCC decided to exempt ESPs, including those that featured access to the new thing known as the Internet among their offerings, from the usage-sensitive access charges due to a desire not to harm the nascent online industry. The FCC thus established the concept that online services were not treated as long distance telephone carriers but rather as a category of end users.

The Telecommunications Act of 1996 significantly rewrote the legal environment. Among other things, it established new definitions of “information” services (essentially what the FCC called “enhanced” services) and telecommunications services. Congress also added Section 706, which directed the FCC to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans” by, as appropriate, “price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market or other regulating methods that remove barriers to infrastructure investment.”

It took only a few more years before transmission capabilities improved to such an extent that broadband services such as DSL and cable modems became widespread. These did not fit neatly into the paradigm of regulated dial-up to unregulated modem services of the 1990s.

Thus, in its Cable Modem Declaratory Ruling, the FCC found that cable broadband services were “information services” because they combined computer processing and information provision with a non-separable transmission component to form a “single, integrated service that enables the subscriber to utilize Internet access service.” On appeal, the 9th Circuit reversed, ruling that the transmission element constitutes a “telecommunications service” under the 1996 amendments. Brand X Internet Services v. FCC, 345 F.3d 1120 (9th Cir. 2003). However, the Supreme Court reversed in National Cable and Telecommunications Association v. Brand X Internet Services, 545 U.S. 967, 980-81 (2005) (“Brand X”), holding that the FCC’s construction of ambiguous terms deserved deference.

In 2005 the FCC reclassified broadband DSL services—which until then were regulated as common carrier telecommunications services—as information services. That decision placed DSL services on the same basis as cable broadband services. It also meant that neither cable nor DSL providers were required to offer wireline broadband transmission separately from the integrated Internet access service.

Also in 2005, in an effort to protect users’ access to the Internet over the cable and DSL information services, the FCC issued an “Internet Policy Statement” declaring that, subject to “reasonable network management,” consumers had a right to:

(1)  “access the lawful Internet content of their choice;”

(2)  “run applications and use services of their choice;”

(3)  “connect their choice of legal devices that do not harm the network,” and

(4)  enjoy “competition among network providers, application and service providers and content providers.”

A few years later, the FCC declared that wireless broadband service was a private carrier service, not a “commercial mobile service” that could be subject to regulation as a common carrier. The FCC then conditioned its approval of the ABC/AT&T, Verizon/MCI and Comcast/NBC Universal mergers on adherence to these principles, which it also applied to a wireless broadband spectrum allocation.

As the Internet Policy Statement and the merger conditions suggest, by the mid-2000s, concerns began to arise that broadband providers might favor their own services, or disfavor others, to pressure edge providers for more lucrative carriage arrangements. The FCC in 2008 issued an order against Comcast for degrading users’ ability to access peer-to-peer networks, which the company claimed was necessary to manage network capacity. That order rested on the FCC’s so-called “ancillary” jurisdiction (jurisdiction reasonably necessary to carry out its statutory duties); however, in Comcast v. FCC, the Court of Appeals held that the FCC could not rely on its “ancillary” jurisdiction to enforce the Internet Policy principles against Comcast, —although it did not foreclose the possibility that the FCC might find other support for its enforcement.

In response, the FCC tried again, issuing an Order in 2010 that prohibited broadband providers from engaging in blocking and unreasonable discrimination and requiring transparency. It did not prohibit paid prioritization per se, but noted that the practice was potentially problematic. Although the U.S. Court of Appeals for the District of Columbia Circuit tossed out the agency’s Net Neutrality in rules in Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014), it paved the path for this month’s Order.

In particular, the Verizon court ruled that Section 706 gave the FCC authority to regulate broadband Internet service providers and upheld the agency’s position that rules such as the Open Internet rules were justifiable. However, the court ruled that the FCC lacked authority under Section 706 to establish the no blocking and antidiscrimination rules, because those treated broadband providers as common carriers, which was inconsistent with the FCC’s past classification of broadband services as “information” services. The Verizon court also found that applying the no blocking rule to mobile broadband services conflicted with the FCC’s earlier decision that mobile broadband is a private carrier service rather than a commercial mobile service.

The FCC then instituted a new, and very contentious, proceeding which culminated in the Net Neutrality Order. Spurred by public interest groups, more than four million public comments were filed in the proceeding. Even President Obama weighed in, calling for the agency to treat ISPs as common carriers.

The 2015 Net Neutrality Order

The FCC’s Order applies, as did its 2010 order, to broadband Internet services. The Order determined that changed circumstances now justify reclassifying broadband Internet access service is a “telecommunications service” subject to common carrier regulation. Factoring into this decision was the important “gatekeeper” role of wireline and wireless ISPs.

The FCC also determined that it would not enforce against ISPs many statutory and regulatory provisions normally applicable to common carrier services, using its unusual statutory authority to “forbear” from applying provisions of the Communications Act it deems not necessary to protect consumers. However, it did say that it would enforce sections 201, 202, and 208 (along with key enforcement provisions) of the Communications Act, which require just and reasonable rates, prohibit unreasonable discrimination and establish a complaint process.

The FCC concluded that broadband Internet access providers have the ability and incentives to discriminate in favor of certain services or to impair users’ access to services. For example, it concluded that Internet video is at risk from cable broadband operators because they compete directly with video services offered by the cable companies. It cited Comcast’s exempting of the Xfinity online video application on Xbox from Comcast’s data cap without a similar exemption for unaffiliated over-the-top video services as an example.

The Order applies the Open Internet rules to retail services, but while the FCC asserted jurisdiction over interconnection, it chose not to apply the Open Internet rules to interconnection.

As with the 2010 rules, this Order contains an exception for “reasonable network management” practices, specifically noting that paid prioritization would not be considered a means of managing a network.

In the next post, we’ll take a look at what may happen next and how the Order will affect different parts of the Internet community.