To read the first post in this series, click here.
At one level, the Federal Communication Commission’s (FCC's) Net Neutrality Order is undoubtedly correct. Broadband Internet access is in practice a public utility in a real sense. Many people today want ready and convenient access to their LTE or WiFi service just as they do to running water and electricity. And perhaps even more than they want access to television and radio, which are not common carrier services. (Just look at the number of attendees at IAPP conferences that demand WiFi access.)
The legal foundation of the FCC’s reclassification of broadband Internet services as common carriers is far more controversial. It is textbook law that a regulatory agency can change its interpretation of a law in response to changing circumstances, so long as it provides a reasoned basis for doing so. The FCC order, of course, has changed interpretation in a big way by treating the entirety of retail broadband Internet access as a common carrier service and extending that regime to wireless broadband services for the first time.
Whether the FCC has successfully threaded its way through the legal minefield outlined by the Brand X and Verizon cases, the Communications Act and the Administrative Procedures Act will ultimately be decided by the courts. The legal issues are a law professor’s dream. The dissenting commissioners alone raised numerous issues such as: whether the order was within the scope of the notice of proposed rulemaking; whether the agency acted properly in reclassifying broadband Internet access as a telecommunications service; whether it stretched the law by extending the reclassification to wireless broadband services despite Section 332, and whether it properly exercised its forbearance authority, to mention just a few. Parties challenging the order undoubtedly will look at the two dissenting statements as guides for how to proceed.
As of publication two appeals of the order have been filed, and there may be more. It may take a year for the cases to be scheduled, briefed, argued and decided by the Court of Appeals—maybe double that if the Supreme Court takes the case.
Unless an appellate court grants a stay, the FCC’s order will take effect 60 days after publication in the Federal Register (except for aspects requiring OMB approval pursuant to the Paperwork Reduction Act), thus becoming the law of the land. The order will affect different components of the Internet ecosystem differently.
Retail consumers
Firing up YouTube, playing video games, shopping and checking the weather online may well see little or no difference. Indeed, that is precisely the point. Most providers of retail Internet access have operated in a manner largely consistent with net neutrality. If ISPs are correct that instances of blocking, throttling and paid prioritization are rare to nonexistent, then the FCC’s prohibition of practices that do not currently take place should make no difference to a user’s experience.
Of course, to the degree any ISPs have, in fact, been engaged in such mischief or want to offer “walled gardens,” they no longer may do so. But it is unclear what actions ISPs will be able to take in the name of “reasonable network management.” And there is a risk that users may see higher bills because telecommunications services are subject to a variety of taxes to which information services are exempt.
ISPs
A number of ISPs do not really object to the concept of net neutrality (although some did). But even those that have no problem with net neutrality in general are concerned about the potential consequences of Title II reclassification. And, to be sure, these effects on broadband Internet service providers will not really be known until some time passes.
Many opponents of Title II reclassification (and a lesser number of opponents of net neutrality) contend that either would dampen the financial incentive to invest. The truth of this is difficult to assess. In theory any regulation that impinges on the ability to make money could dampen investment. Nonetheless, the ability of ISPs to make profitable investments in their networks probably has more to do with economic conditions and the demand for innovative services than with whether a regulatory regime is based on Title II or Section 706. The FCC’s order notes that investment in broadband was the greatest in the years 2010 to 2013, when net neutrality was in effect before being undone by the Verizon decision.
Although the order disclaims any interest in imposing price regulation on broadband ISPs, the dissenting commissioners and other critics note that banning paid prioritization is essentially setting a price for that service at zero. Will the FCC avoid the temptation to wade into other aspects of pricing?
There is also a concern, voiced particularly by dissenting Commissioner Pai, that the reclassification of ISPs as common carriers will result in higher costs for ISPs generally, and severely so for smaller ISPs. Again, however, it may be years before we know whether these fears are justified.
Internet websites and online services
Internet websites and online services, the “edge providers,” are big winners. Netflix might be the biggest winner of all. Under the order, they should not be faced with demands from ISPs for payment in exchange for priority transmission. New offerings should be equally as accessible to end users as established websites.
Will net neutrality eventually lead to a world where broadband Internet distribution of video programming replaces cable systems? HBO and CBS have already announced plans for broadband delivery, and ESPN already does so for many events. Many network programs are available online shortly after being aired. Are we witnessing the early stages of the demise of cable as the primary means of distributing video?
Internet backbone/backhaul services
What the order means for interconnected Internet backbone/backhaul services is less clear. In the order, the FCC determined that those services come within the definition of telecommunications services subject to common carrier status, but chose not to apply any regulations at this time. Presumably, those arrangements will continue on as they have been conducted for many years, but the possibility of FCC oversight through the Section 208 complaint process or otherwise leaves room for a more intrusive regulatory approach in the future.
Privacy Regulation and the Federal Trade Commission
IAPP members may be particularly interested in the ramifications of net neutrality for the privacy practices of ISPs under Title II. Because the Federal Trade Commission (FTC) currently does not have jurisdiction over “common carriers,” the order may prevent the FTC from exercising regulatory oversight over broadband Internet access. Such jurisdiction will now reside in the FCC.
How this will affect the privacy rules applicable to broadband ISPs is not yet known. Unlike the FTC, whose authority over privacy arises under Section 5, the FCC has direct statutory authority to protect Customer Proprietary Network Information (CPNI)—information about a user known only because of the carrier-customer relationship—held by a common carrier under Section 222 of the Communications Act. In addition, while the FTC can bring an enforcement action only if it identifies a deceptive statement or can demonstrate harm, the FCC has rulemaking authority.
The FCC has adopted fairly complex regulations governing how carriers handle CPNI. However, the order determined not to apply those regulations to ISPs. Instead, the FCC will consider how best to apply Section 222 to ISPs in a new proceeding. It also plans to conduct a workshop this month to address broadband ISP privacy practices.
Presumably that proceeding will consider, among other things, what rules may apply to activities such as deep packet inspection (DPI) or Verizon Wireless’s “Supercookie.” Indeed, the order specifically noted that DPI could be harmful to wireless consumers. If the FCC decides to apply an opt-in regime to data collection or sharing, the results could be dramatic.
Some FTC officials bemoan that the order will hinder their ability to be the principal U.S. consumer protection regulator and are using it to press for removal of the common carrier exception to their jurisdiction. Whether Congress will vote to do so remains to be seen. Of course, the two agencies do cooperate in enforcing other laws, including the Do-Not-Call registry and telemarketing generally, and they presumably can coordinate their Internet activities as well.
Certainly the FCC has shown itself capable of enforcement action under Title II. Attentive IAPP members will recall that, last October, the FCC issued enforcement actions against two telecommunications carriers for failing to (a) use reasonable security measures to protect consumer data and (b) notify consumers of security breaches. The FCC determined that those failures violated Section 201, a Title II provision.
Congress
In Congress, expect noise but probably little real action. Republicans in Congress are displeased by the FCC’s reclassification of Internet access services, but their options are limited. Legislation to overturn the order directly would be unlikely to override a presidential veto even if it could pass the Congress, because the order has strong Democratic support. A series of oversight hearings are already underway, and there may be some efforts to restrict the agency’s ability to implement the new regime through riders on appropriations legislation or direct legislation, but these are unlikely to thwart the order.
On the other hand, the reclassification of ISPs may well spur renewed legislative interest in a comprehensive rewrite of the Communications Act. This is an idea that has been germinating in both parties for some time, and the order may cause legislators to push such an overhaul with more purpose. However, a broad rewrite of the Communications Act would involve many interested parties and conflicting viewpoints and may well be difficult to achieve anytime soon.
Finally, as noted, it may cause Congress to consider whether the current common carrier exception to the FTC Act should remain in place, a matter which both the FCC and FTC have said should be examined.
Stay tuned!