In a 2-1 ruling, The U.S. Court of Appeals for the District of Columbia Circuit recently struck a possibly fatal blow to the Federal Communications Commission's net neutrality rules. The case, brought by Verizon against the Federal Communications Commission, has significant implications for the future of Internet access. Professor John Rothchild has been a member of the Wayne State University Law School faculty since 2001. He is a co-author of “Internet Commerce,” which has been adopted for classroom teaching at numerous law schools. From 1991 to 2001, Rothchild was an attorney at the Federal Trade Commission's Bureau of Consumer Protection, specializing in law enforcement efforts addressing Internet-based fraud and online compliance. For several years he led the commission's international consumer protection program.

 

Thorpe: For those who haven't followed the issue closely, give us a brief definition of “net neutrality.”
 

Rothchild: Network neutrality is the idea that companies providing access to the Internet should not be allowed to block or otherwise discriminate against online content that is supplied by others. The net neutrality rules apply to cable companies, telephone companies, and others that provide broadband (high-speed) access to fixed locations, like homes and offices, and those that provide mobile access to smartphone subscribers.

Policymakers are principally concerned about three types of discrimination. First, an access provider that also offers its own services might discriminate against those offering competing services, slowing down or even blocking the delivery of their content to end users. For example, an Internet access provider that also offers voice-over-IP (Internet telephone) services could block or degrade the performance of a competing VOIP service. Second, an access provider could accept payment from one supplier of online services or content to discriminate against competitors of that supplier. For example, an online movie delivery service could pay broadband access providers to slow down the delivery of movies by a competing online service. Third, an access provider might demand fees from content suppliers to deliver their bits to end users in a prioritized way, while degrading the delivery of content from suppliers who do not pay the fees.

Thorpe: What rules did the FCC try to implement in its net neutrality regulation?

Rothchild: The regulation, issued in a 2010 document called the Open Internet Order, consisted mainly of three rules. The “no blocking” rule says that an access provider may not block the transmission through its network of lawful content, applications, or services, and may not prevent  the use of non-harmful devices in connection with their services. The “nondiscrimination” rule says that an access provider may not engage in unreasonable discrimination against particular types of content. And the “transparency” rule says that access providers must publicly disclose their network management practices.  Somewhat different rules were applied to mobile
access providers: they were not subject to the nondiscrimination rule, and the no-blocking rule applying to them was less strict.

Thorpe: Were you surprised by the Court of Appeals ruling?

Rothchild: What I found surprising was how strongly the court came down in support of the FCC's authority to issue regulations of this sort, even if these particular rules were invalidated. The court held that the FCC does have authority to promulgate rules aimed at promoting competition among broadband access providers through indirect approaches, such as by regulating their economic relationships with content providers. This leaves the door open for other regulatory action by the FCC in the future.

Thorpe: The court ruled that the FCC rules are invalid because the Commission had previously classified the Internet as an “information service” rather than as a “telecommunications service.” The ruling observed, “Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act (of 1996) expressly prohibits the Commission from nonetheless regulating them as such.” Explain.

Rothchild: The Act defines two categories of entities that are subject to regulation by the FCC. A “telecommunications service” provider is one that carries data from one place to another without transforming it in any way, acting essentially like a pipe through which content flows. An “information service” provider is one that doesn't merely transmit, but also processes or transforms the data in some way so that it becomes more useful. The distinction is crucial to the scope of the FCC's authority to regulate. A telecommunications service is subject to common-carrier regulation.  This means that the FCC can require it to offer its services, at reasonable fees, in a nondiscriminatory way to all comers. A common carrier is not allowed to make special deals with individual customers. An information service provider, on the other hand, is subject to much more limited forms of regulation.  

The FCC determines which category a particular service falls into. In the early 2000s the FCC classified broadband access providers as “information service” providers.  What the court determined is that the anti-discrimination and anti-blocking rules that formed the core of the FCC's Open Internet Order constitute common-carrier regulation. The FCC therefore could not apply them to broadband access providers. The court did uphold the third, “transparency” rule (requiring public disclosure of network management practices), finding that this requirement did not amount to common-carrier regulation.

Thorpe: The court also said the FCC has the power to reclassify broadband providers as telecommunications services. That would allow the agency greater oversight. Do you foresee that happening?

Rothchild: Tom Wheeler, who became chairman of the FCC in November 2013, has published statements suggesting that while he strongly supports the idea of an open Internet, he believes there are a variety of approaches to achieving that goal and is not necessarily wedded to the approach of the Open Internet Order. In fact, he has expressed a “strong preference” for moving forward “in a common law fashion, taking account of and learning from the particular facts that have given rise to concern.” Of the other commissioners, one is a strong supporter of the net neutrality rules and the other three have joined the FCC since the Open Internet Order was issued.  So it's hard to know which view will prevail among the commissioners.  

My guess is that broadband providers will view this decision as a Pyrrhic victory given the Court's affirmation of the FCC's broad authority to regulate, and that they will self-regulate for the time being, behaving as though the net neutrality rules were implicitly in effect. If that happens, I don't think the FCC will see an immediate need to resurrect these rules.

Thorpe: What might be some of the first effects consumers might see from the ruling?

Rothchild: I don't expect that consumers will see any effects for now.  I think the carriers will be more chastened than emboldened by the ruling, and are likely to avoid overt actions that could provide ammunition for those who call for the FCC to reinstitute net neutrality regulation by reclassifying broadband access providers as telecommunications services.