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Net Neutrality – What’s In A Name?

Posted  November 12, 2014

By Robert Schwartz

Although President Obama has endorsed a specific approach to “net neutrality” – the principle that Internet service providers should treat all data on the Internet equally – the debate over whether and how the Federal Communications Commission should enforce that principle is still raging, and may well be decided by whoever wins the battle over defining “Internet access.”

In politics, a basic rule is never to let the opposition define you.  So it is in public policy and regulation as well.  The term “broadband,” for example, makes sense only when compared to the old dial-up world based on thin copper telephone wires, where speeds are measured in K’s, not M’s or G’s.  Compared to the bandwidth devoted to multichannel home video by cable, satellite (“DBS”) or telco distributors, the bandwidth that these distributors make available to the Internet is puny indeed – a mere handful of channels out of the hundreds that they control.  Internet access is like a key mountain pass – whoever controls this turf is likely to emerge victorious.

This is what the net neutrality turf war is all about.  The “broadband” space made available to independent providers and to consumers has been defined and confined by the same operators who control and deliver vast amounts of programming and information in their capacities as Multichannel Video Programming Distributors (“MVPDs”) and wired and wireless telephone service providers.  Though fractional, the “broadband” space in which the Internet exists is a competitive threat to the providers who make it available.  Consumers typically watch only one program, or use no more than a few games or apps, at a time.

The history of antitrust enforcement is largely a story of attempts to rein in powerful firms limiting or suppressing commerce that might erode their own market power.  So, should Internet Service Providers (“ISPs”) be permitted to block or constrict consumer access by or to competitors?  To ISPs, the defining issue is regulation – imposing “neutrality” obligations would “regulate” the Internet.  To commercial entrants and public interest groups, the defining issue is competition – whether entities with market power achieved through regulation will be permitted to use that power to choke off competitive threats in an unregulated space.

The issue was amplified this week when President Obama, to the apparent surprise of the Federal Communications Commission, endorsed net neutrality with a request that the FCC protect entrants and consumers by regulating internet service under the same “Title II” powers with which it oversees “common carrier” services (e.g., telephony).  Sen. Ted Cruz (R-Tex.) immediately derided net neutrality as “Obamacare for the Internet.”

The FCC, an independent agency, is appointed by, but not answerable to, the President.  The FCC’s powers are only as “delegated” by the Congress under the Communications Act, directly or as ancillary to the exercise of more general authority.  While the Chevron line of cases entitles the FCC to “deference” to its interpretation of the Communications Act (even pertaining to its own authority), appellate courts have often reversed these determinations.

The core of the net neutrality debate was formed when the 1996 Telecommunications Act delineated between regulated, common carrier “communications services” (Title II of the Act) and less regulated “information services.”  In the face of a suit by Brand X, a startup ISP desiring access to established facilities, the FCC decided that Internet access was an “information service,” not a Title II “communications service.”  A Ninth Circuit panel read the law differently, as requiring that Internet access be regulated as a “communications service.”  But, in 2005 the Supreme Court held in NCTA v. Brand X, that Chevron “deference” entitled the FCC to consider Internet access to be an “information service.”

As concern and pressure over the need for net neutrality mounted, the FCC did, under its more general authority, lay down net neutrality principles and regulations.  It was sued by Comcast for failure to cite adequate authority, and the D.C. Circuit agreed, in Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010).  The Commission then issued regulations under a “plethora” of citations to its general “Title I” authority. This time it was sued by Verizon.  The D.C. Circuit held in Verizon Communications Corp. v. FCC, 740 F.3d 623 (D.C. Cir. 2014), that Section 706 of the 1996 Telecommunications Act gives the FCC  power to implement the “transparency” rules in its “Open Internet Order,” but the FCC lacked authority for its “no-blocking” and “anti-discrimination” rules because the Commission had declined to classify Internet services as Title II services:

Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order.

In May of this year, the FCC launched a rulemaking in which it

… seeks comment on the benefits of both [new findings and rationales under] Section 706 and Title II, including the benefits of one approach over the other to ensure the Internet remains an open platform for innovation and expression [and] [e]xplores other available sources of legal authority, including also Title III for wireless services. The Commission seeks comment on the best ways to define, prevent, expose and punish the practices that threaten an Open Internet.

Approximately 3.4 million public comments have been received.  According to media reports, Chairman Wheeler has been exploring a “hybrid” approach in which business-facing aspects of ISPs would be subject to common carrier treatment under Title II, but consumer-facing elements would not.  Some observers commented that this would displease both sides equally.  President Obama’s call for Title II net neutrality came just as Chairman Wheeler was reported to be ready to brief members of Congress on this hybrid idea.

Chairman Wheeler has responded that the FCC will consider the President’s views, along with the millions of others it has received.  But according to media reports, the Chairman may remain committed to a “more nuanced” outcome.  In the meantime, the de jure and de facto definitions of the markets involved appear to be shifting, ahead of any FCC final action on net neutrality:

Chairman Wheeler has circulated a proposal for a rulemaking to expand the definition of “MVPD,” to include entities that “stream” online video programming over the Internet (but not those, like Netflix, that provide it on demand). This proposal may be released any day.

The Commission and the Department of Justice are reviewing proposed mergers of the two largest cable operators (Comcast and Time Warner Cable) and of a major “telco” provider with the largest DBS provider (AT&T and DirecTV).

A “spectrum auction” process for reallocating some TV broadcast frequencies can also influence the dynamics among corporate players, as well as the availability of bandwidth for wireless use.

Already, observers are speculating about the significance, in each of these contexts, of President Obama’s initiative.  But in the wake of a surprise Presidential announcement, this is all most learned commentary amounts to:  speculation.

Edited by Gary J. Malone

Tagged in: Antitrust Policy,