The business of Internet, wireless, and telecom law.

Network Neutrality v. Regulatory Responsibility

Posted by Barlow Keener

The Comcast net neutrality order was rejected and returned to the FCC by the D.C. Court of Appeals in April 2010.  The order, as we all know, focuses on the FCC’s attempted regulation of a cable company’s Internet network management practice.  Comcast and cable providers were pleased with the outcome as these providers know just how difficult it is to manage the data passing through their routers and switches.  Fred Goldstein at Ionary.com has an excellent discussion on the Internet management issues (Layer 3) faced by the cable industry.  Regulating Transmission Facilitiesthe flow of Internet data is regulating content.  However, regulating the competitive rights relating to the last mile wire, the wire which you can see on the pole outside your house and known as the "transmission" facility, is the job of the FCC.  The court told the FCC that it had no "express" statutory authority to regulate the Internet but that the FCC did have statutory authority to regulate the transmission facility.

Unlike the cable industry, the FCC and network neutrality advocates were not so happy with the court’s decision.  Susan Crawford argued in a NYT Op-Ed  that the FCC "can regain its authority to pursue both network neutrality and widespread access to broadband by formally relabeling Internet access services as “telecommunications services,” rather than “information services,” as they are called now."   However, Tim Wu and Susan Crawford subsequently proposed in a recent letter that the FCC reclassify "the transmission portion of high-speed Internet access" and "simply state that transport services should be subject to non-discrimination and interconnection requirements."  As explained below, the requirement that transmission facilities be sold on a wholesale basis to ISPs should be restored but limited to the "last mile." The monopoly power of the transmission facility is primarily in the last mile to the consumer’s home.  Limitations on the wholesale requirements of the transmission facility should be limited in a similar fashion to how DSL line sharing of the copper loop was limited (Sec 251) or ISP use of aggregated DSL (Sec. 202).   Of course, providing a  wholesale service of last mile GPON fiber at Layer 1/2 using would be difficult but far from impossible.  

The Third Way. Shortly after the appeals court order, FCC Chairman Genachowski responded to the setback. He presented what some may view as a strange but creative regulatory method of addressing the loss which was labeled "The Third Way." Basically, The Third Way attempts to classify "Internet access service" as a regulated activity ("telecommunications") and then use "forbearance" as a legal device to carve out regulation for those matters like the Universal Service Fund. FCC General Counsel Austin Schlick provides a good discussion on what the Third Wave means in this recent BroadbandUS.tv video interview.   Many have warned, including Commissioner Copps with his "forbearance binge" statement, that the reclassification approach to simply to satisfy the D.C. appeals court’s need to tie Title I ancillary regulation to more than statutory "policy" contained in Title II (telecommunications) could lead to more trouble than expected.  

One might question, as we know the FCC has, the appeals court decision.  The Title II section cited by the FCC as "express" authority for network neutrality states that “[i]t is the policy of the United States . . . to promote the continued development of the Nipton CAInternet and other interactive computer services” and “to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet.”  The lawmaker who drafted the Title II section might disagree with the court and conclude that it was the court making law, not Congress.  If Section 230(b) does not provide the express link to statutory authority and "arguably delegate regulatory authority", then what new legislative language will work? Congress will be careful in the future to not include the word "policy" in the statute.  The FCC’s Brief, contrary to the Court’s decision, spoke to the common sense of the decision maker, stating: “The operative provisions of statutes are those which declare the legislative will.”

Limited Competitors in the Last Mile. Regardless of the legal arguments about ancillary authority being based on more "substantive" terms of Title II, the real substantive issue  behind the network neutrality is the FCC’s responsibility to ensure healthy competitive behaviors by cable and telecommunications providers. The Supreme Court in Trinko   (2004) explained that the FCC, not the courts imposing antitrust law, was responsible for ensuring that the industry is competitively healthy: "When there exists a regulatory structure designed to deter and remedy anticompetitive harm, the additional benefit to competition provided by [non-regulatory] antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny."   

One of the primary articulated reasons the FCC issued the 2005 network neutrality "policy" was that "consumers are entitled to competition among network providers." Yet the FCC’s contemporaneous policies served to dramatically reduce competition for ISP services. Ensuring competition is similar to the obligation to "remedy anticompetitive harm" which the Supreme Court required of the FCC in Trinko. resulting from the lack of competition by ISPs. Right now, according to the National Broadband Plan there are only one (13% of homes), two (78%), or, if one lives in the right neighborhood, three (4%) wireline  providers of Internet for consumers.  All you have to do is to look up on the pole outside your house to see two sets of cables – one from the cable company and one from your local ILEC.  You are not going to see more "competing" cables appearing on these poles anytime soon (unless a dramatic — or some would describe it as traumatic — regulatory change occurs).  The lack of a healthy number of competitors typical invokes regulation by the government. In Aspen Skiing v. Aspen Highlands, a snow ski company owning the majority of ski resorts in a ski territory was determined by the U.S. Supreme Court  to have abused its monopoly power by not opening up the all-mountain ski tickets to the smaller resort mountain competitor.  Thus, the issue faced by the FCC is basic "monopoly power" law well-defined for other industries that are outside of the FCC’s regulatory arena.  

The History. The 1996 Telecom Act was supposed to increase competition for local telephone service.   Internet at the time used the local telecommunications service through dial-up modems to connect the average consumer to the Internet.  By 1999, cable companies were providing broadband using their cables hanging on the pole outside your home and ILECs were providing DSL over their wires hanging on the pole.   From 2000 to 2004, there were in some areas one or two CLECs using the ILEC "UNE loops" or wires to provide homes with a broadband Internet choice.   In early 2005, the FCC majority decided that competition by only two wireline providers was healthy (not all agreed with this view) and brought an end to DSL line sharing.  Line sharing gave the very few ISPs and CLECs providing service to consumer homes the right to use the same ILEC wire providing telephone service for DSL. The 2005 Supreme Court Brand X decision brought an end to the hope of ISPs that they would be able to use the cable facility to reach consumers. 

Choice allowed consumers to switch from an ISP that was doing more or less blocking than acceptable by the consumer.   Without choice, the consumer is stuck Rural Common Carriers with ISP provider number one or provider number two. This would be like consumers being stuck with 2 providers of bread, 2 providers of restaurants, or even 2 mobile providers.  This is not just a matter of the rights of the consumer, it is a basic problem of the lack of competition.  The FCC has no choice but to address the issue of the lack of ISP competition. The question is how to do this in the most effective way possible with the least amount of interference and harm. 

Transmission Facility Open for Competing ISPs. Many appear confused about the transmission facility competitive issue and "Internet access service."   Network neutrality is not a technically workable solution for solving the bottleneck at the transmission level. An ISP should have the right to block for traffic management and to provide its own services as it deems in the best interest of the company and its customers. The FCC proposed in 2009 to issue an order allowing network management issues but such an exception would still allow consumers to bring complaints and require ISPs defend their actions.  Network management is not a black and white "you’ll know it when you see it" issue.  The better and simpler approach would be to  prevent "anticompetitive harm" by opening up the gateway at the lowest and most practical Layer 1 or 2 – the transmission layers, not the Internet Layer 3.  The FCC should keep their hands off the Internet and not have FCC engineers examining packet traffic in routers.  The result could be accomplished by building a regulatory framework that would allow ISPs to purchase limited transport on a wholesale basis for the "last mile" to the home under Section 202.   Consumers would then have a choice of ISPs.  And the local, last mile transmission facilities would be more efficiently deployed with more wholesale buyers reaching more total consumers than the monopoly owner, and, thus providing more revenues to the monopoly owner.

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