United States: Cyberspace Oddity: The FCC Regulates Internet Services As Common Carrier Telecommunications Services, "Protecting And Promoting The Open Internet"

The FCC voted yesterday 3-2 along party lines to promulgate new rules necessary to protect the "Open Internet." At the core of the Commission's action lies its decision to reclassify Internet services as a "telecommunications" instead of "information" services and regulate the services under Title II of the Communications Act of 1934. This reclassification, led by FCC Chairman Tom Wheeler, expands the FCC's regulation of fixed wireline and mobile broadband Internet services as "common carriers." This move is grounded in the notion that control of the Internet is too important not to be regulated, and it marks a dramatic reversal in the way Internet services have historically been regulated. The FCC has not yet released the Order, but the FCC's statement, remarks made by the Commissioners, and the Fact Sheet distributed by the Chairman's office on February 4th reveal what appear to be the core elements of the Commission's action.

The Order's top priority will be the prohibition of three activities by broadband providers: (1) blocking of lawful content (2) throttling of lawful content; and (3) the creation of Internet "fast lanes." The Commission concluded that these activities threaten the "Open Internet."

In addition to prohibiting certain activities, the Commission also adopted a "general conduct rule" to ensure broadband providers do not, in the words of Chairman Tom Wheeler, "unreasonably interfere with or unreasonably disadvantage the ability of consumers and content providers to use the Internet." We will have to await release of the Order itself to know more about the contours and applicability of the Commission's new conduct rules. To encourage compliance with the general conduct rule, however, we know the Commission will permit consumers to file complaints and will grant the FCC the authority to investigate those complaints.

Chairman Tom Wheeler also emphasized that one of the core objectives of the Order is to "protect the values of an open Internet in the last mile as well as at the point of interconnection." The latter point indicates that the Commission intends to regulate interconnection arrangements between ISPs and edge providers.

Content developers, edge providers, and public interest organizations lobbied the Commission intensely. They heralded the landmark decision as a major victory in ensuring a "free and open Internet." On the other hand, certain Internet service providers criticized the Order as "throwback" regulation and vowed to fight it.

Despite the sweeping nature of the Order, Chairman Tom Wheeler and his staff took pains to point out that the Commission intends to forbear from applying 27 separate provisions of Title II of the Communications Act and more than 700 regulations adopted under that title. Among other things, Chairman Wheeler stated that the Order did not call for the regulation of rates for Internet services, unbundling of services or service functions, or requirements to file tariffs – staples of such regulatory regimes. Likewise, the Commission majority emphasized that the Order would not authorize any new taxes or fees. We again will have to wait and see the actual Order to understand which rules will not be applied under the FCC's new regulatory regime.

Dissenting Commissioners Ajit Pai and Michael O'Rielly expressed skepticism regarding the forbearance trumpeted by the majority. O'Reilly called it "faux-bearance" or "full-bearance" due to the broad and ill-defined authority inherent in other provisions in the Act that would apply to Internet services under the Order. Commissioner Pai pointed out that the Order does not prohibit the creation of new taxes and additional fees, including at the state level, summing up his point by saying, "Read my lips: more Internet taxes are coming, it's just a matter of when." Additional exactions will not be limited to consumers alone: reclassification likely will result in increased fees and charges to cable operators and other ISPs in the form of pole attachment rentals and state and local regulatory fees and taxes. Commissioner Pai also emphasized that even if the Commission's forbearance worked as Chairman Wheeler asserts, the Order only specified that the FCC was forbearing "at this time," implying that the Commission could reverse its forbearance at any future point.

Commissioners Pai and O'Rielly forecast an Internet future defined by higher prices, slower speeds, increased regulatory burdens, rate regulation and taxes and fees. This concern has been shared by many broadband providers and observers who have questioned the need for additional regulation and asserted that despite the forbearance from explicit rate regulation, de facto rate regulation would creep into the regime as a result of consumer complaints. According to this view, once consumers file complaints over their internet rates, or in comparison to service rendered to another user or class of users, the Commission will be forced to decide whether the rates complained of are acceptable under the Order's amorphous "just and reasonable" standard. Any decision in response to such a complaint, under this theory, would be a form of rate regulation.

In addition to dissension within the FCC, the Order is also likely to meet challenges in the Republican-controlled Congress. Though the GOP opposition, led by South Dakota Senator John Thune, fell short in its goal of curtailing the FCC's power by pre-empting yesterday's vote with legislation, Congressional Republicans have vowed to continue the fight.

The Order is the latest and most significant development in the Commission's long-running effort to protect the "Open Internet," which is far from over and now moves to the courts, the Congress, Commission enforcement proceedings – and even, potentially, state public service commissions. The FCC's own journey so far has included two prior attempts to regulate Internet services, both of which were struck down by the federal courts (as chronicled in our prior post). As with the FCC's prior efforts in this field, it will take many years to resolve the questions and issues raised by the Order.

Only time will tell whether the Order will bring about the public benefits that the Commission majority and other proponents hope for, or whether it will fundamentally alter the Internet as we know it today. One thing, however, is clear: yesterday's vote will have far-reaching implications for the entire broadband ecosystem.

Stay tuned: there will be much more to come as soon as the Order is officially released – and in the days and weeks ahead as stakeholders consider the implications (and test the limits) of yesterday's overhaul of the legal foundations of broadband communications and access to the Internet.

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