Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.
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As the dust has settled from the D.C. Circuit’s January 14th decision to vacate and remand the FCC Open Internet Order for another try, and from FCC Chairman Wheeler’s February 19th statement accepting the court’s invitation to propose open Internet rules that could pass court muster, what does it all this mean going forward?
First, we need to glean the key separate baseline takeaways from what the court ruled and also what Chairman Wheeler initially decided. Then we need to put them together to glean what the big going-forward takeaways are.
Court Decision Takeaways
A big takeaway is that this court majority went out of its way to help the FCC and affirm its “general authority to regulate in this arena.”
While most of the coverage and analysis rightfully focused on the Court’s important denial of the FCC’s attempt to de facto regulate broadband providers as common carriers, many underappreciated the majority’s strong affirmation of the FCC’s broad authority under Section 706. It found the FCC’s assertion of 706-authority reasonable and supported by substantial evidence. It also concluded the FCC is due considerable deference by the Court on section 706.
After this big give to the FCC it also took away. The court drew a bright line that under the law an information service provider cannot be treated as if it were a common carrier p. 53, 60. Simply the FCC cannot legally compel an ISP to do something generally for everyone. However even here, the majority remained friendly to the FCC’s enforcement authority by providing a veritable roadmap p. 61 for how the FCC could navigate the court’s limits to achieve much of its no blocking and no discrimination goals in a redo mirroring the Court’s Cellco decision, which upheld the FCC’s data roaming rules.
Senior Circuit Judge Silberman’s dissent spotlighted how friendly the majority was to the FCC in ways that could make the FCC’s newly-affirmed 706 regulatory authority vulnerable to further appeal in the future under administrative law. Judge Silberman’s dissent effectively suggests the FCC should create a better evidence record and also should incorporate more market power analysis and its anti-competitive exercise in the future.
The big top-line takeaway from this court’s decision is that freedom-defined net neutrality is legal, while common carrier-defined net neutrality for broadband information services is illegal.
FCC Chairman Wheeler Statement Takeaways
The FCC acknowledged that the Court removed any real uncertainty over whether “the FCC has the legal authority to issue enforceable rules of the road to preserve Internet freedom and openness” – it clearly does under Section 706 for the foreseeable future.
The most important takeaway here is that when offered the opportunity by the Court to reclassify broadband as a Title II common carrier service, Chairman Wheeler rejected that option, essentially affirming Chairman Genachowski’s fundamental judgment that reclassification as a policy matter is not necessary, warranted, or best for preserving the Open Internet.
“Unfairly,” was the most important word that Chairman Wheeler used in his statement, because “unfairly” effectively qualifies much of what his new rules intend to accomplish.
See: “…innovators cannot be judged on their own merits if they are unfairly prevented from harnessing the full power of the Internet…” para 3 and “…we can ensure that edge providers are not unfairly blocked, explicitly or implicitly, from reaching consumers…” para 7. [Bold added]
Words matter. The big takeaway here is that this particular key qualifying word — unfairly” – matters a whole lot because it signals a more FTC-like unfair-competition standard for the Open Internet rather than the traditional FCC common carrier qualifying words of “unjust and unreasonable” of Title II.
Importantly, an “unfair” standard is generally employed after the fact upon a complaint, whereas the common carrier standard of no “unjust and unreasonable discrimination,” is generally prophylactic economic regulation. Most importantly, an “unfair” standard presumes normal commercial price discrimination based on economics of speed, usage, quality of service guarantees, etc. are ok.
The tricky part of crafting new rules for the FCC will be threading the needle the Cellco-way that the court suggested p. 61, and resisting the institution’s natural tendency to overreach like it did in both the original Comcast net neutrality enforcement decision and the original Open Internet Order.
Overall Combined Takeaways
There are two big combined economic takeaways from the Court and Chairman Wheeler’s guidance.
First, economics and normal “individualized bargaining and discrimination in terms,” p. 50 are “commercially reasonable,” p. 50 fair, and pro-competitive behaviors; they are neither per se illegal behaviors nor discrimination in violation of openness.
This is extremely important because common-carrier defined net neutrality proponents have long tried to define different speed tier prices, usage based pricing, usage caps, and two-sided markets as anti-Internet freedom and anti-Internet openness — and per se illegal discrimination. We now know they are legal and not generally considered an FCC violation of Internet openness.
What the FCC must figure out is when normal legal economic behavior in a competitive market, somehow crosses some provable, principled, predictable, anti-competitive line to become a violation of Internet freedom or openness. That would appear to be like an after-the-fact, antitrust-ish or FTC Section 5-like, enforcement standard against deceptive or unfair business practices.
Second, two-sided markets, like in the Internet backbone peering market where Google, Microsoft, Netflix etc. pay for the cost of their asymmetric traffic, are now presumptively legal and not a violation of Internet openness under the Court and FCC Chairman Wheeler’s mutually-reinforcing guidance.
Specifically, the FCC cannot compel information service providers to generally offer free or zero pricing to edge providers. See: p.60 “In requiring that all edge providers receive this minimum level of access for free, these rules would appear on their face to impose per se common carrier regulation.”
Thus the big takeaway here is that the practice of charging edge providers for their asymmetric Internet backbone traffic is not presumptively a net neutrality violation of Internet openness, but is a commercially reasonable practice. This clarity will further economically rationalize Internet prices with Internet costs and benefits over time.
In sum, there is a broad consensus and deep commitment in the broadband industry to abide by freedom-defined net neutrality adjudicated by the FCC that ensures a free and open Internet where users have the freedom to access the legal content and applications of their choice.
Now we also know that there is an unappealed court ruling that affirms the legality of freedom-defined net neutrality and the illegality of imposing common carrier-defined net neutrality on information services providers.