FCC girds for legal attacks on net neutrality order
Attacks are expected to range from whether current law allows the agency to legally act as it has to whether carriers feel they can be treated fairly in setting up services in the future. One of the biggest areas of dispute will likely revolve around the FCC's new authority to oversee interconnection deals struck between broadband providers like Comcast and content providers like Netflix.
The order was approved by a 3-to-2 vote on Feb. 26, but had already faced months of criticism that it will stifle Internet investment, raise taxes on Internet use and lead to Internet rate regulation. And that's only for starters.
AT&T has been one of the most vocal critics of the FCC's order. Moments after the final text came out, the carrier issued a two-sentence condemnation from legislative affairs head Jim Cicconi that showed how broad and deep the industry concerns are likely to be: "Unfortunately, the order released today begins a period of uncertainty that will damage broadband investment in the United States. Ultimately, though, we are confident the issue will be resolved by bipartisan action by Congress or a future FCC, or by the courts."
FCC senior staff flatly denied all these concerns in a call with reporters and posted a "Separating fact from fiction" statement that lists 10 facts to contradict 10 "myths" being circulated.
To the concerns about damages to investment, the FCC noted that $270 billion was invested from 2003 to 2009 in wireless voice services that were under Title II regulation, noting that revenues in that period skyrocketed by 1,300%. The FCC also noted the Verizon expenditure of nearly $5 billion for spectrum licenses in 2008 that came despite FCC open access regulations.
The FCC's Open Internet Order in effect from 2010 to 2014 (when it was largely struck down by court order) didn't obstruct investment either, the FCC noted. Capital investments went from $64 billion in 2009 to $75 billion in 2013.
Service provider investment concerns are probably overblown, said Gartner analyst Bill Menezes. "The final rules will be created in court," he said. "If history is any guide, there are few legal barriers that will keep any of these companies from making a lot of money from mobility and Internet-transmitted services.
"Let's face it, the fundamental perspective all Internet-dependent businesses have on this issue is, 'How will this affect my ability to make more money than I do now' so any final rules should be judged through that lens."
Broad rules, new authority
The basics of the FCC's order call for no blocking, throttling or paid prioritization of Internet traffic, either over wired or wireless connnections.
While the order pertains to the public Internet primarily, it does give the agency new authority to address interconnection disputes between two companies. If Netflix, theoretically, says a particular Internet Service Provider has somehow failed to provide enough bandwidth to allow a quality viewing of House of Cards to its customers, Netflix could complain to the FCC. The FCC can hear the complaint and take enforcement actions based on what it considers to be "just and reasonable" interconnection activities.
Reasonable network management activities will, however, be allowed by the FCC. In the call with reporters, senior FCC officials said recent concerns that AT&T could be throttling traffic for some unlimited wireless data customers would have to be judged as to whether the throttling was for business reasons or network management, but specific criteria was not divulged.
FCC observers expect the order could result in a steady number of complaints and the need for future case-by-case decisions.
FCC members Ajit Pai and Michael O'Rielly dissent
Both of the Republicans on the FCC, Ajit Pai and Michael O'Rielly, provided long dissents to the FCC order that could become a blueprint for some legal attacks.
Pai called the order an "unlawful power grab" and argued that when the agency sets itself up to decide whether a rate is lawful (such as paid prioritization). That act in itself is "the very definition of rate regulation."
Senior staff at the FCC discounted that logic and said in the myth-breaking memorandum that "broadband providers will be able to adjust retail rates without commission approval and without having to wait even a minute." That language won't necessarily apply to reviews of interconnection disputes between companies, however.
As for worries by many that future FCC commissions might change course on rate regulation, senior FCC staffers admitted that is possible. But they argued the current order helps build a strong precedent for why rate regulation isn't needed.
Even so, Roger Entner, an analyst at Recon Analytics, agreed with Pai that the FCC is setting up rate regulation by outlawing paid prioritization.
"Outlawing paid prioritization is, by default, rate regulation because you are saying the rate must be zero," he said. Entner, a long-time telecommunications analyst, is not an attorney and said he is not advising any of the parties involved on legal strategy in the FCC order.
Entner also said that amendments to the Communications Act of 1934, specifically in Section 332, subsection C1a, don't allow the FCC to regulate mobile services like those described in the order.
But even if a court finds differently, Entner said that the FCC order generally allows the agency to decide too many matters on a case-by-case basis.
"You don't know what's allowed or not until the FCC decides," Entner said. "That's very dangerous, especially to small companies and startups. Can you imagine a small company meeting with a venture capital investor who asks, 'Have you checked this idea with the FCC We won't give you the $1 million if we don't know that this is actually allowed.'
"The order just leaves so much undecided, and that's a mess."