The Legal Background and Argument for Net Neutrality

In the net neutrality issue, both sides have laid claim to the First Amendment, but our free speech law is not really the issue. The core element is a shift in policies represented by the Communications Act of 1934 and our Telecommunications Act of 1996.

The difference is based on one, primary thing: money. Swirling around the communications acts are elements of anti-trust law and even some aspect of civil rights. This makes for a rich debate, much of which is clearly laid out in Verizon v. FCC.

After a 2014 victory for Verizon in which the company sued the FCC for its 2010 Open Internet Order, Washington, D.C.’s federal appellate court told the agency it couldn’t regulate the Internet if it didn’t reclassify broadband providers as a basic telecommunication service in accordance with Title II of the Communications Act of 1934. Internet host companies like Verizon and Comcast saw their status change to “information services” with the Telecommunications Act of 1996.

It could have been pride in the FCC’s previous work, an unwillingness to face off with former lobbyist colleagues, or President Obama weighing in, but the official press release says it was the near 4 million comments supporting stronger net neutrality rules that made FCC Chairman Tom Wheeler change a key component from his last proposal — made after the Verizon decision — with the proposal his commission passed on February 26, 2015.

Created by the Communications Act of 1934, the FCC was meant to ensure that “radio and wire services” are efficient, competitive, and non-discriminatory — or, as the FCC currently interprets it, “fast, fair, and open.”

Here is an excerpt from the general provision of the Communications Act of 1934:

“For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges…”

The 1996 law, which changed the Internet’s classification, was riffing off a trio of inquiries the FCC conducted between 1966 and 1985 known as Computer I, II, and III.

According to Robert Cannon, senior counsel for the FCC on Internet policy, in Computer I, the FCC recognized that computers could facilitate data processing via remote terminals along the basic communication network owned by AT&T. Skipping from one terminal to another, messages were processed along their way and stored for a recipient.

The FCC saw companies like AT&T (one of the only major phone companies at the time) as a threat to competition; especially, with the phone company’s ability to block or slow the content of data processing “edge providers” that relied on its networks. Therefore, these companies should be regulated. However, AT&T saw a potential fountain of innovation and investment in its much cheaper computer-enabled data processors, which it believed shouldn’t be regulated.

The FCC’s solution in Computer II was to make an official distinction between “basic” telecommunication services and “enhanced” services that interacted with the data being transmitted using tools like word processors. Cannon further explains that the commission would deal with hybrid companies by requiring them to keep their basic phone services and their enhanced services as completely separate entities with separate accounts, etc.

That way, smaller “edge providers,” or content providers, could compete and not be subjected to discrimination by the networks that facilitated them.

Cannon and the FCC point to the computer inquiries as being “wildly successful.”

In Computer III, however, the commission decided to forego its earlier separation requirement because of the damage commissioners believed it could have on the industry’s ability to grow and invest in itself. Cannon says Computer II will be remembered for conducting a “cost-benefit analysis of structural separation.”

In 2005, Justice Antonin Scalia wrote the dissenting opinion in National Cable & Telecommunication Assn. v. Brand X Internet Services, which was remanded to a lower court. He used a pizza delivery analogy to make the point that it was impossible for broadband providers to “offer” their services as a “stand-alone” offer and that the FCC had sidestepped its congressional directive. The delivery service is a function of the pizzeria, he argued, and cannot be separated.

The FCC’s revolving door to and from the industry it regulates is no secret. The group OpenSecrets keeps track of officials who have passed from one side to the other.

James Quello, chairman of the FCC in 1985, was a long-time industry executive. According to his obituary in the Washington Post, his appointment to the agency was strongly opposed by minority groups and public interest advocates like Ralph Nader.

Quello also presided over the FCC when Congress passed the Telecommunications Act of 1996, which codified the Internet as an enhanced “information service,” which, as the district court reminded the FCC in the Verizon decision, could not be regulated.

The courts also voted against the FCC after Comcast refused to pay a fee for blocking a competing Voice Over Internet Protocol company (a VOIP-we know these as applications that allow us to make calls over the Internet. Skype is a VOIP, although now it’s more popular for its video feature).

There’s at least one avenue Verizon, et al., might explore as they prepare their lawsuit against the FCC’s new rule, which fixes a major concern for the courts by reverting to the Communications Act of 1934 and reclassifying broadband providers as common carriers under Title II.

While the court’s decision acknowledged the incentive and opportunity for broadband providers to act in an anti-competitive manner, they said the FCC’s 2010 Internet Order (under which they tried to fine Comcast) expressed “prophylactic rules,” suggesting they were addressing a problem that wasn’t really there.

Apart from a list of violations of the principle of net neutrality (The Daily Dot keeps a good one), there’s another reason the courts should reconsider this facet of opposition to open-Internet rules: The distinctions between Internet service providers, content providers, and consumers (or “end-users”) are all becoming more blurred.

The distinctions between Internet service providers, content providers, and consumers ... are all becoming more blurred.
Mariam Baksh
Both ISPs and consumers have and want more skin in the content-providing game. Pending high-profile mergers between companies like Comcast and Time Warner Cable and AT&T and DirecTV would further incentivize and enable those companies to have their networks prioritize their own content over that which users create and share.

In trying to offset this implication, Comcast has aired ads that verbalize support for net neutrality while promoting its desired merger. But they are concurrently lobbying against Title II classification through the National Cable and Telecommunication Association.

In light of the general provision quoted at the top of this article, it’s interesting that the cable companies have successfully signed members of the Congressional Black Caucus as allies opposing Title II classification. But there are other minority groups like Color of Change who support the principle of net neutrality. (Policy should more accurately be based on studies like this one on the Internet’s reach into minority communities.)

The Communications Act of 1934 had a primary mission of protecting consumers by maintaining competition and the FCC has taken actions that embolden its jurisdiction. The FCC’s traditional licensing system has been criticized for ensuring monopolies.

In an interview with Timothy B. Lee for the Washington Post, former FCC Commissioner Reed Hundt said the agency has been trying to address this by auctioning “spectrum” as it becomes available. The FCC still has caps on the amount of spectrum any one entity can control, fearing that those with the capital could control more of the spectrum, thereby deepening the threat of monopolies.

Another way FCC is seeking to protect competition in the market place is with a recent vote allowing the cities of Chattanooga, Tenn. and Wilson, N.C. to preempt state laws that bar them from expanding their broadband infrastructure into rural communities not being served by the telecom industry.

According to a Roll Call report, there are 20 other states that have similar laws and this decision by the FCC will set a precedent that favors competition. The litigants appealed to the FCC under section 706 of the Telecommunications Act of 1996, which is couched in the 1934 law.

With its most recent rule, the FCC has addressed three other areas that would seem to make it stronger and more resilient to legal challenge.

The rule removes some ambiguity by shedding its ability to regulate arrangements made between Internet service providers and content providers such as the one where Netflix pays Comcast to ensure faster delivery of its content to its end-users. These arrangements threaten to break the mandate of the FCC to protect consumers from “unreasonable rates” because the expectation is that those costs would be shifted to consumers.

This is more a point of good housekeeping than anything else since the overall classification of broadband as a common carrier would preclude such arrangements by itself.

At the same time, the FCC made exemptions for broadband providers as utilities. Because they are also tasked with promoting investment, and the industry has voiced concerns that being controlled like a telephone company would stifle investment, the FCC will not exercise rate control over broadband. The commission’s measure is concerned with preventing discriminatory treatment or prioritization of certain content over others.

Lastly, the FCC did not miss the opportunity in this new rule to include mobile providers in the common carrier classification. The Communications Act specifically refers to mobile services and so by including mobile Internet devices, the FCC is sticking to the letter of that law.

The FCC has made a solid offering with its new rule by following the directives of the district appellate court. If this new rule doesn’t stand up to industry attacks, Congress may be the only thing that can save us from service providers’ discrimination.