The FCC just released the final version of its net neutrality order (the one it voted to approve on December 14). This means that the period for challenging the order will soon begin, and the content of the coming legal challenges will begin to take shape. In this post, I’ll take on two potential angles.

As I hinted earlier, the FCC’s net neutrality-related order takes two distinct steps. Though commentators—and the FCC itself—have conflated these two steps, it’s important to consider each separately because the FCC will have to justify each policy shift. Each presents special problems for the challengers and for the FCC. Let’s take a look.

Background: The Legal Classification of “Broadband” Services

Let’s begin with the question of the legal classification of broadband service. This means getting into the weeds a bit. The various telecommunications statutes divide the industry into different services—telecommunications services, information services, and cable services, among others. Hence, the nature of the applicable regulatory regime hinges on the class of service offered: Cable services, for example, are subject to requirements set out in Title VI of the Communications Act (somewhat confusingly codified at Chapter 5 of Title 47).

Though the statutes envision a variety of services, they did not expressly account for broadband internet access. Under a continuation of the regulatory regime in place at the passage of the 1996 Telecommunications Act, such internet access (via, say, DSL) was a telecommunications service. But, for some time, the FCC refused to say whether internet access via a cable system—“cable modem” service—was also a “telecommunications service,” or a “cable service,” or something else.

Finally, after some grumbling from some members of the Supreme Court, the FCC decided to treat all broadband internet access as an “information service.” In Brand X, the Supreme Court affirmed the FCC’s classification as a permissible exercise of the agency’s discretion. (Though, in the words of Justice Breyer, the decision “just barely” fell “within the scope of its statutorily delegated authority.” Justice Scalia dissented.)

Importantly, the FCC’s 2002 classification decision was accompanied by then-Chairman Powell’s “Internet Freedoms” speech, which, as I described earlier, laid out the first set of net neutrality principles.

But the D.C. Circuit ruled (twice) that the FCC could not enforce these principles so long as broadband access remained in the “information service” bucket.

So, in 2015, the FCC revisited this classification decision. And it concluded that the “information service” moniker was no longer the best fit. The FCC reached this conclusion for several reasons. First, and perhaps most importantly, the FCC concluded that net neutrality protections helped to drive demand for broadband access, and it was thus important to put those rules on sound legal footing (as I noted in an earlier post).

But the FCC also described several changes in the character of internet access service that warranted a return to the “telecommunications service” classification. The FCC’s 2002 decision leaned on the bundled nature of offering: Cable modem service paired “content, e-mail accounts, access to news groups, [and] the ability to create a personal web page” with the bare “ability to retrieve information from the internet.” That is, the FCC concluded that cable modem service bundled information services with a transmission link, but the bundled information services—email, newsgroups, chat rooms, etc.—comprised the real consumer “offering.” In 2015, the FCC reexamined this conclusion. It found that...

... consumers no longer “expect to receive (and pay for) a finished, functionally integrated service,” but rather, are “very likely to use their high-speed internet connections to take advantage of competing services offered by third parties”

... “parties advise consumers specifically not to use a broadband provider-based email address” because it imposes additional switching costs

... “consumers today largely use their broadband internet access connections to access content and services that are unaffiliated” with their broadband carrier

... that “broadband internet access service is marketed today primarily as a conduit for the transmission of data” rather than as a bundle of special, internet-enabled features.

Hence, in light of these changed conditions, the FCC concluded that the “telecommunications service” label was now the best fit.

Step 1: Re-Re-Re-Classification

With that background out of the way, we can turn to the FCC’s latest two-step order.

The order’s first step is to reclassify (yet one more time) broadband internet access as an information service. But in doing so, the order ignores the factual predicates for the FCC’s 2015 decision—it doesn’t fully grapple with the changes in consumption (and marketing) of internet access. Instead, the order says that it doesn’t matter who provides the information service—“broadband Internet access is an information service irrespective of whether it provides the entirety of any end user functionality or whether it provides end user functionality in tandem with edge providers,” like Netflix and Spotify. This, though, is inconsistent with the FCC’s decision in 2002, which emphasized the vertically-integrated nature of the service provided. It is inconsistent with the regulatory history regarding basic and enhanced services (the precursors to the telecommunications and information services defined in the 1996 Telecommunications Act), which treated, as telecommunications services, transmission links to third-party information services. And it is hence questionable under Supreme Court’s decision in Brand X, in which ambiguity and deference hinge on the perception of what the broadband carrier “offer[s]” (to invoke the statutory term). It may have been reasonable, in 2002, to say a company like Comcast predominantly “offer[ed]” email, newsgroups, chat rooms, and the ability to create a webpage. But it is not so reasonable to say, in 2015, that Comcast “offers” Netflix, Gmail, Spotify, and BuzzFeed, among others. Perhaps the FCC’s construction is permissible under Chevron. Indeed, the judicial deference owed to expert agencies will present a challenge to the, er, challengers. (Assuming such deference is owed on this record. More on that later.) But if the FCC was “just barely” within its statutory discretion in 2002, the question seems even closer now. After all, Verizon’s service on “offer” is, today, predominantly a transmission link to third-party services; it is not the “finished service” sold by someone else, and delivered by Verizon. (If I order a book on Amazon, it doesn’t seem right to say that FedEx offered me that book.)

The FCC’s order also suggests that, as a matter of policy, re-re-reclassification is desirable to boost network investment. But the evidence on investment is mixed, and the order practically dismisses out-of-hand statements made by carrier officials to investors (on, say, shareholder calls) suggesting that the classification of broadband service had no effect on investment.

In all, the FCC’s justification for its latest classification decision is thin. It hinges on an interpretation of the broadband carriers’ “offering” that includes services that are sold by wholly separate companies, and it relies on investment-related evidence that is belied by the carriers’ own statements.

Step 2: Abandoning Principles of Neutrality

After sweeping away its legal authority to impose network neutrality rules by its new classification decision, the FCC concludes that such rules are needless anyways.

For one, the FCC says that the rules are unnecessary because broadband carriers will adhere to these principles anyways. But, as I noted earlier, this hardly undermines the case for the rules: If the carriers will adhere to network neutrality principles, then the rules impose no new costs.

For another, the FCC says that other laws, and other agencies, can remedy the harms that net neutrality aims to address. But, as I described earlier, these other regimes are ill-suited to net neutrality-related harms. (Indeed, the FCC’s claim depends on an unduly narrow view of the merits of net neutrality.)

And finally, the FCC says that net neutrality harms aren’t even really real. This is so despite a lengthy history of carriers attempting to unduly favor their affiliated services.

Hence, the justification for the FCC’s second major action is also quite thin. It boils down to: (1) there are no net neutrality harms, (2) there are other agencies to address these [nonexistent] harms, and (3) carriers will voluntarily adhere to these principles (which we think are needless and costly). Is the FCC’s decision to abandon these rules good policy? No. Is it consistent with the APA? This is close, made closer by the deferential standard of review. But “unexplained inconsistency in agency policy is a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.”

Correcting the Record on the “Longstanding Bipartisan Consensus”

The FCC, among others, has suggested that its new order will restore a “longstanding bipartisan consensus” that predated the 2015 rules. But viewing the FCC’s latest action as taking two distinct steps reveals the misleading nature of that statement.

It is true that there had been a longstanding bipartisan consensus. Chairman Powell (who served during the Bush Administration) outlined the need for network neutrality protections in his Internet Freedoms speech and policy statement. But he was unable to enforce that policy view under the “information service” classification. Chairman Genachowski (who served during the Obama Administration) also emphasized the need for net neutrality rules. But he, too, was unable to enforce those rules under the “information service” classification. Chairman Wheeler (also Obama Administration) also emphasized the need for net neutrality, and reconsidered the classification of internet access to ensure such principles were enforceable.

Hence, the “bipartisan consensus” was one over the need for network neutrality protections–not over the proper classification of broadband internet access. The FCC’s most recent action abandons this consensus position. To say that the FCC’s latest classification decision restores a bipartisan policy is to focus on the wrong part of FCC’s action.

TL;DR

What does the FCC’s order do?

First, it disavows the legal authority to impose net neutrality rules. Its justification for doing so is based on a view of broadband internet access service that is inconsistent with consumer perception and its 2015 Order. Chevron and Brand X make challenging the FCC’s decision difficult—but not impossible, given the closeness of the question in 2002, the now-changed conditions, and the Supreme Court’s characterization of the issue as one that turns on “the factual particulars of how internet technology ... is provided.”

Second, it abandons the principles of neutrality that had been a part of its regulatory regime since the 1960s. The agency’s conflicting rationales for doing so seem, to me, largely arbitrary. Moreover, this action abandons a longstanding bipartisan consensus favoring net neutrality. 

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