On June 14, 2016, the United States Court of Appeals for the District of Columbia (D.C. Circuit) upheld the FCC’s 2015 network neutrality regulations, soundly denying myriad legal challenges brought by the telecommunications industry (U.S. Telecomm. Ass’n v. FCC 2016). Thus, unless the Supreme Court says otherwise, Congress rewrites the rules, or INSERT TRENDING CELEBRITY NAME truly breaks the Internet, we can expect to receive our lawful content without concerns that it would be throttled or that the content provider paid a termination fee. How did we get here? As my colleague Kendall Koning, a telecommunications attorney and Ph.D. candidate at the Department of Media and Information at Michigan State and I lay out in this blog post outlining the history of net neutrality regulation, it has been a long road.
A short Quello Center Working Paper covering substantially the contents of this blog post is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2797366
The most recent D.C. Circuit case represented the third time that FCC network neutrality rules had been before that court, the first two having been struck down on largely procedural grounds. The FCC’s 2015 Open Internet Order remedied these flaws by formally grounding the rules in Title II of the Telecommunications Act (47 U.S.C. § 201 et. sq. 2016) while simultaneously exercising a separate forbearance authority to exempt ISPs from some of the more restrictive rules left over from the PSTN era.
The U.S. Telecommunications Association (USTelecom), a trade group representing the nation’s broadband service providers along with various other petitioners, had challenged the FCC’s Order on a number of grounds. USTelecom’s central challenge echoed earlier arguments that ISPs don’t really offer telecommunications, i.e., the ability to communicate with third parties without ISPs altering form and content, but an integrated information service, where ISP servers exercise control over the form and content of information transmitted over the network. As explained below, this perspective was a historical artifact from the era of America Online and dial-up ISPs, but had been used successfully at the start of the broadband era. In a stinging rejection of ISP arguments, the D.C. Circuit not only found that the FCC’s reclassification of Internet access as telecommunications was reasonable and within the bounds of the FCC’s discretionary authority but offered a strong endorsement of this perspective (U.S. Telecomm. Ass’n v. FCC supra at 25-26):
That consumers focus on transmission to the exclusion of add-on applications is hardly controversial. Even the most limited examination of contemporary broadband usage reveals that consumers rely on the service primarily to access third-party content . . . Indeed, given the tremendous impact third-party internet content has had on our society, it would be hard to deny its dominance in the broadband experience. Over the past two decades, this content has transformed nearly every aspect of our lives, from profound actions like choosing a leader, building a career, and falling in love to more quotidian ones like hailing a cab and watching a movie. The same assuredly cannot be said for broadband providers’ own add-on applications.
At present, the FCC states that its current Open Internet rules “protect and maintain open, uninhibited access to legal online content without broadband Internet access providers being allowed to block, impair, or establish fast/slow lanes to lawful content.” In particular, the present rules make clear the following three conditions, each of which is subject to a reasonable network management stipulation (FCC 2015 ¶¶ 15-18):
These rules are, to a degree, a modern version of common carrier non-discrimination rules adapted for the Internet. 47 U.S.C. §201(b) requires that “all charges, practices, classifications, and regulations for . . . communication service shall be just and reasonable.” Whereas in the United States, these statutes date back to the Telecommunications Act of of 1934, common carrier rules more generally have quite a long history, with precursors going as far back as the Roman Empire (Noam 1994). One of the purposes of these rules is to protect consumers from what is frequently deemed unreasonable price discrimination: if a product or service is critically important, only available from a very small number of firms, and not subject to arbitrage, suppliers may be able to charge each consumer a price closer to that consumer’s willingness to pay, rather than a single market price.
Consumers of Internet services are not only individuals but also content providers, like ESPN, Facebook, Google, Netflix, and others, who rely on the Internet to reach their customers. As a general-purpose network platform, the Internet connects consumers and content providers via myriad competing broadband provider networks, none of which can reach every single consumer (FCC 2010 ¶ 24). The D.C. Circuit succinctly laid it out, writing (U.S. Telecomm. Ass’n v. FCC, supra at 9):
When an end user wishes to check last night’s baseball scores on ESPN.com, his computer sends a signal to his broadband provider, which in turn transmits it across the backbone to ESPN’s broadband provider, which transmits the signal to ESPN’s computer. Having received the signal, ESPN’s computer breaks the scores into packets of information which travel back across ESPN’s broadband provider network to the backbone and then across the end user’s broadband provider network to the end user, who will then know that the Nats won 5 to 3.
Thus, when individuals or entities at the “edge” of the Internet wish to connect to others outside their host ISP network, that ISP facilitates the connection by using its own peering and transit arrangements with other ISPs to move the content (data) from the point of origination to the point of termination.
One of the key issues in the the network neutrality debate was whether or not ISPs where traffic terminates should be allowed to offer these companies, for a fee, a way to prioritize their Internet traffic over the traffic of others when network capacity was insufficient to satisfy current demand. Many worried that structuring Internet pricing in this way would enable price discrimination among content providers (Choi, Jeon, and Kim 2015) and might have several undesirable side effects.
First, welfare might be diminished if prioritization results in a diminished diversity of content (Economides and Hermalin 2012). Second, because prioritization is only valuable when network demand is greater than its capacity, selling prioritization might create a perverse incentive to keep network capacity scarce (Choi and Kim 2010; Cheng, Bandyopadhyay, Guo 2011). Third, ISPs who offer cable services or are otherwise vertically integrated into content might use both of these features to disadvantage their competitors in the content markets. In light of the risk that ISPs pursue price discrimination to defend their vertically integrated content interests, network neutrality can be seen as an application of the essential facilities doctrine from antitrust law (Pitofsky, Patterson, and Hooks 2002) to the modern telecommunications industry.
In response, broadband ISPs have claimed that discriminatory treatment of certain traffic was necessary to mitigate congestion (FTC 2007; Lee and Wu 2009 broadly articulate this argument). ISPs also claim that regulation prohibiting discriminatory treatment of traffic would dissuade them from continued investment in reliable Internet service provision (e.g., FCC 2010 ¶ 40 and n. 128; FCC 2015 at ¶ 411 and n. 1198) and even the FCC noted that its 2015 net neutrality rules could reduce investment incentives (FCC 2015 at ¶ 410). Nevertheless, the FCC partially justified the implementation of net neutrality by noting that it believed that any potential investment-chilling effect of its regulation was likely to be short term and would dissipate over time as the marketplace internalized its decision. Moreover, the FCC claimed that prior time periods of robust ISP regulation coincided with upswings in broadband network investment (FCC 2015 at ¶ 414).
The Commission’s Open Internet rules are far from the first time that the telecommunications industry has faced similar issues. Half a century ago, AT&T refused to allow the use of cordless phones manufactured by third parties until it was forced to do so by a federal court (Carter v. AT&T, 250 F.Supp 188, N.D. Tex. 1966). The federal courts also needed to intervene before MCI was allowed to purchase local telephone service from AT&T to complete the last leg of long-distance telephone calls (MCI v. AT&T, 496 F.2d 214, 3rd Cir. 1974). AT&T’s refusal to provide local telephone service to it’s long-distance competitor was deemed an abuse of its monopoly in local telephone service to protect its monopoly in long-distance telephone service, and featured prominently in the breakup of AT&T in 1984 (U.S. v. AT&T, 522 F.Supp. 131, D.D.C. 1982). Subsequent vigorous competition in the long-distance market helped drive down prices significantly.
The rules developed for computer networks throughout the FCC’s decades long Computer Inquiries were also designed to ensure third party companies had non-discriminatory access to necessary network facilities, and to facilitate competition in the emerging online services market (Cannon 2003). For example, basic telecommunications services, like dedicated long-distance facilities, were required to be offered separately without being bundled with equipment or computer processing services. These services were the building blocks upon which the commercial Internet was built.
The rules that came out of the Computer Inquiries were codified by Congress in the Telecommunications Act of 1996, by classifying the Computer Inquiry’s basic services as telecommunications services under the 1996 Act, the Computer Inquiry’s enhanced services as information services under the 1996 Act, and subjecting only the former to the non-discrimination requirements of Title II (FCC 2015 at ¶¶ 63, 311-313; Cannon 2003; Koning 2015). In particular, 47 U.S.C. Title II stipulates that it is unlawful for telecommunications carriers “to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage (47 U.S.C. § 202(a) 2016).”
Internet access specifically was first considered in terms of this classification in 1998. Alaska Sen. Ted Stevens and others wanted dial-up ISPs to pay fees into the Universal Service Fund, which subsidized services for poor and rural areas. The FCC ruled that ISPs were information services because they “alter the format of information through computer processing applications such as protocol conversion” (FCC 1998 ¶ 33). However, to understand this classification, it is important to keep in mind that ISP services at this time were provided using dial-up modems as the PSTN. In other words, in 1998 the Internet was an “overlay” network—one that uses a different network as the underlying connections between network points (see, e.g., Clark et al. 2006). If consumers’ connections to their ISPs were made using dial-up telephone connections, then USF fees for the underlying telecommunications network were already being paid through consumers’ telephone bills.
In this context, applying USF fees to both ISPs and the underlying network would have effectively been double taxation. Additionally, the service dial-up ISPs provided could reasonably be described as converting an analog telecommunications signal (from a modem) on one network (the PSTN) to a digital packet switched one (the Internet), which is precisely the sort of protocol conversion that had been treated as an enhanced service under the Computer Inquiry rules. The same reasoning does not apply to broadband Internet access service, because it provides access to a digital packet switched network directly rather than through a separate underlying network service (Koning 2015). However, the FCC continued to apply this classification to broadband ISPs, effectively removing broadband services from regulation under Title II.
Modern policy concerns over these issues reappeared in the early 2000s when the competitive dial-up ISP market was being replaced with the broadband duopoly of Cable and DSL providers. The concern was that if ISPs had market power, they might deviate from the end-to-end openness and design principles that characterized the early Internet (Lemley and Lessig 2001). Early efforts focused on preserving competition in the ISP market by fighting to keep last-mile infrastructure available to third-party ISPs as had been the case in the dial-up era. However, difficult experiences with implementing the unbundling regime of the 1996 Act, differing regulatory regimes for DSL and Cable (local loops for DSL had been subjected to the unbundling provisions of the 1996 Act, but Cable networks were not; an analysis of the consequences of doing this can be found in Hazlett and Caliskan 2008), and the existence of at least duopoly competition between these two incumbents discouraged the FCC from taking that path (FCC 2002, 2005b). Third-party ISPs tried to argue that Cable modem connections were themselves a telecommunications service and therefore should be subject to the common-carrier provisions of Title II. The FCC disagreed, pointing to its classification of Internet access as an information service under the 1996 Act. This classification was ultimately upheld by the Supreme Court in NCTA v. Brand X (545 U.S. 967, 2005).
Unable to rely on the structural protection of a robustly competitive ISP market, the FCC shifted its focus towards the possibility of enforcing an Internet non-discrimination regime through regulation. During this time period, the meaning and ramifications of “net neutrality,” a term coined in 2003 (Wu 2003), became the subject of vigorous academic debate. Under the computer inquiries, non-discrimination rules had applied to the underlying network infrastructure, but it was also possible for non-discrimination rules to apply to Internet service itself, just as they had been to other packet-switched networks (X.25 and Frame Relay) in the past (Koning 2015). However, there was extensive debate over the specific formulation and likely effects of any such rules, particularly among legal scholars (e.g., Cherry 2006, Sidak 2006, Sandvig 2007, Zittrain 2008, Lee and Wu 2009). Although to that point, there had been no rulemaking proceeding specifically addressing non-discrimination on the Internet, a number of major ISPs had agreed to forego such discrimination in exchange for FCC merger approval (FCC 2015 ¶ 65) and there was still a general expectation that ISPs would not engage in egregious blocking behavior. In one early case, the Commission fined an ISP for blocking a competitor’s VoIP telephone service (FCC 2005a). In 2008, the FCC also ruled against Comcast’s blocking of peer-to-peer applications (FCC 2008). However, the Comcast order was later reversed by the D.C. Circuit (Comcast v. FCC, 600 F.3d 642, D.C. Cir. 2010).
In response to this legal challenge, the FCC initiated formal rulemaking proceedings to codify its network neutrality rules. In 2010, the FCC released its initial Open Internet Order, which applied the FCC’s Section 706 authority under the Communications Act to address net neutrality directly (FCC 2010 ¶¶ 117-123). Among other things, the 2010 Open Internet Order adopted the following rule (FCC 2010 ¶ 68):
A person engaged in the provision of fixed broadband Internet service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.
However, these rules were struck down by the D.C. Circuit in January 2014 (Verizon v. FCC, 740 F.3d 623, D.C. Cir. 2014). The root of the problem was that the Commission had continued to classify broadband Internet access as an “information service” under the 1996 Act, where its authority was severely limited. As the court wrote: “[w]e think it obvious that the Commission would violate the Communications Act were it to regulate broadband providers as common carriers. Given the Commission’s still-binding decision to classify broadband providers not as providers of ‘telecommunications services’ but instead as providers of ‘information services,’  such treatment would run afoul of section [47 U.S.C §]153(51): ‘A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services (Verizon v. FCC, supra at 650).’”
The FCC went back to the drawing board and issued its most recent Open Internet Order in 2015. This time, the Commission grounded its rules in a reclassification of Internet access service as a Title II telecommunications service. Moreover, unlike in the 2010 Order, which only subjected mobile broadband providers to a transparency and no blocking requirement (FCC 2010 ¶¶ 97-103), the Commission applied the same rules to providers of fixed and mobile broadband in the 2015 Order (FCC 2015 ¶ 14).
In contrast to information services, telecommunications services are subject to Title II common carrier non-discrimination provisions of the Act (FCC 2005b at ¶ 108 and n. 336). As discussed above, these statutes expressly address the non-discrimination issues central to the network neutrality issue. The reclassification permitted the Commission to exercise its Section 706 authority to implement the non-discrimination rules codified in Title II (FCC 2015 ¶¶ 306-309, 363, 365, 434). On June 14, 2016, the D.C. Circuit upheld the FCC’s Open Internet rules as based on this and other statutes from Title II, 47 U.S.C. § 201 et. sq.
Although the Commission’s long evolving Open Internet rules appear to have found a solid legal grounding, it is important to understand that they are not without limits. For instance, crucially, the rules stipulate what ISPs can and cannot do at termination, whereas they do not restrict the terms of interconnection and peering agreements with ISP networks (FCC 2015, ¶ 30). Critically, in contrast to what HBO’s John Oliver might conclude from the FCC’s recent court victory, the Order does not prevent ISPs such as Comcast from requiring payment for interconnection to their networks; it merely subjects interconnection to the general rule under Title II that the prices charged must be reasonable and non-discriminatory. Rather than making any prospective regulations on interconnection itself, the FCC’s 2015 Order leaves those issues open for future consideration on a case-by-case basis (FCC 2015, ¶ 203).
Additionally, academics are far from a consensus regarding the welfare implications of net neutrality. When handing out judgement, the D.C. Circuit was careful to point out that its ruling was limited by a determination of whether the FCC has acted “within the limits of Congress’s delegation” (U.S. Telecomm. Ass’n v. FCC, supra note 1 at 23) of authority, and not on the economic merits or lack thereof of the FCC’s Internet regulations. In contrast to some of the aforementioned theoretical economics articles, there are a number of theoretical studies that find the type of quality of service tiering that is ruled out by the 2015 Order is likely to result in higher broadband investment and increase diversity of content (Krämer and Wiewiorra 2012; Bourreau, Kourandi, Valletti 2015), or for that matter, that under certain circumstances, it may not matter at all (Gans 2015; Gans and Katz 2016; Greenstein, Peitz, and Valletti 2016). The empirical economic literature on net neutrality is at a very early stage and has thus far mostly focused on the consequences of other regulatory policies that might be likened to net neutrality regulation (Chang, Koski, and Majumdar 2003; Crandall, Ingraham, and Sidak 2004; Hausman and Sidak 2005; Hazlett and Caliskan 2008; Grajec and Röller 2012). To the extent that economists and other academicians reach some consensus on certain aspects of broadband regulation in the future, the FCC may be persuaded to update its rules.
Finally, the scope of the existing Open Internet rules remains under debate. For instance, public interest group, Public Knowledge, recently rekindled the debate regarding whether zero rating (alternatively referred to as sponsored data plans) policies that exempt certain content from broadband caps imposed by certain providers constitute a violation of Open Internet principles (see Public Knowledge 2016; Comcast 2016). Although the Commission has not ruled such policies out, in the 2015 Order, it left the door open to reassess them (FCC 2015, ¶¶ 151-153).
Signaling its concern about such policies, the FCC conditioned its recent approval of the merger between Charter Communications and Time Warner Cable on the parties consent not to impose data caps or usage-based pricing (FCC 2016 ¶ 457). Academic research on this topic remains scarce. Economides and Hermalin (2015) have suggested that in the presence of a sufficient number of content providers, ISPs able to set a binding cap will install more bandwidth than ones barred from doing so; to our knowledge, economists have not rigorously assessed zero rating and the FCC continues its inquiry into these policies.
 It should be noted that notwithstanding these claims, congestion control is already built into the TCP/IP protocol. Further, more advanced forms of congestion management have been developed for specific applications, such as buffering and adaptive quality for streaming video, that allow these applications to adapt to network congestion. Whereas real-time network QoS guarantees could be useful for certain applications (e.g., live teleconferencing), these applications represent a small share of overall Internet traffic.
 The categorizations embodied by the Computer Inquiries decisions initially stemmed from an attempt to create a legal and regulatory distinction between “pure communications” and “pure data processing,” the former of which was initially provisioned by an incumbent regulated monopoly (primarily AT&T), and the latter of which was viewed as largely competitive and needing little regulation. The culmination of these inquiries implicitly led to a layered model of regulation, dividing communication policy into (i) a physical network layer (to which common carrier regulation might apply), (ii) a logical network layer (to which open access issues might apply), (iii) an applications and services layer, and (iv) a content layer (Cannon 2003 pp. 194-5, Koning 2015 pp. 286-7).
 One 1999 study found a total of 6,006 ISPs in the U.S. See, e.g., Greenstein and Downes (1999) at 195-212.
 In particular, the Court wrote, “Nor do we inquire whether `some or many economists would disapprove of the [agency’s] approach’ because ‘we do not sit as a panel of referees on a professional economics journal, but as a panel of generalist judges obliged to defer to a reasonable judgement by an agency acting pursuant to congressionally delegated authority.”
Having appreciated my colleague Aleks’ Yankelevich’s creative use of a “food” metaphor to explain an important aspect of economic analysis, I thought it fitting, on the day of oral arguments in the legal challenge to the FCC’s Open Internet Order, to consider another effective use of such a metaphor: Supreme Court Justice Antonin Scalia’s dissent in the Brand X case. Whereas the majority opinion in that case deferred to an earlier FCC ruling that Internet access was an “information” rather than a “telecommunication” service, Scalia–joined by two liberal justices, Ruth Bader Ginsburg and David Souter–argued that the majority’s view was akin to accepting a claim by the owner of a pizzeria that it delivered pizza, but didn’t “offer pizza delivery service.”
Below are some excerpts from Scalia’s dissent that I find most significant in terms of how the DC Circuit (and perhaps later, the Supreme Court) should and will rule in the latest challenge to the FCC’s Open Internet Order, which is the first in which the Commission has treated Internet access as a Title II “telecommunication” service rather than an “information” service.
The first sentence of the FCC ruling under review reads as follows: “Cable modem service provides high-speed access to the Internet, as well as many applications or functions that can be used with that access, over cable system facilities”…Does this mean that cable companies “offer” high-speed access to the Internet? Surprisingly not, if the Commission and the Court are to be believed.
It happens that cable-modem service is popular precisely because of the high-speed access it provides, and that, once connected with the Internet, cable-modem subscribers often use Internet applications and functions from providers other than the cable company. Nevertheless, for purposes of classifying what the cable company does, the Commission (with the Court’s approval) puts all the emphasis on the rest of the package (the additional “applications or functions”). It does so by claiming that the cable company does not “offe[r]” its customers high-speed Internet access because it offers that access only in conjunction with particular applications and functions, rather than “separate[ly],” as a “stand-alone offering…”
There are instances in which it is ridiculous to deny that one part of a joint offering is being offered merely because it is not offered on a “stand-alone” basis…If, for example, I call up a pizzeria and ask whether they offer delivery, both common sense and common “usage”…would prevent them from answering: “No, we do not offer delivery–but if you order a pizza from us, we’ll bake it for you and then bring it to your house.” The logical response to this would be something on the order of, “so, you do offer delivery.” But our pizza-man may continue to deny the obvious and explain, paraphrasing the FCC and the Court: “No, even though we bring the pizza to your house, we are not actually “offering” you delivery, because the delivery that we provide to our end users is ‘part and parcel’ of our pizzeria-pizza-at-home service and is ‘integral to its other capabilities.’”… Any reasonable customer would conclude at that point that his interlocutor was either crazy or following some too-clever-by-half legal advice.
In short, for the inputs of a finished service to qualify as the objects of an “offer” (as that term is reasonably understood), it is perhaps a sufficient, but surely not a necessary, condition that the seller offer separately “each discrete input that is necessary to providing . . . a finished service…”
Shifting his analogy from pizza to puppies, Justice Scalia adds:
The pet store may have a policy of selling puppies only with leashes, but any customer will say that it does offer puppies because a leashed puppy is still a puppy, even though it is not offered on a “stand-alone” basis.
Despite the Court’s mighty labors to prove otherwise, …the telecommunications component of cable-modem service retains such ample independent identity that it must be regarded as being on offer–especially when seen from the perspective of the consumer or the end user, which the Court purports to find determinative.
Since the majority opinion in Brand X was based primarily on the doctrine of “administrative deference” derived from the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., one would hope and expect that the DC Circuit Court judges hearing today’s oral arguments would remember what Justice Thomas wrote in that majority opinion: “If a statute is ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a federal court to accept the agency’s construction of the statute, even if the agency’s reading differs from what the court believes is the best statutory interpretation.”
When the majority’s Chevron-base deference is coupled with Justice Scalia’s simple but clear and commonsensical analogies to pizza and puppies, it’s hard for me to imagine a strong legal basis for the Circuit Court (or the Supreme Court if it ends up ruling on the case) to rule against the FCC’s Title II-based Open Internet Order. Perhaps today’s oral arguments will provide some additional clues as to whether I’m right or wrong about that (Update: downloadable audio of the oral arguments is here (wireline) and here (wireless, First Amendment, Forbearance). h/t @haroldfeld, whose initial response to today’s arguments is here.
In the past few weeks we’ve seen both a wireless and wireline carrier launch new “zero rating” video streaming services that test the boundaries of the FCC’s net neutrality policy: T-Mobile’s Binge On and Comcast’s Stream TV.
According to published reports, FCC chairman Tom Wheeler has praised Binge On as “highly innovative” and “highly competitive,” while also noting that the Commission will continue to monitor the service under its “general conduct” rule. According to Ars Technica, an FCC spokesperson declined comment on Comcast’s Stream TV, which does not count against the company’s data caps.
The FCC’s reported response to the two services is not too surprising. While they share some similarities, they are also different in key respects. Among the differences that come initially to mind are:
In a blog post, Public Knowledge senior staff attorney John Bergmayer argues that Stream TV is subject to and violates the FCC’s Open Internet order as well as the consent decree Comcast agreed to as part of its NBC Universal acquisition. I’d recommend reading the post in full for anyone wanting a preview of legal arguments to be made in more formal channels by Public Knowledge and others likely to challenge Stream TV before the FCC and the courts.
According to Bergmayer:
Comcast maintains that “Stream TV is a cable streaming service delivered over Comcast’s cable system, not over the Internet.” But Stream TV is being delivered to Comcast broadband customers over their broadband connections, and is accessible on Internet-connected devices (that is, not just through a cable box). From a user’s perspective, it is identical to any other Internet service. Comcast’s argument is that if it offers its service only to Comcast customers and locates the servers that provide Stream TV on its own property, connected to its own network, that this exempts it from the Open Internet rules. This is an absurd position that would permit Comcast to discriminate in favor of any of its own services, and flies in the face of the Open Internet rules…
[I]t does not appear that Stream TV is an IP service like facilities-based VoIP. It is not available standalone; you need a broadband Internet access connection to access it. It is thus readily distinguishable from services like facilities-based VoIP. If Comcast offered Stream TV separately from broadband there would be a better case that it was more like traditional cable TV or a specialized service–but it does not.
Bergmayer also reviews some relevant language from Comcast’s NBC Universal consent decree, including:
“Comcast shall not offer a Specialized Service that is substantially or entirely comprised of Defendants’ affiliated content,” and…”[if] Comcast offers any Specialized Service that makes content from one or more third parties available … [it] shall allow any other comparable Person to be included in a similar Specialized Service on a nondiscriminatory basis.”
In an article in Multichannel News, Jeff Baumgartner previews what may be a core element of Comcast’s legal argument defending Stream TV:
“Stream TV is an in-home IP-cable service delivered over Comcast’s cable network, not over the public Internet,” Comcast said in a statement issued Thursday, the same day it launched Stream TV to its second market – Chicago. “IP-cable is not an ‘over-the-top’ streaming video service. Stream enables customers to enjoy their cable TV service on mobile devices in the home delivered over the managed cable network, without the need for additional equipment, like a traditional set-top-box.”
The FCC does address the idea in rules released in December 2014, which explain that “an entity that delivers cable services via IP is a cable operator to the extent it delivers those services as managed video services over its own facilities and within its footprint…IP-based service provided by a cable operator over its facilities and within its footprint must be regulated as a cable service not only because it is compelled by the statutory definitions; it is also good policy, as it ensures that cable operators will continue to be subject to the pro-competitive, consumer-focused regulations that apply to cable even if they provide their services via IP.”
In his blog post Bergmayer cites language from the Commission’s Open Internet order related to the provision of “Non-Broadband Internet Access Service Data Services.” In my view, a key sentence in that section of the order is “The Commission expressly reserves the authority to take action if a service is, in fact, providing the functional equivalent of broadband Internet access service or is being used to evade the open Internet rules.” On the face of it, I’m inclined to agree with Bergmayer that this appears to be the case with Comcast’s Stream TV, when coupled with its data cap policies and the reality of Comcast’s multifaceted market power in both distribution and content.
And, more generally, I think Bergmayer is correct that “Comcast’s program raises a host of issues under the Open Internet rules, the consent decree, and—most importantly—general principles of competition.”
The fact that Comcast is testing the bounds of the Commission’s new rules is not surprising, given its focus on maximizing shareholder value within a set of interrelated and dynamic markets in which it enjoys substantial market power, but faces significant challenges to its traditional revenue streams and growth prospects. In fact, I view it as helpful that Comcast is moving fairly quickly in this direction, since it is likely to force the FCC and the Courts to revisit yet again the question of how to craft communication policy that serves the public interest in the Internet age.
And, with the Commission having classified broadband access as a Title II service, my hope is that any court review of FCC action responding to Stream TV or similar services will consider substantive policy arguments (e.g., related to competition and the public interest) rather than simply ruling that the Commission cannot impose net neutrality rules absent a Title II classification of broadband access (which seemed to be the central message of the most recent DC Circuit Court ruling).
We are clearly moving into a world where the central element of our once heavily (and often clumsily) siloed communication infrastructure and policy (and arguably our economy and society as a whole) is IP connectivity. Though some believe the FCC has outlived its usefulness in that world, my own preference—at least for now—is that the Commission retain sufficient tools and authority to continue serving as the specialized regulatory agency responsible for setting ground rules that help ensure that the public interest is well served during and after this historic and vitally important transition from yesterday’s communication technology and industry structure to tomorrow’s.
I thought I’d write a short follow-up in response to the exchange of comments following my recent post on issues related to impacts of the FCC’s Open Internet order on ISP investment.
I very much appreciate the responses to my post, especially from Hal Singer and Mark Jamison, whose work was the target of my sometimes insufficiently respectful criticism. It helped me understand the substantive issues better and also reminded me that respectful dialog on important and controversial issues may not always be easy, but is certainly worth the effort…and that I’m still somewhat haltingly learning that lesson.
I especially appreciated the content and tone of Mark’s comment, including:
I won’t make the claim that my approach revealed reality and that yours did not. We have too little information for that. And even if we had sufficient data for a proper study, there would still be errors. That said, I would be glad to work with you and/or your colleagues on a study once sufficient data are available.
In my view this pretty well describes the aim of the Quello Center’s investigation of this policy issue: to gather as much useful data as we can and to apply to it a mix of the most useful modes of analysis to understand what’s going on and to refine the models we use to understand and predict policy outcomes. I hope to be part of that process, contributing my best skills and strengths, being humble enough to acknowledge their limits, and learning from others who have different expertise and perspectives.
Mark’s comment reminds me of the story about the blind men trying to describe the elephant, all of them describing it differently based on which part of the massive creature they were feeling with their hands. While I wouldn’t describe all of us focused on this issue as blind, I think it’s fair to say that we (and, as Mark notes, our methods) all suffer from some form of perceptual limitation. Some of us are nearsighted, others farsighted and perhaps others see clearly only with one eye…and occasionally we all may feel compelled to close our eyes to avoid seeing something that makes us very uncomfortable.
Though when it comes to policy research we may never be able to see and agree on “the truth,” my hope is that the Quello Center’s research team can be part of an effort to carefully study this and other policy “elephants” from as many angles as we can, and work together to understand their key dynamics, while at the same time remembering the value of respectful dialog, even when a voice inside our head might be telling us “that guy describing the elephant’s tail must be a fool or a scoundrel.”
In a blog entry here yesterday I described FCC Chairman Wheeler’s Title II proposal as “replanting the roots” of communication policy in the digital age. Shortly after I posted it, the Commission released a four-page summary of the proposed “New Rules for Protecting the Open Internet.” Not surprisingly, the document triggered a barrage of public responses from a range of interested parties on both sides of the issue.
After reviewing the FCC’s Fact Sheet and some of these responses, I found myself puzzled about claims regarding risks and problems associated with Title II classification. So I thought I’d invite comments to help clarify what those risks and problems really are.
In yesterday’s post I focused on:
Today I want to focus more on questions of near-term strategy, tactics and risks related to the Commission’s proposed Title II action, and invite comments that clarify how and why the proposed Title II classification is problematic. It’s a claim I’ve heard often, but have difficulty understanding.
Here’s how I see it:
[Update: shortly after this was written, the FCC released details about Chairman Wheeler’s “Protecting the Open Internet” proposal, which will be discussed here in later posts]
With the FCC expected to classify broadband access as a Title II common carrier service, while also preempting state restrictions on municipally-owned access networks, the Commission’s February 26 meeting is poised to launch a new era in U.S. communication policy.
To appreciate the significance of the Commission’s impending Title II decision, it’s useful to step back from the drama and details of today’s regulatory and market battles, and consider the agency’s upcoming vote from a historical perspective, starting with the Communications Act of 1934. I’d suggest that, viewed from that perspective, the FCC’s decision to treat broadband access under Title II is an attempt to replant the roots of communication law in the fertile ground of today’s First Amendment-friendly technology.
The Act’s stated purpose was:
“to make available, so far as possible, to all the people of the United States a rapid, efficient, nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges.”
Given the relatively primitive technology of that era, the 1934 Act adopted different regulatory schemes for wireless broadcasting and wireline telephony, each designed to accommodate the technical constraints of the industry it was to regulate. Wireless broadcasting, constrained by technical interference among a cacophony of competing “voices,” was addressed by a system of exclusive licensing. This gave a relative handful of licensees First Amendment megaphones of unprecedented reach and power, in exchange for a vague and difficult-to-enforce set of “public interest” obligations.
Unwieldy at best, enforcement of broadcasting’s public interest regulations was largely abandoned in the 1980s under the Reagan Administration, which viewed deregulation as a much needed and broadly applicable solution to the nation’s economic problems. From that perspective, the best way to serve the public interest was, in most cases, to rely on the “magic of the market.” To the Administration’s first FCC Chair, Mark Fowler, the powerful broadcast and cable media were just more markets needing a healthy dose of deregulation. As he famously put it, television was “a toaster with pictures.”