2015 3-2 FCC Member Vote Kicked Off Current Iteration of Net Neutrality Rules

The latest iteration of net neutrality rules formally kicked off with a 3-2 party-line vote by FCC members in front of a standing-room-only crowd on Feb. 26, 2015. After many twists and turns in a lengthy process with millions of comments submitted, that included a significant course correction by FCC Chairman Tom Wheeler, the final order was released in March 2015. It reclassified broadband as a Title II telecom service subject to some common-carrier regulation under the Communications Act.

Earlier, Wheeler had been pursuing an approach that would have kept broadband a Title I information service, but that was before President Barack Obama in November 2014 weighed in in favor of Title II treatment (see 1411100035). This Part I of a Special Report on net neutrality focuses on the rules that the FCC put in place.

“Today, the Commission -- once and for all -- enacts strong, sustainable rules, grounded in multiple sources of legal authority, to ensure that Americans reap the economic, social, and civic benefits of an Open Internet today and into the future,” said a February 2015 FCC news release. The order provided “bright line rules” against blocking, throttling and paid prioritization. In other areas, such as zero rating, in which ISPs exclude certain content from data caps, the FCC will look more closely at whether business plans are anticompetitive, officials said in interviews with this publication at the time.

The commissioners' vote came four years and two months after the FCC approved its first net neutrality rules, which stopped short of reclassification and with different requirements for wireless and wireline. The U.S. Court of Appeals for the D.C. Circuit rejected most of those rules in January 2014, setting up a policy fight that dominated the FCC’s time and attention for many months. Even before the 2015 net neutrality decision, some industry heavyweights like CTIA and NCTA said they likely would sue (see 1502130049). See Part II of this Special Report for more on the latest D.C. Circuit case (1609230009). The court in 2016 decided in favor of the FCC (see Part III on oral argument in the case 1610130014 and Part IV for an examination of the decision 1610210015).

In many instances, the FCC still will have to determine whether industry practices are “just and reasonable” under the rules, Wheeler said Feb. 26, 2015. “What is just and reasonable is something that has developed over time and it is something that you build a record on and then you look at that record and you say, ‘OK, is this a just and reasonable activity? Is this an activity that unreasonably interferes? Is this an activity that unreasonably disadvantages?’” The FCC then must make a decision based on the record, he said. This is an ongoing issue to this day.

Wheeler and the other FCC Democrats said repeatedly that the commission gave great weight to the more than 4 million Americans who commented. "Today is the proudest day of my public policy life," Wheeler said. He stressed that a few ISPs, including Frontier Communications, Google Fiber, Sprint and T-Mobile, had endorsed the FCC approach. Many others didn't, at least not fully.

'Flip Flop'

Commissioner Ajit Pai, a Republican, warned that holes in the order would lead to years of litigation. So far, that warning has played out. The order’s text offers only a few “stale” examples of why rules are needed, he said. “A small ISP in North Carolina allegedly blocked VoIP calls a decade ago,” he said. “Comcast capped BitTorrent traffic to ease upload congestion eight years ago. Apple introduced FaceTime over Wi-Fi first, [and over] cellular networks later.”

Pai said the FCC did a “flip flop” on net neutrality only after the push from Obama. “The commission’s decision to adopt President Obama’s plan marks a monumental shift toward government control of the Internet,” he said. “It gives the FCC the power to micromanage virtually every aspect of how the Internet works. It’s an overreach that will let a Washington bureaucracy, and not the American people, decide the future of the online world.” With Donald Trump's recent election, Pai may become the next FCC chief (see 1611140066).

“Every bad idea ever floated in the name of net neutrality has come home to roost in this item,” said Commissioner Mike O’Rielly, also a Republican, on Feb. 26, 2015. The FCC tried to hide the vast scope of the rules by declining to publish anything more than a brief fact sheet before the vote, he said. “Make no mistake, this is not some make-believe, modernized, Title II-lite that is somehow tailored to preserve investment while protecting consumers from blocking or throttling. It is full-bearance,” he said.

Pai and O’Rielly said during a news conference on Feb. 26, 2015, that the FCC Democratic majority was making changes to the order in the hours leading to the vote. "There were a number of versions circulating in the last 24 hours and 12 hours, somewhere in that range; changes were being made," O'Rielly said. Pai said under the rules, many decisions on whether a company action is just and reasonable are delegated to the Enforcement Bureau for decision, without a full commission vote. “That is, in effect, substantive regulation being done at the bureau level,” Pai said. That decision attracted scrutiny in the months ahead.

But Commissioner Mignon Clyburn, who was a member of the FCC when the original order was adopted in 2010, said the current rules are the ones it should have approved back then. “This is more than a theoretical exercise,” she said. “Providers here in the United States have, in fact, blocked applications on mobile devices, which not only hampers free expression but also restricts competition and innovation by allowing companies, not the consumer, to pick winners and losers.”

“We cannot have a two-tiered Internet with fast lanes that speed the traffic of the privileged and leave the rest of us lagging behind,” said Commissioner Jessica Rosenworcel. “We cannot have gatekeepers who tell us what we can and cannot do and where we can and cannot go online.”

The FCC called in Etsy CEO Chad Dickerson and Veena Sud, creator of the TV drama The Killing, to testify about the importance of net neutrality at the beginning of the 90-minute discussion. Snow forced the cancellation of a marching band at a pro-net neutrality rally outside FCC headquarters.

Industry Reaction

Official comments from both sides started to flow hours before the vote. “It would be hard to overstate how big of a deal this is for consumers and the future of the Internet,” said Ellen Bloom, then the senior director-federal policy at Consumers Union, from which she has since retired. Public Knowledge then-Vice President Michael Weinberg said, “After months and years of hard work and advocacy, today is a day to celebrate." He has since left PK.

“Today's vote is the biggest win for the public interest in the FCC’s history,” said Free Press President Craig Aaron on Feb. 26, 2015. “It's the culmination of a decade of dedicated grassroots organizing and advocacy.”

Title II was “not designed -- nor ever intended -- for the Internet,” said USTelecom President Walter McCormick in a statement. “History has shown that common carrier regulation slows innovation, chills investment, and leads to increased costs on consumers.” McCormick said the commission’s “overreach” is unnecessary: “Broadband service providers are operating in complete conformance with the open Internet standards advanced by the president, we agree with the standards, we support their adoption in regulation by the FCC under Section 706, and we support their enactment into law.”

Cable companies and NCTA lamented the decision. “We are disappointed the Commission chose this route, which is certain to lead to years of litigation and regulatory uncertainty,” said Comcast Senior Executive Vice President David Cohen in a blog post. “The legal reclassification of a service this critical to the economic and cultural fabric of our nation should not be left to three unelected government officials,” said Mediacom in an emailed statement. Mediacom, Charter Communications and NCTA indicated cable would pursue a legislative solution to the FCC's order. “With years of uncertainty and unintended consequences ahead of us, it falls to Congress to step in,” said NCTA CEO Michael Powell.

Foreshadowing the legal fight that came, many cable interests expected court challenges to the new rules. “We must now look to other branches of government for a more balanced resolution,” Powell said. “We fully embrace the open Internet principles that have been laid out by President Obama and Chairman Wheeler and that now have been adopted by the FCC,” said Comcast. “We just don’t believe statutory provisions designed for the telephone industry and adopted when Franklin D. Roosevelt was president should be stretched to govern the 21st century Internet.”

CTIA President Meredith Baker, who voted against the earlier order as a member of the FCC in 2010, questioned the need for the rules to apply to mobile. “The FCC’s Net Neutrality decision was disappointing and unnecessary: consumers across the U.S. have -- and will always have -- access to an open mobile Internet,” she said in a news release. CEA President Gary Shapiro said net neutrality is a good thing, but reclassification “takes us in the wrong direction on the information superhighway.” The group is now known as CTA.

“We have never argued there should be no regulation in this area, simply that there should be smart regulation,” said AT&T then-Senior Executive Vice President Jim Cicconi in a blog post. “What doesn't make sense, and has never made sense, is to take a regulatory framework developed for Ma Bell in the 1930s and make her great grandchildren, with technologies and options undreamed of eighty years ago, live under it.” Cicconi retired in 2016 (see 1608100041).

Verizon issued a news release that carried a 1934 date and looked like it had been written on a typewriter. “Today (Feb. 26) the Federal Communications Commission approved an order urged by President Obama that imposes rules on broadband Internet services that were written in the era of the steam locomotive and the telegraph,” Verizon said.

Richard Bennett, free-market network expert, offered his take on Wheeler’s net neutrality stance in a tweet: “Screw the law, I’m for the people!” Former Commissioner Michael Copps, now at Common Cause, tweeted: “The @FCC has never done a better job of serving the public interest.” The agency “dealt a major blow to the forces of Big Cable and Big Telecom,” he said.

Delayed Release

As days ticked by after the vote, many asked why the order wasn't released.

O’Rielly issued a statement saying Republicans weren't to blame for the delay, unlike what Wheeler said. "I filed a version of my dissenting statement … with a longer one to follow in the next few days,” O'Rielly said. “To say that this is somehow holding up the Commission’s release of the document and extending the process is ludicrous. After refusing to share this document for three weeks, it takes a lot of nerve for Commission leadership to blame me for its lack of transparency.”

Staff shouldn't be allowed to have the "editorial privilege" of making substantive changes to an item after the commission has approved it, O’Rielly wrote in a March 9, 2015, blog post. O’Rielly raised objections to the granting of editorial privileges for the net neutrality order. Editorial privileges may sound like they would be limited to “non-substantive edits, such as correcting typos and updating cross-references in footnotes,” similar to technical and conforming edits in Congress, O’Rielly wrote. At the FCC, staff members “often do much more substantial editing, including adding substantive and significant rebuttals to Commissioners’ dissents and providing sometimes lengthy responses to ex parte arguments that had not been incorporated into the draft prior to the vote,” O’Rielly said. Such substantive changes should not “be made under the guise of ‘editorial privileges,’” he wrote. “At times, changes seem intended solely to take further pot shots at dissenting Commissioners.” In the rare cases that substantive changes are needed, they should be approved by the commissioners who voted for the item, O’Rielly wrote. He criticized the agency practice in which dissenting commissioners aren't asked about subsequent changes. “If the item is not fully baked in time for the vote, then the Commission should simply delay the vote by a month or two,” O’Rielly wrote. A later series of Communications Daily stories examined such concerns on the editorial process (see 1509170046 and 1509070003).

Senate Commerce Committee Chairman John Thune, R-S.D., believed that legislative negotiation on net neutrality was largely on hold until the FCC released the text of the order, he told reporters in March 2015. The senator said he was engaged in conversations with ranking member Bill Nelson, D-Fla., who had talked with Thune about the possibility of congressional action since 2014. “My impression all along is the Democrats are going to be reluctant to do anything with us legislatively until they see the order and can react to it and determine what some of the impacts could be,” Thune said.

AT&T Chief Financial Officer John Stephens on March 11, 2015, asked the FCC to issue the order. “We need to see the order,” Stephens said emphatically, during remarks at a Deutsche Bank financial conference. “Any kind of uncertainty is not good for investment.” Stephens noted that industry has spent more than $250 billion on networks since the FCC decided to apply a light regulatory touch on broadband during the Clinton administration. “There’s no problem,” he said. “Investment has been great. Innovation has been great.”

The concerns are well founded, said Craig Moffett, analyst at MoffettNathanson. “Telecommunications companies make long-duration investments, with long payback periods and useful lives that are sometimes measured in decades,” he told us. “It is very hard to make those kinds of investments without at least some measure of certainty about how regulation might inform returns. And in this case, it is particularly difficult, as the principal controversy is around whether the order does or doesn’t introduce a real risk of price regulation.” Former Commissioner Robert McDowell, then at Wiley Rein representing clients opposed to the rules, agreed: It's "prologue to what will be a long tragedy." McDowell has since moved to the Cooley law firm (see 1611020022). The effect of the decision itself, not the timing of release, is the issue, said Cinnamon Mueller attorney Barbara Esbin, who represents cable clients. “Until we see the order, we can’t measure just how bad the damage will be,” she said. “The publicly available information on what is in that 300-page document is actually pretty thin.”

Order Details

On March 12, 2015, the FCC released the order. Explaining why it totaled 400 pages, a senior FCC official told reporters at the time that the agency wanted to deal with points raised by critics and commenters because it expected the order to be challenged in court.

The text supplied greater detail about the policy and legal thinking behind the rules and responded to criticisms from O’Rielly, Pai and others. The document reclassified broadband under Communications Act Title II and created “bright line” rules against paid prioritization, blocking and throttling in the last mile by ISPs and mobile providers. One provision that raised eyebrows is paragraph 391, in the section on mobile broadband, revising the definition of “public switched network.” The change effectively asserts authority over IP addresses, said McDowell, who called it a “policy blunder.”

O’Rielly and Pai criticized the order in long dissents and a fact sheet released by Pai. The agency released its own fact sheet purporting to dispel "myths."

The commission has focused in public statements on protecting an open internet. The order and the agency officials on a media call, speaking on condition they not be identified, stressed that the order strives to balance internet protections with promoting the continued deployment of broadband by forbearing from 27 Title II provisions and more than 700 commission rules. “This is a Title II tailored for the 21st century, and consistent with the ‘light-touch’ regulatory framework that has facilitated the tremendous investment and innovation on the Internet,” the order said.

The officials and the text took pains to deny the order will lead to rate regulation, as critics including the Free State Foundation predicted. “We expressly eschew the future use of prescriptive, industry-wide rate regulation,” the order said. The “careful approach to the use of Title II will not impede investment,” the order also argued in response to a frequent criticism, citing growth of mobile voice services under similar rules.

The order left in place relying on Section 254, which authorizes the USF to collect payments from carriers, but forbore from Section 254(d), which requires every “telecommunications carrier that provides interstate telecommunications services” to contribute to the fund. Asked during the media call whether the agency under the order could regulate rates in response to a Section 201(b) consumer complaint, an agency official said the FCC has never exercised that ability for wireless voice.

The order didn't forbear from Section 222, which deals with privacy protections, but did forbear, for ISPs, from provisions dealing with customer proprietary network information. CPNI rules were written for the phone age and were not “well suited to broadband Internet access service,” the order said, noting it doesn't deal with private information held by ISPs such as web browsing history. The order leaves CPNI protections in place for phone service. Broader Section 222 provisions remain in place before new rules are implemented, though the agency has wanted specific CPNI rules on the books, the official said.

Net neutrality rules are based on both Title II and Section 706 authority. Going further, the order argued that times have changed since the commission in 2002 classified broadband as a Title I service. The agency said it's exercising “delegated authority to interpret ambiguous terms" in the Communications Act to conclude that “the facts in the market today are very different from those that guided the 2002 decision.” At that time, the order noted that consumers would use home pages supplied by their broadband providers, which could be seen as information services. Now, customers view broadband access as a “transmission platform through which consumers can access third-party content, applications, and services of their choosing,” the order said. Broadband service is made up of two parts, a transmission piece and an information service piece of apps, content and other services. The order also cited the evolving market in subjecting mobile broadband to the same rules as wireless.

The rules also went into greater detail than did past agency statements about new enhanced transparency requirements. In addition to the demands in the 2010 open internet order for broadband providers of network speed and latency, the new mandates also require disclosure of packet loss. The new order clarified that the 2010 rules require notification of network practices aimed at a particular user or application. It also required ISPs to notify customers if their use will trigger a network practice that is likely to have a significant impact. An example is if a customer is about to exceed a usage limit that would trigger slowing the customer's service, an agency official said.

O’Rielly's and Pai's dissents said the order violates Administrative Procedure Act notice and comment requirements for reclassifying broadband because a 2014 NPRM focused on basing rules on Section 706. “Hardly anyone at the time thought that the Commission would seriously consider applying Title II,” O’Rielly said. The legal authority section of the NPRM contained five paragraphs on Section 706 and eight asking questions about Title II, a senior FCC official responded to reporters.

Paragraph 391, in the text on mobile broadband, said that now a public switched network “includes any common carrier switched network, whether by wire or radio, including local exchange carriers, interexchange carriers, and mobile service providers, that use[s] the North American Numbering Plan, or public IP addresses, in connection with the provision of switched services.”

The “Mobile broadband marketplace has evolved, and continues to evolve,” the FCC said. “Mobile broadband networks are faster, more broadly deployed, more widely used, and more technologically advanced than they were in 2010.” The order noted the proliferation of wireless devices designed to access the internet, with more than 127 million devices with LTE wireless connections in the U.S. market. Wireless carriers of the past had a “well-established record” of trying to keep applications behind a carrier-controlled "walled garden,” though that is no longer the case, the FCC said. But consumers still must be protected “from mobile commercial practices masquerading as ‘reasonable network management,’” the order said. The text attempted to counter arguments made by CTIA and wireless carriers against imposing the same rules on mobile that are imposed on fixed broadband. Though Wheeler singled out T-Mobile as a supporter of the order at the Feb. 26, 2015, commissioner meeting, the order noted objections the carrier had filed at the agency. “Although mobile providers generally argue that additional rules are not necessary to deter practices that would limit Internet openness, concerns related to the openness practices of mobile broadband providers have arisen,” the order said.