Progress on Point

Volume 17, Issue 12 June 2010

On Our Way to the Third Way: The FCC’s Notice of Inquiry on Internet Regulation
by Charles H. Kennedy* At its open meeting held on June 17, 2010, the Federal Communications Commission adopted a Notice of Inquiry (“NOI”) that asks for comment on the agency’s authority to regulate broadband Internet access service.1 The rapid timetable the Commission has set for public input on the NOI (comments due by July 15, reply comments due by August 12) suggests that the FCC wants to finish its inquiry promptly and get on with the business of re-regulating broadband. The NOI asks for comment on three possible ways of asserting FCC jurisdiction over the Internet,2 but only one—the so-called “Third Way” approach announced in the wake of the Commission’s judicial setback in the Comcast case—seems really to be on the table.3 As everyone who has followed this issue knows, the Third Way involves reclassifying the transmission component of broadband Internet access as a telecommunications service subject to regulation under the common-carrier provisions of Title II of the Communications Act, but tempering that decision with a pledge to “forbear” from imposing many of the obligations that such a classification implies.4

Charles H. Kennedy (ckennedy@pff.org) is a Senior Adjunct Fellow at The Progress & Freedom Foundation and a Partner at Wilkinson Barker Knauer LLP. The views expressed in this report are his own, and are not necessarily the views of the PFF board, fellows or staff or of Wilkinson Barker Knauer.
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Framework for Broadband Internet Service, GN Docket No. 10-127, Notice of Inquiry, 2010 FCC LEXIS 3649 (rel. June 17, 2010), http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-10-114A1.pdf (“NOI”). Id. ¶ 2. The NOI follows intense advocacy on behalf of the Third Way option by the FCC Chairman and General Counsel. See Chairman Julius Genachowski, FCC, The Third Way: A Narrowly Tailored Broadband Framework (May 6, 2010), www.broadband.gov/the-third-way-narrowly-tailored-broadband-framework-chairman-juliusgenachowski.html (“Genachowski Third Way Statement”); Austin Schlick, General Counsel, FCC, A Third-Way Legal Framework for Addressing the Comcast Dilemma (May 6, 2010), www.broadband.gov/third-way-legalframework-for-addressing-the-comcast-dilemma.html (“Schlick Third Way Statement”). The Comcast decision is Comcast Corp. v. Fed. Commc’ns Comm’n, 600 F.3d 642 (D.C. Cir. 2010) ) (holding that the FCC had not provided any basis for exercising “ancillary jurisdiction” over the network management practices of Comcast under its 2005 Net Neutrality Policy Statement) (“Comcast”). See generally, Genachowski Third Way Statement, supra note 3; Schlick Third Way Statement, supra note 3.

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1444 EYE STREET, NW  SUITE 500  WASHINGTON, D.C. 20005 202-289-8928  mail@pff.org  @ProgressFreedom  www.pff.org

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More specifically, in the NOI the Commission asks how it can best continue to advance its “established policy goals,” post-Comcast, in five areas: universal service, privacy, access to communications service by persons with disabilities, public safety/homeland security, and “addressing harmful practices by Internet service providers.”5 Of these policy areas, only the fifth can account for the Third Way initiative’s haste and drastic scope. Comcast did not reject or directly implicate the Commission’s authority to support universal service, protect consumer privacy, promote access to telecommunications service by individuals with disabilities or protect the security of the nation’s communications networks. It is doubtful that a judicial setback in any of those areas would have elicited a panicked decision to dismantle the entire structure the Commission has erected for classification of Internet access services under the Communications Act. The Commission has launched its Third Way proceeding because Comcast calls into question the statutory basis for the Commission’s Net neutrality and open Internet initiatives, which are intended to saddle broadband providers with inchoate obligations to adapt their business practices to the Commission’s evolving notions of fairness. In case anyone actually believes the Third Way initiative is needed to salvage “established policy goals” in the areas of universal service, privacy, access, and security, it might be useful to review the record in each of those areas.

I. Universal Service
The NOI refers to the Commission’s wish to “reform its universal service program to support broadband Internet service ...” and asks if this goal can be achieved without reclassification of broadband transmission as a telecommunications service.6 But the Commission already has made successful use of its Title I authority to support Internet access services in its schools and libraries program – a decision that was upheld by the U.S. Court of Appeals for the Fifth Circuit.7 And, as the NOI acknowledges, AT&T and NCTA have provided the Commission with significant legal arguments in support of continued authority, Comcast notwithstanding, to extend the reach of universal service programs to broadband under Title I and the existing authority of section 254 of the Act.8 General Counsel Schlick has referred dismissively to these theories as “untested,” but in fact their odds of surviving a judicial test are considerably better than those

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NOI, ¶¶ 32-50. NOI, ¶¶ 32-38. See Universal Service Report & Order, 12 FCC Rcd 8766, ¶¶ 436-463, 589, aff’d, Texas Office of Pub. Util. Counsel v. Fed. Commc’ns Comm’n, 183 F.3d 393 (5th Cir. 1999). NOI, ¶¶ 34-35; The Federal Communications Commission Has Authority to Fund Universal Broadband Service Initiatives (White Paper submitted to FCC by AT&T, Jan. 29, 2010) (“AT&T White Paper”). See also, Letter from Gary L. Phillips, AT&T, to Marlene H. Dortch, Secretary, Federal Communications Commission (Apr. 12, 2010), www.att.com/Common/about_us/public_policy/ComcastDecision.pdf; Letter from Kyle McSlarrow, National Cable & Telecommunications Association, to Julius Genachowski, Chairman, Federal Communications Commission (March 1, 2010).

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of the Third Way program.9 As a means of extending universal service to include broadband, the Third Way would be a costly, needless detour with slim prospects for success. 10 Finally, the NOI’s discussion avoids the most consequential, likely outcome of reclassification of broadband access as a telecommunications service for universal service purposes: that consumers of those services will be burdened with a universal service “Internet tax.” 11

II. Online Privacy
The need for reclassification as a means of extending privacy protections to broadband customers also is drastically overstated.12 The existing classification of broadband as an information service subjects Internet access unambiguously to the jurisdiction of the Federal Trade Commission, which has led the way for years in developing and enforcing standards for the protection of consumer privacy.13 Tentative claims in the National Broadband Plan and NOI notwithstanding, the FCC simply has not explained why the public interest requires it to take a greater role in broadband consumer privacy.14 In fact, reclassification of broadband connectivity as a telecommunications service threatens to call into question the FTC’s continuing jurisdiction over those services, with no assurance that the FCC is prepared or equipped to do the job as well.15

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Schlick Third Way Statement, supra note 3. Also, the suggestion that Comcast is obstructing the Commission’s efforts to extend universal service support to broadband is curious when compared to the pace of the Commission’s efforts in this area. As AT&T’s White Paper pointed out, the Joint Board on Universal Service recommended in 2007 that universal service support be extended to broadband. AT&T White Paper, supra note 8, at 4. Shortly before the expiration of the deadline for action on the Joint Board recommendations, the Commission declined without explanation to act on them. Id. The Commission has since asked for further comment on the question, but still has declined to act. Id. Neither the Comcast court, nor anyone else, has obstructed the FCC’s leisurely deliberations on this question. See James Dunstan, The FCC's Title II “Lite” (as a Lead Balloon!) & the Looming Broadband Tax, Progress Snapshot 6.9, May 11, 2010, www.pff.org/issues-pubs/ps/2010/ps6.9-title_II_lite.html. NOI, ¶ 39. See Charles Kennedy, The Business Privacy Law Handbook, at 8-12, 24-30 (Artech House 2008). NOI, ¶ 39; FCC, National Broadband Plan: Connecting America, 55-57 (2010), www.broadband.gov/plan (“National Broadband Plan”). The Federal Trade Commission Act expressly denies the FTC jurisdiction over common carriers regulated by the FCC, but does not prevent the FTC from regulating information services. 15 U.S.C. § 45(a)(1). Thus, as long as broadband Internet access continues to be classified as an information service, the FTC can continue to develop and enforce consistent privacy standards for all of the online (and offline) services that collect, use and disclose consumers’ personal information. If the FCC reclassifies the transmission component of broadband Internet access as a telecommunications service, the FTC arguably will lose jurisdiction over that service, but the FCC will acquire jurisdiction only to impose privacy obligations on the facilities-based services that provide Internet connectivity. The FCC has not explained how such fragmentation of federal oversight of online privacy will benefit the public.

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III. Disabled Accessibility
Access for individuals with disabilities is another policy area in which the Commission has failed to make the case for drastic action. As the NOI points out, the Commission already has “exercised its ancillary authority to extend *statutory access obligations] to interconnected VoIP providers,” and “similarly relied on ancillary authority to extend disability-related requirements to voicemail and interactive menu services.”16 The NOI does not suggest that Comcast will expose those decisions to a successful jurisdictional challenge. In the meantime, the National Broadband Plan envisions legislative and private-public initiatives as the most productive means of improving access to broadband services in the future.17 None of those efforts requires reclassification of broadband Internet access as a telecommunications service.

IV. Public Safety & Homeland Security
Finally, the policy issues posed by public safety and homeland security combine established areas of the FCC’s statutory jurisdiction, such as E-911 service, with unsettled questions concerning the responsibilities of public and private actors for the security of the nation’s electronic infrastructure.18 Where the FCC already possesses statutory authority, it has had little difficulty extending public safety obligations to non-traditional service providers.19 On the larger, emerging problems of national cybersecurity, the National Broadband Plan recognizes the uncertainty of the Commission’s role and the need to coordinate with other private and governmental actors.20 The Third Way proposal would contribute nothing to this process.

V. Net Neutrality: The Real Issue behind the “Third Way”
This leaves us with the heart of the NOI: the supposed need to establish, on a sounder footing, the Commission’s ability to address “harmful practices by Internet service providers.” 21 As noted earlier, the “harmful practices” the Commission wishes to control are those that violate the FCC’s Net neutrality principles, however the Commission might choose to define
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NOI, ¶ 40. See National Broadband Plan, chapter 9.5. See also Delivering on the Promise of Equal Access to Broadband for People with Disabilities, Prepared Remarks of Chairman Julius Genachowski, Fed. Commc’ns Comm’n, Martin Luther King, Jr. Library, Washington, D.C. (March 10, 2010), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296786A1.pdf. NOI, ¶ 41. See, e.g., IP-Enabled Services, WC Docket No. 04-36, E911 Requirements for IP-Enabled Service Providers, WC Docket No. 05-196, First Report & Order & Notice of Proposed Rulemaking, FCC 05-116, ¶ 29 (2005) (wherein the Commission, through, among other authority, used its “ancillary jurisdiction” to require provision of E-911 services for “interconnected” VoIP providers). See also, Revision of the Commission’s Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, CC Docket No. 94-102, 11 FCC Rcd 18676 (1996) (implementing two-phase plan for wireless E911 implementation); 47 C.F.R. § 20.18 (enhanced 911 rules for wireless carriers). National Broadband Plan, chapter 16, www.broadband.gov/plan/16-public-safety. NOI, ¶ 42.

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those principles as its regulatory and enforcement agendas play out. Ever since the Commission first announced its Net neutrality initiative,22 critics have effectively attacked its threadbare policy rationale and doubtful legal basis.23 The FCC simply has failed to make a serious case that the incumbent providers of broadband Internet access have exercised market power to the detriment of consumers, or that any such abuses (if they occurred) could not be corrected by existing antitrust and consumer protection remedies.24 The NOI does nothing to correct this deficiency. Similarly, there is no need to add anything to what has been ably said in opposition to the Third Way proposal, which the NOI describes in terms similar to those of the earlier statements by Chairman Genachowski and General Counsel Schlick.25 The Third Way would reverse the Commission’s longstanding classification of broadband Internet access as an unregulated information service, not on the basis of new facts, but simply because Comcast had made the former classification an obstacle to the Commission’s policy agenda.26 At the same time, the
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In the Matter of Preserving the Open Internet, GN Docket No. 09-191, Broadband Industry Practices, WC Docket No. 07-52, Notice of Proposed Rulemaking (Oct. 22, 2009), http://hraunfoss.fcc.gov/edocs_public/ attachmatch/FCC-09-93A1.pdf (initiating FCC’s Net Neutrality rulemaking). See, e.g., Adam Thierer & Mike Wendy, The Constructive Alternative to Net Neutrality Regulation and Title II Reclassification Wars, Progress on Point 17.9, The Progress & Freedom Foundation (May 2010.), www.pff.org/issues-pubs/pops/2010/pop17.9-constructive_alternative.pdf; Barbara Esbin, Net Neutrality: A Further Take on the Debate, Progress on Point 16.26, The Progress & Freedom Foundation (December 2009), http://www.pff.org/issues-pubs/ps/2009/ps5.11-net-neutrality-MAD-policy.html; Berin Szoka & Adam Thierer, Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction, Progress Snapshot 5.11, The Progress & Freedom Foundation (October 2009), www.pff.org/issues-pubs/ps/2009/ps5.11-net-neutralityMAD-policy.html. See Larry Downes, FCC Votes for Reclassification, Dog Bites Man, The Technology Liberation Front (June 17, 2010), http://techliberation.com/2010/06/17/fcc-votes-for-reclassification-dog-bites-man/#comments. See also, Barbara Esbin, Ancillariness, the Definition Wars, and the Next Communications Act, 8, fn. 29, Progress on Point 17.8, The Progress & Freedom Foundation (May 2010), www.pff.org/issuespubs/pops/2010/pop17.8-next_communications_act.pdf (citing to Ex Parte Submission of the United States Department of Justice, In the Matter of Economic Issues in Broadband Competition, A National Broadband Plan for Our Future, GN Docket No. 09-51, (“Between the ongoing deployment of wireline broadband networks, the geographic expansion of wireless broadband services (hopefully spurred by the availability of additional spectrum to broadband wireless services), and increased transparency, the Department is hopeful that the vast majority of American households will benefit from significant competition in their local markets. Put differently, most regions of the United States do not appear to be natural monopolies for broadband service.”) (emphasis added), http://www.justice.gov/atr/public/comments/253393.pdf; see also Broadband Connectivity Competition Policy, Federal Trade Commission Staff Report 11, June 2007, (“To date we are unaware of any significant market failure or demonstrated consumer harm from conduct by broadband providers.”), http://www.ftc.gov/reports/broadband/v070000report.pdf.) See, e.g., Barbara Esbin, The Comcast Decision, the FCC’s Third Way and the Next Communications Act, The Progress & Freedom Foundation Blog (May 7, 2010); Gerald S. Ford & Lawrence J. Spivack, The Broadband Credibility Gap, Phoenix Center for Advanced Legal & Economic Public Policy Studies (June 2010) at 4-5. See Genachowski Third Way Statement, supra note 3 (discussing implications of Comcast v. FCC); NOI, ¶¶ 1-2, 8-9.

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NOI, like the Genachowski and Schlick statements, glibly overstates the ease with which the Commission could use the Communications Act’s forbearance provisions to avoid burdening Internet access providers with legacy regulations with sufficient clarity—and durable commitment—to avoid chilling investment and innovation in these networks.27 Commenters on the NOI, and petitioners in the inevitable judicial challenge, can be relied upon to develop these arguments more fully.

VI. The Myth of Restoring a Pre-Comcast Consensus
What is especially striking, however, is the NOI’s claim that the Third Way simply will restore a “settled approach to facilities-based broadband oversight service, which combined minimal regulation with meaningful Commission oversight.”28 The consensus approach, consisting of light-touch regulation of Internet access under Title I of the Communications Act, was one that “industry *had+ endorsed and Congress and the United States Supreme Court *had+ approved.”29 According to the NOI, now that the D.C. Circuit has rejected the legal means by which the Commission had implemented that consensus, the Commission’s task is simply to find another means to keep the consensus program on track.30 Even if this fanciful account bore any relation to reality, it is strange to portray a regulatory agency as divining a consensus among private and governmental parties, then improvising a legal rationale for implementing that consensus. In a constitutional democracy, this is the responsibility of Congress, not the agencies Congress creates to exercise limited, delegated powers. In fact, there has never been a “consensus” among the courts, the Congress or the affected private interests about the Commission’s authority to regulate Internet access or the specific form that regulations adopted pursuant to that authority should take. Congress has charged the Commission, in the vaguest terms, with promoting the health of the Internet and the deployment of advanced services to all Americans, but has avoided endorsing a specific regulatory program or declaring what the jurisdictional basis for such a program might be.31 The Supreme Court found that the Commission acted within its discretion when it classified broadband service as an information service (the very decision the Commission now proposes to reverse), but quite properly made no decision concerning the wisdom of that choice.32 And the compliant “industry” to which the Commission refers consists of a wide variety of

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See, e.g., NOI, ¶¶ 74-93. NOI, ¶ 1. Id. ¶ 4. Id. ¶¶ 1-2, 8-10, 30-31. 47 U.S.C. § 230(b) (Policy of the United States); 47 U.S.C. § 254(h)(2) (Advanced Services); 47 U.S.C. § 706(a)(b) (Advanced Telecommunications Incentives), http://www.fcc.gov/Reports/tcom1996.pdf. Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) ("Brand X").

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enterprises that disagree strongly with each other, and the Commission, on the authority of the FCC to regulate their businesses at all.33 Most importantly, even if a consensus ever existed in favor of the Commission’s pre-Comcast regulatory approach, reclassification of broadband Internet access service as common carriage subject to regulation under Title II of the Communications Act hardly would restore the Commission’s previous position. As the strong opposition of affected private parties and members of Congress to the Third Way demonstrates, there is no consensus in favor of the radically novel approach the Commission now proposes to take.34

VII. Third Way? No Need!
With no clear consensus to be “restored” and no compelling need to overturn the Commission’s de-regulatory classification of Internet access under Title I, there is simply no need for the FCC to undertake—let alone rush—this proceeding. The timing of the NOI’s release and the rapid comment schedule suggest that the agency is simply trying to ram reclassification through as quickly as possible so that the 112 th Congress—which seems likely to be even more hostile than the current Congress to the imposition of net neutrality regulation by the FCC—will be presented in January with a regulatory fait accompli. If that regulatory endrun around Congress succeeds, it will be remembered for decades as a pivotal moment in the decline of the rule of law and the rise of a regulatory bureaucracy “free*d+ … from its congressional tether,” as the D.C. Circuit rightly denounced the FCC’s jurisdictional over-reach in Comcast.35 Reclassification under the “Third Way” will also be the beginning of the Internet's “Lost Decade” (or more) of stymied investment, innovation, and job creation as all sides do battle over the legality of reclassification and its implementation. To paraphrase President John Adams: “Great is the guilt of an unnecessary regulatory war.”

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See Marguerite Reardon, FAQ: The FCC’s Plan To Reclassify Broadband, CNET NEWS, May 6, 2010, http://news.cnet.com/8301-30686_3-20004392-266.html (stating that AT&T and other telephone companies disagree that the FCC has the authority to regulate broadband, while Google and eBay support the FCC’s reclassifications plan). See also, Google & Verizon Joint Submission on the Open Internet, GN Docket 09-191, WC Docket 07-52 (Jan. 14, 2010), http://www.scribd.com/doc/25258470/Google-and-Verizon-JointSubmission-on-the-Open-Internet (stating that Google & Verizon sought to find common ground with respect to the Open Internet proceeding). See, e.g., Matthew Lasar, 73 Democrats Tell FCC: Drop Net Neutrality Rules, ARS TECHNICA, May 26, 2010, http://arstechnica.com/telecom/news/2010/05/73-democrats-tell-fcc-to-drop-net-neutrality-rules.ars (letter available at www.policybytes.org/Blog/PolicyBytes.nsf/dx/TitleII_FCC_24May2010.pdf/$file/ TitleII_FCC_24May2010.pdf); Matthew Lasar, 171 Republicans Say Net Neutrality up to Congress, ARS TECHNICA, May 29, 2010, http://arstechnica.com/telecom/news/2010/05/171-republicans-say-net-neutrality-a-badidea.ars (letter available at www.reclaimthemedia.org/files/GOPBroadbandletter-28May10.pdf); Marguerite Reardon, Lawmakers Oppose FCC Plan to Reassert Net Plan, CNET NEWS, May 28, 2010, http://news.cnet.com/8301-30686_3-20006332-266.html. Comcast, supra note 3, at 655.

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Related PFF Publications What Should the Next Communications Act Look Like?, Adam Thierer, Link Hoewing, Walter McCormick, Peter Pitsch, Barbara Esbin, Ray Gifford & Michael Galabrese, Progress on Point 17.11, June 2010. The Constructive Alternative to Net Neutrality Regulation and Title II Reclassification Wars, Adam Thierer & Mike Wendy, Progress on Point 17.9, May 2010. The FCC's Title II “Lite” (as a Lead Balloon!) & the Looming Broadband Tax, James Dunstan, Progress Snapshot 6.9, May 11, 2010. Ancillariness, the Definition Wars, and the Next Communications Act, Barbara Esbin, Progress on Point 17.8, May 6, 2010. FCC Comments of Barbara S. Esbin In the Matter of Preserving the Open Internet, Broadband Industry Practices, Barbara Esbin, Jan. 14, 2010. Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction, Berin Szoka & Adam Thierer, Progress Snapshot 5.11, Oct. 2009. Net Neutrality: A Further Take on the Debate, Barbara Esbin, Progress on Point 16.26, Dec. 9, 2009. FCC Reform: Scalpel or Steamroller? Barbara Esbin, Progress on Point 15.15, Sept. 2008. A Skeptic’s Primer on Net Neutrality, Kyle Dixon, Raymond L. Gifford, Thomas M. Lenard, Randolph J. May & Adam Thierer, Progress on Point 13.14, June 2006. Report from the DACA Working Group on Regulatory Framework, March 2006. Report from the DACA Working Group on Universal Service, Oct. 2005.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. Its mission is to educate policymakers, opinion leaders and the public about issues associated with technological change, based on a philosophy of limited government, free markets and civil liberties. Established in 1993, PFF is a private, non-profit, non-partisan research organization supported by tax-deductible donations from corporations, foundations and individuals. The views expressed here are those of the authors, and do not necessarily represent the views of PFF, its Board of Directors, officers or staff. The Progress & Freedom Foundation  1444 Eye Street, NW  Suite 500  Washington, DC 20005 202-289-8928  mail@pff.org  @ProgressFreedom  www.pff.org

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