If It Ain’t Broke: “Status Quo” From 2004 FCC Has Often Acted to Protect Net Neutrality

The cable and phone companies are telling people in DC that the Internet has benefited from “no” net neutrality rules. They claim, since there were no rules for a decade, we don’t need them now. They’ve got the story exactly backwards: we have had active FCC interventions on net neutrality. That’s one reason we have had a neutral Internet till now. Indeed, since 2004, we have had enforcement actions, policy statements, merger conditions, spectrum conditions, and a rule. The first time we have had the FCC announce that it would not ensure neutrality but would instead authorize fast lanes … was Chairman Wheeler’s comments earlier this year.  

I explain that here. This post was originally part of the comments filed with the FCC by Engine Advocacy, an organization based in San Francisco that advocates for startups in DC. 

While often imperfect, the FCC has done much to ensure an open internet. Carriers have not historically engaged in rampant discrimination partly due to the threat of FCC action. In 2004, the FCC’s Chairman issued a speech about the “Four Freedoms” online, which promised to keep the Internet an open platform. In 2005, the FCC punished Madison River, a small telephone company that was blocking Vonage, an application that powered online phone calls competing with Madison River’s own service. In 2005, the FCC adopted an Internet Policy Statement and pledged to respond to any violations of the statement with swift action. In 2008, after it was discovered that Comcast, the largest ISP in the nation, was interfering with some of the internet’s most popular technologies—a set of five peer-to-peer (P2P) technologies—the FCC enjoined Comcast in a bipartisan decision. Much of the cable industry was engaging in such actions, so this wasn’t a small exception. In 2010, the FCC adopted the Open Internet Order that was only recently struck down.

Additionally, in the years since 2005, the FCC has conditioned spectrum assignments and mergers on net neutrality rules. The largest three broadband providers have been (or remain) subject to net neutrality for many years. AT&T accepted two-year net neutrality conditions in its merger with BellSouth, and SBC accepted a two-year condition in its merger with AT&T. Verizon accepted a similar condition in its merger with MCI.  Verizon purchased a 22MHz band of spectrum (the C block) in the FCC’s 2008 700MHz auction for $4.7 billion dollars, and did so subject to open internet conditions modeled on the Internet Policy Statement. Comcast has been subject to network neutrality rules since its merger with NBC in 2011, and the merger condition extends for seven years. Both Verizon and Comcast’s conditions still apply today. Moreover, Congress imposed contractual obligations on internet networks built with stimulus funds—nondiscrimination and interconnection obligations that, at a minimum, adhered to the internet Policy Statement, among other obligations.

In light of these merger obligations, license conditions, FCC adjudications and rulemaking, stimulus conditions, and consistent threats of FCC action, startups have enjoyed a generally neutral network that is conducive to, and necessary for, innovation. These actions provided some certainty that startups would not be arbitrarily blocked, subject to technical or economic discrimination, or forced to pay carriers so that the carriers’ consumers can access all the innovation online. 

Following the Verizon v. FCC decision, and under the Chairman’s proposal, that will likely change, in ways that harm entrepreneurship and the public interest.

The past decade of tech innovation may not have been possible in an environment where the carriers could discriminate technically and could set and charge exorbitant and discriminatory prices for running internet applications. Without the FCC, established tech players could have paid for preferences, sharing their revenues with carriers in order to receive better service (or exclusive deals) and to crush new competitors and disruptive innovators. Venture investors would have moved their money elsewhere, away from tech startups who would be unable to compete with incumbents. Would-be entrepreneurs would have taken jobs at established companies or started companies in other nations. The FCC played an important role. The Chairman and this FCC shouldn’t break that. 

See the comments for all footnotes.

Net Neutrality’s Legal Binary: an Either/Or With No “Third Way”

People working on net neutrality wish for a “third way”–a clever compromise giving us both network neutrality and no blowback from AT&T, Verizon, Comcast and others. That dream is delusional because the carriers will oppose network neutrality in any real form; they want paid fast lanes. They have expressed particular opposition to “Title II” of the Communications Act—something telecom lawyers mention the same way normal people might reference the First or Second Amendments. Title II is the one essential law to ban paid fast lanes.

All legal “third way” proposals have struck me as legally flawed and too clever by half. Let me explain why: current law sets up an either/or, without much possibility of a third way. We have two very different paths and have to pick one.

Laws usually include a definition of some thing and then apply rules to that thing. Drug laws, for example, might define what “drugs” are. Insurance or securities laws define “insurance” and “securities.” Then the laws apply rules to the things defined as drugs, insurance, or securities. You can look at the legal definition of drugs and know that peanut butter and automobiles aren’t drugs. Because they’re not drugs, the legal requirements on drugs don’t apply. If an agency has authority over both food and drugs, but decided both peanut butter and Viagra are not “drugs,” then the agency could not apply drug laws to either of them. It would likely have to declare Viagra a “drug” to regulate it as a drug, and peanut butter a “food” to regulate it as a food.

The telecom laws are like that too. In January, a court in a decision called Verizon v FCC struck down the network neutrality rules adopted by the FCC in 2010. The court said that Title II of the Communications Act regulated some companies as “common carriers.” What is a common carrier? A common carrier is a company “forced to offer service indiscriminately and on general terms.” Common carriers cannot engage in “individualized bargaining.” Think about cabs, which are generally common carriers. For example, according to most state laws, cabs are not permitted to refuse to drive anyone and must charge the same prices, instead of discriminating and deviating from their uniform meter. Common carriers have included landline phone companies, mobile phone companies, DSL service (until 2005), and also railroads, grain elevators, and taxi cabs.

These are the parts of Title II that require common carriers in communications to serve everyone and not discriminate among users. (The full provisions provide even more detail.)

Serve everyone on fair terms: “It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor; … All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable.”

No unreasonable discrimination: “It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device.”

According to the court decision in January, services subject to Title II are subject to these provisions.

But service not subject to Title II cannot be treated as common carriers. That is the key holding of the Verizon decision: “We think it obvious that the Commission would violate the Communications Act were it to regulate [companies that are not subject to Title II] as common carriers.”

Here’s how the Court got there in plain English: its just like the Viagra example above. Ten years ago, the FCC said that ISPs aren’t common carriers. Therefore, the FCC can’t regulate them as if they were.

Here’s the legal jargon version. The Communications Act defines something called “telecommunications services,” and says those services must be offered on a common carrier basis under Title II. Telecommunications services are generally networks that carry data between two points without changing it. Other services, that provide and change information, like Facebook or Yahoo, are “information services.” They are not subject to common carrier obligations in Title II. The FCC (oddly) decided ten years ago to treat Verizon, AT&T, and others as information services, not as telecommunications services,even when they carry traffic from point A to point B, merely because they also offer things like email and domain name service.

Because the FCC decided that ISPs are not “telecommunications services” by law, Title II’s common carrier requirements of reasonable charges and nondiscrimination etcetera do not apply to Verizon, AT&T, and Comcast right now.

According to the court in January, the operative legal language making it a binary decision is this:

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. ( Page 41).

The court interpreted this language as an either/or. Either a service is a telecommunications service (therefore a common carrier) or not a telecommunications service (and therefore not a common carrier). It’s binary.

So, unless ISPs are reclassified as Title II common carriers, then common carrier laws simply cannot apply.

Said another way, if the FCC relies on any other provision, then common carrier concepts cannot apply. It doesn’t matter if that other provision is one known as Section 706 of the Telecommunications Act, one known as Section 4(i) of the Communications Act, or one known as Mary Poppins. According to the decision, there is Title II, and then there is everything else, when it comes to network neutrality.

The court’s decision on this point is a really important development. Four years ago, when the FCC adopted its 2010 Order, the FCC didn’t know this binary existed. All it knew was that a few provisions of the law (such as Section 230) could not sustain network neutrality. In 2010, the FCC could believe that perhaps many provisions could work (other than 230 and a few others). It could treat “Title II” as the “big guns.” After the Verizon decisionthis January, we realize no provisions other than Title II would work. They’re the only guns.

So we know that (a) Title II services are regulated as common carriers and (b) other services cannot be. A simple binary.

And to finish off the analysis: is network neutrality a common carrier regulation?

Yes, by law. The court in January made that clear: network neutrality is a common carrier regulation. It is common carrier regulation because it requires ISPs to offer indiscriminate and general treatment for all websites. Net neutrality means no paid fast lanes and slow lanes. The court said that, with the FCC’s 2010 language on fast lanes, “we see no room at all for ‘individualized bargaining.’”

Unless the FCC relies on Title II, it must permit fast lanes, slow lanes, discriminatory exemptions to bandwidth caps and all the other stuff AT&T, Comcast, and Verizon always wanted.

Still, the FCC Chairman keeps suggesting that the FCC can force the carriers to offer the same terms to everyone and can ban fast lanes under Section 706, without relying on Title II. It’s obvious from the January decision that forcing them to offer the same terms would be common carriage and therefore illegal. Any rules not adopted under Title II will either authorize massive network discrimination and “individualized bargaining” between ISPs and all websites—or be struck down.

If we want a rule against discrimination and against new access fees, we need Title II. There is no legal third way.

 

Title II and Paid Prioritization

I keep hearing net neutrality opponents arguing that paid prioritization– “fast lanes” on the Internet–and discriminatory exemptions to bandwidth caps, etc. cannot be banned under Title II of the Communications Act.* They also argue that the FCC can’t ban access fees under Title II because Title II only bans “unreasonable” discrimination and unreasonable charges. Therefore, they argue that at least some discrimination and fees are reasonable.

That’s not true: just because some things may be reasonable doesn’t mean that paid prioritization and access fees would be.

Title II has a few key provisions.

The key language of the very first section in Title II is:

All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful …. The Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this chapter.

This is a pretty broad authority. The FCC can determine that the ISPs are imposing unjust and unreasonable charges on web companies and applications if they impose a tax to reach the ISPs’ customers. (To my knowledge, such charges are rare, new, and unusual.) The FCC could determine that all such charges are unreasonable. It can define a class of charges and make those charges illegal.

The key language of the second provision is:

It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or 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.

The FCC can determine that paid prioritization is inherently unreasonable.  (See Harold Feld’s ex parte for some history, particularly relying on the Carterfone case)

Indeed, previous FCCs understand that they can ban certain classes of actions as inherently unreasonable. In the 2010 Order itself, which aimed to ban “unreasonable discrimination,” the FCC “effectively banned paid prioritization.” Verizon sued the FCC over the order and wrote this in its brief: “The Order effectively banned certain potential commercial services—including any ‘commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic’—by stating that ‘it is unlikely’ that such services ‘would satisfy the “no unreasonable discrimination” standard.'” (Page 9 of the brief.)   The decision throwing out the 2010 Order, called Verizon v FCC, agreed with Verizon’s brief and the court interpreted the quoted language to leave “no room at all for ‘individualized bargaining.’” No room at all sounds like an effective ban. (Page 60-61).

The point is that, under Title II, the FCC can eliminate certain classes of fees and discrimination, including banning paid prioritization (aka fast lanes) on the Internet altogether.

The FCC cannot do that under Section 706, as the Court already decided.

*The net neutrality debate is complicated by a question of whether the FCC should use its main authority that is found in Title II of the Communications Act or a new and very different authority under Section 706 of the Telecommunications Act. Net neutrality advocates prefer Title II because under Title II the FCC has the power to ban “unreasonable” discrimination and require “reasonable” charges and practices. A court in January has already decided that the FCC cannot ban unreasonable discrimination or eliminate (at least certain) unreasonable fees under Section 706. Indeed, the January case struck down the FCC’s 2010 net neutrality rules simply because Section 706 doesn’t give the FCC power to ban unreasonable discrimination.

NY Tech Companies Visit FCC, Support Net Neutrality

When you visit the Federal Communications Commission, you are supposed to file a letter explaining what you told the FCC.

Members of the NY tech community (including Kickstarter, Tumblr, Meetup, and the NY Tech Meetup) visited the FCC last Friday and so I am sharing parts of that letter. Other members of that community, including Fred Wilson and Alexis Ohanian, have also taken the lead on fighting for network neutrality.

We encourage you to read and share the letter if you are concerned about the future of innovation and free expression on the internet.

Here is a Ex Parte NYTech of the complete letter.

******

On Friday, May 2, 2014, representatives of the companies Kickstarter, Meetup, and Tumblr, along with representatives of the New York City Tech Meetup and Engine Advocacy, met with FCC staff to express their strong opposition to the FCC Chairman’s draft proposal concerning network neutrality.

We explained that if the Chairman’s proposal were adopted as a rule, it would stifle innovation and entrepreneurship in the New York City tech sector that is at the center of the city’s recent and future economic growth. We explained that the city’s entire tech community is paying attention to the Chairman’s proposal and is deeply concerned.

While the Chairman’s proposal may look good on paper, it provides no certainty or effective remedy for smaller entrepreneurs building real businesses on the internet.

We urged the Commission to consider a different path: to ban rather than bless a world of paid fast lanes and unpaid slow lanes; to abandon pursuit of a “commercially reasonable” standard and to impose a rule against “unreasonable discrimination,” that clearly defines which discriminatory conduct is prohibited and bans all application-specific discrimination (i.e. discrimination based on criteria related to the application or class of application); and to extend this strong rule to mobile as well as fixed service.

We also invited the Commission to New York City to hold an official FCC hearing on network neutrality, so that the Commission can hear directly from those in the New York tech sector affected by this proposal.

Organizations and Companies Represented

New York Tech Meetup is a nonprofit organization that convenes the world’s largest meetup group. The group includes almost 40,000 people who are involved in technology in New York. While the organization generally focuses on convening the tech community to encourage entrepreneurial and economic activity, it has been involved in policy when there is a grave threat to the community, such as the proposed Stop Online Piracy Act two years ago.

The company Meetup is a social platform that enables people to start a group or join an existing group in order to get offline and meet in person to pursue a common interest or activity. It gained its initial fame during the 2004 elections, because of Meetups for political candidates.  Today, there are over 300,000 monthly Meetups for 140,000 groups, with over 15 million members. These Meetup Groups bring together people across a wide range of interests, from stay-at-home mothers to hardware engineers and soccer teams. Meetup has over 110 employees. As noted, the largest Meetup Group, which is now incorporated as a nonprofit, is the New York Tech Meetup. (About Meetup)

Kickstarter is a funding platform for creative projects.  All kinds of new ideas — from films, games, and music to art, restaurants, and technology — have been brought to life through the direct support of Kickstarter users. Since launching in 2009, 6.1 million people have pledged $1 billion to projects on Kickstarter, successfully funding 61,000 creative ideas. Thousands of projects are raising funds on Kickstarter right now. (About Kickstarter)

Tumblr is a network and platform for creators, and hosts over 184 million blogs, ranging from the blog of singer and actress Beyoncé to a blog about the fictional text messages of Hillary Clinton. Tumblr was founded in 2007 in New York City by its CEO David Karp, and now has over 250 employees throughout the United States. (About Tumblr)

Engine Advocacy is based in San Francisco but advocates for startups based all over the nation. With 500 startup members, Engine has been involved in copyright, patent, and immigration policy. A member of Engine’s Board lives in New York City and advises several New York startups on how to recruit, vet, and hire engineers to build their technical teams as their businesses expand. 

NYC Tech Entrepreneurs Are Concerned and Talking

Because of Chairman Wheeler’s draft proposal, many in the NYC tech community are deeply concerned for the future of their businesses and their jobs.

The government of New York City has undertaken a wide range of initiatives to encourage the New York technology sector, which has become the second-largest tech hub in the nation behind the Bay Area. Partly because of the city’s technology initiatives, between 2007 and 2012, “the number of private sector jobs in NYC rose by about 4 percent, compared to a 3 percent decline nationally,” a surprising 7 percent difference. (See Michael Mandel,Building a Digital City, Bloomberg Technology Summit, Sept. 30, 2013.) Indeed, during the same time period, the city’s tech sector added 26,000 jobs, or $5.8 billion in wages, and has accounted for 2/3 of the growth in the city’s private sector wages in that time. (Id.)

Jessica Lawrence, the Executive Director of NYT Meetup, explained that the tech community is deeply concerned about the Chairman’s proposal and is discussing it with her constantly. These expressions of concern come to her through all of her social media feeds, in direct emails, and in almost every conversation at social events that she has attended recently.

We are not aware of the Chairman consulting with any businesses in the New York tech sector before proposing to authorize paid priority and technical discrimination. 

Continue reading

3 Ways the FCC Chairman is Reversing the 2010 Rules

There’s been a lot of talk about how FCC Chairman Tom Wheeler’s proposal for net neutrality will be a reversal of the FCC’s 2010 rules that were thrown out in court in January. Generally, the Chairman is claiming that he is doing the same rules just on more solid authority. In fact, he’s actually using the same weak authority (it’s called Section 706 of the Telecommunications Act) and watering down flat out reversing the rules.

It’s important to note that the Chairman is proposing reversing the good parts of the FCC’s 2010 rule, not the bad parts. Because the last FCC Chairman negotiated a compromise for the 2010 rule, there’s some good stuff in there and some terrible stuff. This Chairman is keeping the bad stuff.

Here are a few positions he has taken, which are a reversal from the good stuff in the FCC’s 2010 order.

  1. Permitting discrimination. The 2010 order had a rule against unreasonable discrimination for home internet access, but the Chairman is proposing enabling cable and phone companies to discriminate and provide fast and slow lanes and charge fees for them.
  2. Authorizing access fees. The 2010 order explained that cable and phone companies want to be able to charge every website on the planet lots of money for reaching users or for priority service noting: “Although broadband providers have not historically imposed such fees, they have argued they should be permitted to do so.” The 2010 order prohibited the cable and phone companies from charging web companies fees merely to access users (and did so under the no-blocking rule) and also rejected fees for preferences (under the nondiscrimination rule), as the court thought important to note. Of course, the Chairman is now proposing access fees. He also has spoken at some length about why Netflix might be “allowed” to pay fees (as though Netflix wants to pay these fees, which is also how carriers wrongly talk about it) for priority and why he thinks it would be a good thing (based on assumptions rejected in the 2010 order–that the marketplace will sort it out). (Barbara van Schewick has written a more detailed explanation of this point, and it will be worth reading.)
  3. Only targeting anticompetitive actions or those causing consumer harm. The Chairman has been defending himself by claiming that “behavior harmful to consumers or competition by limiting the openness of the Internet will not be permitted.” Apparently, FCC officials told media the same thing: FCC officials “say that proposed priority deals wouldn’t be allowed if they harm consumers or decrease competition.” That sounds nice, but is exactly what AT&T, Comcast, Verizon want. It’s too limited. In fact, the FCC’s 2010 order specifically rejected this argument (paragraph 78): “We also reject the argument that only ‘anticompetitive’ discrimination yielding ‘substantial consumer harm’ should be prohibited by our rules.” Couldn’t be clearer. The order explains why.

We are persuaded those proposed limiting terms are unduly narrow and could allow discriminatory conduct that is contrary to the public interest. The broad purposes of this rule—to encourage competition and remove impediments to infrastructure investment while protecting consumer choice, free expression, end-user control, and the ability to innovate without permission—cannot be achieved by preventing only those practices that are demonstrably anticompetitive or harmful to consumers. Rather, the rule rests on the general proposition that broadband providers should not pick winners and losers on the Internet—even for reasons that may be independent of providers’ competitive interests or that may not immediately or demonstrably cause substantial consumer harm.

At the same time, the Chairman isn’t reversing the bad stuff in the 2010 order.

Mobile. For example, the 2010 order thought it was too early to adopt nondiscrimination rules for mobile access to the internet. Since 2010, mobile use has exploded, and there have indeed been violations of net neutrality on the mobile side, around the world and in the US. If anything, the Chairman should be making the 2010 order stronger–and filling this key gap. But all reports point to ignoring this problem with the order.

Startups Reject FCC’s Net Neutrality Proposal

Engine Advocacy, an organization that advocates for startups filed comments today with the FCC. They believe the Chairman’s proposed rule would crush startups:

According to recent news reports, the Commission is considering adopting a rule that authorizes discrimination by ISPs and permits them to charge terminating access fees to technology companies. We believe such a rule, if adopted, would crush startups,and therefore undermine American technology entrepreneurship, innovation, and job creation.

Engine posted on its blog about the important issue here. You can read the full comments here.

I’m proudly on the board of Engine.

Net Neutrality: A Solution to an Existing Problem

While AT&T, Comcast, and Verizon have argued—with incredible message discipline—that network neutrality is “a solution in search of a problem,” that’s not true.

There are many concrete examples of network neutrality violations around the world. These network neutrality violations include ISPs blocking websites and applications, ISPs discriminating in favor of some applications and against others, and ISPs charging arbitrary tolls on technology companies.

We have seen network neutrality violations all over the world.

Even in the U.S., there have been some major violations by small and large ISPs. These include:

  • The largest ISP, Comcast secretly interfering with peer-to-peer technologies, including some of the most popular basic technologies used to distribute online TV and music (2005-2008);
  • A small telephone ISP called Madison River blocking Vonage, a company providing competing telephone service online (2005);
  • Apple blocking the application Skype on the iPhone, subject to a secret contract with AT&T, a company that competes with Skype in providing telephone service (2008-2009);
  • Verizon, AT&T, and T-Mobile blocking the functionality of Google Wallet on Nexus devices, while all three of those ISPs are part of a competing mobile payments joint venture called Isis (late 2011-today);
  • and Comcast’s disputes with Level 3 and Netflix over termination fees and the appearance that Comcast is deliberately congesting its network connections to force Netflix to pay Comcast for an acceptable connection (2010-today).

In other countries, including democracies, there are numerous violations. In Canada, rather than seeking a judicial injunction, a telephone ISP used its control of the wires to block the website of a union member during a strike against that very company in July 2005. In the Netherlands, in 2011, the dominant ISP expressed interest in blocking against U.S.-based Whatsapp and Skype.

In the European Union, widespread violations affect at least 1 in 5 users. That is the conclusion of a report issued in June of 2012 by the Body of European Regulators for Electronic Communications (BEREC), a body composed of the regulatory agencies of each EU country. Most of these restrictions were on online phone services, peer-to-peer technologies (which are used not only by copyright pirates, but also in a variety of well-known technologies, including Skype and several Amazon cloud services), as well as other specific applications “such as gaming, streaming, e-mail or instant messaging service.”

ISPs block and discriminate against applications and websites even in countries that require disclosure of the violations and even in countries with far more competition among ISPs than the US. A recent Oxford dissertation on the topic explores the wide-scale blocking and discrimination in the United Kingdom, a market with both considerable competition among ISPs and robust disclosure laws.

Essentially, a specific rule that would be upheld in court is necessary protect network neutrality and address a major, global problem.

* Footnote: Thanks to Stanford professor Barbara van Schewick, whose recent letter to the FCC inspired my thinking in this post.

Follow

Get every new post delivered to your Inbox.

Join 50 other followers