D. C. Court of Appeals Invalidates FCC Internet Discrimination Rules

What does the D. C. Circuit, U. S. Court of Appeals, decision that struck down part of the FCC Rule, “…to compel broadband providers to treat all Internet traffic the same regardless of source…” mean for local government?  At issue in this case was the FCC Network Neutrality Report and Order  that established three basic Rules discussed in my earlier 2011 Post.

FCC Adopts Anti-Discrimiation Rules

FCC Adopts Anti-Discrimination Rules

The Rule adopted by the FCC required transparency by fixed and mobile broadband providers and prohibited fixed broadband providers from blocking services and unreasonable discrimination. The no blocking Rule prohibited a fixed broadband provider from blocking lawful content, applications, services, or non-harmful devices. Mobile broadband providers could  not block applications or websites that compete with their voice or video telephony services. Fixed broadband providers could not unreasonably discriminate in transmitting network data. The Rules also make it clear that a fixed broadband provider may charge more for heavy users than light users and that they may offer tiered and usage based pricing.

The 81-page decision by the D. C. Circuit found that the Rule adopted by the FCC prohibiting broadband providers  from blocking services and unreasonable discrimination was invalid although it left in place part of the Rule, which requires disclosure (transparency) of the ISP’s network management practices. The opinion also found that the FCC has authority – that it had not exercised – to adopt rules to encourage the deployment of broadband or reclassify broadband as a common carrier although this means going back and starting over. The Rule adopted by the FCC was flawed primarily because it tried to treat ISP’s as “common carriers” which is expressly prohibited by law.  It was like the FCC  can make this cake but this cake had the wrong ingredients,  so it flopped. Go back  and make the cake with these ingredients so it won’t flop. Also be very  careful how you mix the ingredients to avoid another cake flop.

U. S. Court of Appeals for the D. C. Circuit invalidates FCC Rule on Net Neutrality

U. S. Court of Appeals for the D. C. Circuit invalidates FCC Rule on Net Neutrality

The next step in the process could be an appeal to the United States Supreme Court.  Caution might be the better part of valor for the FCC in this case because unbiased critics suggested even prior to the decision that the FCC Rule was basically flawed.  In that respect, the Court’s opinion shreds the FCC’s reasoning giving it little hope of getting this decision reversed although it is possible that a party adversely affected by the requirement of the disclosure of management practices   might file a petition asking the Supreme Court to review the decision.

If the case is not appealed, the FCC will have to decide if it wants to meet the challenge by adopting a new rule to reclassify broadband as a common carrier or a rule to encourage deployment of broadband, thereby providing a much stronger legal foundation.  This will not be easy and another long hard fought legal/political battle would lie in front of any such rule. Another possibility is to wait until something dramatic happens, proceed with cases on an ad hoc basis or wait until enough information is gathered to provide a stronger basis for rule making although the opinion of the D. C. Circuit suggests that there is already a pretty good factual basis for new rule making. If the FCC waits too long practices may become entrenched making it difficult to root them out. Ad hoc decision making  while having the advantage of dealing with the facts of an actual controversy – creates uncertainty with rights, duties and obligations of the ISP’s and works to the disadvantage of  those who do not have the resources to challenge business giants.

There are claims  that blocking or charging some customers for access to the network will decrease competition and make it more difficult if not impossible for new companies to enter the market. See PBS article.  Of course, the opponents of the FCC Rule claim otherwise suggesting that the ability to charge and block services will encourage deployment of more fiber. How does that work? It seems the idea is that by being able to charge users for faster service  the revenue  steam will encourage improvements to the broadband system although another likely scenario is that they will pocket the change.

With the principles set forth in the Rule  to block Internet discrimination in shreds the big ISP’s business giants can legally block or limit access to the disadvantage of consumers and businesses that are trying to enter the market. According to a recent New York Times article  the United States – despite having created the Internet – has fallen behind many other countries in the deployment of high-speed broadband.   Innovation depends heavily on having good Internet infrastructure with the speed to rapidly move large amounts of information. 

With the legal right of ISP’s  to discriminate the focus shifts to  the battle over who controls the last mile to the customer’s home or business. As a practical matter due to the extremely high costs of building out the last mile or so of the system there will always be a limited number of competitors meaning that the company that controls the last mile can exercise a premium or even block competitors under current rules. To allow discriminatory practices to exist between customers gives the ISP’s the ability to choose winners and losers creating an uneven playing field. While the opinion from the D. C. Circuit  rejected the common carrier model in the existing regulatory structure it seems to me that if properly tuned for 21st Century technology the common carrier model offers a pretty good regulatory prototype  for building a system that could provide for net neutrality. Of course, that would require new legislation or a giant leap by the FCC  under its existing regulatory powers by reclassifying broadband as a common carrier, which most observers consider to be an unlikely move by the FCC.

What we are seeing is that Goggle – one of the giants –  decided to not wait for others to build the last mile, so it  built its own  Goggle Fiber network in  Kansas City.  A friend who lives in Kansas City – now a Goggle wired city –  enjoys broadband speeds at 1 gigabit per second and full cable television for $125 per month. Everyone in his condo has switched  to Goggle Fiber for 1/2 the price with 100 times higher internet speeds and better cable. Looks like a big time  wipe out of Time Warner cable and internet services in KC and a big shot across the bow of other ISP’s that Goggle will go the last mile. My personal experience in Springfield, Mo. was that the local cable company did not provide good high-speed internet service or good cable services until they realized the  City was contemplating its own high-speed city wide fiber system at which time the cable company updated their system to deliver faster internet speeds and better cable television service and crushed any hope with massive scorched earth litigation.  The basic idea of the City to build one fiber pipe line open to everyone on equal terms. That would have produced real competition but never got off the ground.

Other communities are lining  up trying to figure out how to develop similar public/private partnerships like KC.  Austin, Texas  is next for Goggle Fiber. The success or failure of these programs and their impact on a community may do more than anything else to drive the deployment of higher internet speeds and broadband leading to an economic renaissance for some lucky communities.

In my 2011 blog I explored  the question posed by Professor Wu in his book “The Master Switch.”  Is the Internet fundamentally different from earlier communication systems that resulted in monopolies? Will the structure of the Internet allow it to fend off discriminatory practices or will it remain open or will some company control and dominate the Internet? Master SwitchToday the answer from the D. C. Circuit  is that internet discriminatory practices are allowed,  although the final answer to this question remains muddled. Allowing discriminatory practices is no small matter. Remember John D. Rockefeller’s  Standard Oil Trust – one of the largest monopolies we have ever know – was built on discriminatory pricing and the remnant’s of the 1984 ATT breakup are still trying to consolidate.

For sure communities without fully deployed high-speed Internet services may be left in the electronic dust of other more wired communities. Right now thanks to Goggle we are in a real live time test that will measure the effect of  high-speed internet on the economy of communities by comparing those with and without 21st century really high speed internet services.  Stayed tuned to see  how this all plays out.

Howard Wright@ 2014

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1 Response to D. C. Court of Appeals Invalidates FCC Internet Discrimination Rules

  1. Pingback: Can the Police Search a Magnetic Tape on the Back of a Credit, Gift or Debit Card Without Obtaining a Search Warrant? | Missouri Public Policy and Law

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