Internet Architecture and Innovation

by Barbara van Schewick

Evaluating the Chairman’s Revised Net Neutrality Proposal

Cross posted from the Center for Internet and Society blog.

This blog post was co-authored by Barbara van Schewick and Morgan Weiland.

Last night, the Wall Street Journal reported that FCC Chairman Tom Wheeler is revising his proposal for new network neutrality rules.

Initial reactions have been mixed. TechCrunch called the revised proposal “a non-fix”—“the same stuff as before, written down with a different color pen.” Others seemed more optimistic.

Here are our thoughts.

Good: The Chairman is asking the right questions.

The Notice of Proposed Rulemaking will ask specific questions on reclassification.

What the WSJ reports:

“Mr. Wheeler’s language will also invite comments on whether broadband Internet service should be considered a public utility, which would subject it to greater regulation.  […] ‘The new draft clearly reflects the public input the commission has received,’ one of the FCC officials said, noting that the proposal seeks specific comment on the benefits of reclassifying broadband as a utility. ‘The draft is explicit that the goal is to find the best approach to ensure the Internet remains open and prevent any practices that threaten it.’”

What this means:

The Wall Street Journal suggests that in addition to focusing on Section 706 of the Telecommunications Act as a basis for new network neutrality rules, the upcoming Notice of Proposed Rulemaking (NPRM) will seriously explore a second option for adopting network neutrality rules—Title II of the Communications Act. This is a huge step in the right direction from the state of play three weeks ago—keeping reclassification “on the table” but out of the NPRM. This is what network neutrality proponents (including one of us) have been pushing for, so this is a big success.

But the devil is in the details. For example, to ensure that reclassification does not result in onerous regulation, the FCC should immediately forebear from applying Title II provisions that are not necessary to protect consumers. If the agency is serious about exploring all of the options, it needs to ask which rules it should forebear from, if it opts for reclassification.

The NPRM will ask whether pay-to-play access fees should be banned.

What the WSJ reports:

“The [FCC] official said the draft would also seek comment on whether such agreements, called ‘paid prioritization,’ should be banned outright.”

What this means:

Over the past three weeks, many users, start-ups, Internet companies, investors, academics, and Senators have asked the Chairman to reconsider his support for pay-to-play access fees. They voiced their disapproval, and the revised NPRM will give them a chance to make their case. This is a step in the right direction.

Bad: The Chairman is proposing the same (bad) rules.

The proposed rules will not ban pay-to-play access fees—despite the suggestion that fast and slow lanes are history.

What the WSJ reports:

“The head of the Federal Communications Commission is revising proposed rules for regulating broadband Internet, including offering assurances that the agency won’t allow companies to segregate Web traffic into fast and slow lanes.

The new language by FCC Chairman Tom Wheeler to be circulated as early as Monday is an attempt to address criticism of his proposal unveiled last month that would ban broadband providers from blocking or slowing down websites but allow them to strike deals in which content companies could pay them for faster delivery of Web content to customers. [. . .]

In the new draft, Mr. Wheeler is sticking to the same basic approach but will include language that would make clear that the FCC will scrutinize the deals to make sure that the broadband providers don’t unfairly put nonpaying companies’ content at a disadvantage, according to an agency official.

The official said the draft would also seek comment on whether such agreements, called ‘paid prioritization,’ should be banned outright, and look to prohibit the big broadband companies, such as Comcast Corp. and AT&T Inc. from doing deals with some content companies on terms that they aren’t offering to others.”

What this means:

Despite opening up the NPRM to dissenting voices on the question of pay-to-play access fees, the substance of the Chairman’s proposal hasn’t changed. The proposed rules still allow paid prioritization. And although the Wall Street Journal’s lead paragraph suggests that fast and slow lanes are history, paid prioritization allows for exactly that—a faster lane for those who pay.

Though we haven’t yet seen the FCC’s proposal, it seems that the Chairman is considering requiring ISPs to offer a baseline level of service to applications, content, and services that don’t pay up. So instead of an Internet with a slow lane and a fast lane, the new proposal might result in an Internet that offers a “not-so-fast, but not totally crappy lane” to applications that don’t pay and a “faster lane” to those that do.

Internet companies that pay so that their traffic is faster or is not counted against the bandwidth cap have a competitive advantage. This is one of the key policy problems with access fees. Simply improving the quality of the baseline service does not remove that problem, because the quality differential between paying and non-paying applications remains.

So the proposal still allows paid prioritization. In a way, that’s not surprising. If the Chairman wants to adopt network neutrality rules under Section 706, he must allow pay-to-play access fees, if the rules are to be upheld in court. Verizon v. FCC, the decision that struck down the FCC’s Open Internet Rules in January, explicitly requires this: The decision ruled that banning (or effectively banning) paid prioritization violates the Communications Act prohibition on imposing common carrier rules on entities that—like ISPs—have not been classified as telecommunications service providers. Any network neutrality rules that banned paid prioritization or presumptively banned prioritization would run into the same legal problem.

According to the Wall Street Journal, the rules will ensure that any paid prioritization deals do not “unfairly disadvantage” non-paying companies, and that large ISPs will have to offer the same terms to all interested applications, content, and services.

But the Chairman can’t deliver on this, because requiring ISPs to make the same terms available to everybody is impossible under Section 706. Forcing carriers to treat like entities alike is the essence of common carrier rules. To be upheld under Section 706, any rules need to “leave sufficient ‘room for individualized bargaining and discrimination in terms,’” or they will “run afoul of the statutory prohibitions on common carrier treatment.” (Verizon v. FCC, p. 61, citing Cellco, 700 F.3d at 548.)

More fundamentally, allowing access fees is the wrong policy choice. Users, entrepreneurs, and investors are concerned that allowing access fees will substantially harm application innovation and free speech—and they said as much over the past three weeks. Requiring ISPs to make any enhanced services available to every application that is interested—as the FCC Chairman proposes—will not solve these problems; only a ban on access fees will.

Let’s wait and see: The Chairman proposes an ombudsman to advocate on behalf of start-ups.

What the WSJ reports:

“Mr. Wheeler’s updated draft would also propose a new ombudsman position with ‘significant enforcement authority’ to advocate on behalf of startups, according to one of the officials. The goal would be to ensure all parties have access to the FCC’s process for resolving disputes.”

What this means:

The proposal for an ombudsman seems to be designed to address start-ups’ and investors’ concerns that they may not be able to protect themselves against access fees and discrimination under the Chairman’s proposed non-discrimination rule. It’s great to see that the Chairman is listening to these concerns.

The rules proposed by the Chairman last month would ban “commercially unreasonable” pay-to-play access fees and discrimination. Whether discrimination is commercially reasonable would be determined by the FCC after the fact based on a vague, multi-factor test that, according to relevant precedent, must leave sufficient room for individualized discrimination among similar services. Start-ups and investors are concerned that such a rule will not provide them with any certainty that they are protected from discrimination. Additionally, the costs required to litigate the correct interpretation of the factors and their application to the facts of the case will be prohibitive for start-ups that have few, if any lawyers and small legal budgets.

Without more details, it is hard to evaluate whether an Ombudsman would help. While an Ombudsman might make it easier for start-ups to navigate the process, it does not make the rules any more predictable.

More fundamentally, the Chairman’s proposal addresses the symptoms instead of the root cause of the problem. The root cause is that the standard is vague and unpredictable. Any non-discrimination rule adopted based on Section 706 will be afflicted with these problems. But there is a much simpler fix. A bright-line non-discrimination rule that bans discrimination against applications or classes of applications would provide certainty and lower the costs of regulation. It would also make it feasible for start-ups, non-profits, and users to navigate the process, removing the need for an ombudsman.

Summary: A significant step in the right direction, but still a long way to go.

Supporters of network neutrality have spoken out. The Chairman has listened. If the Wall Street Journal is correct, the upcoming Notice of Proposed Rulemaking will ask the right questions, giving everybody—users, start-ups, Internet companies, investors, public interest groups, non-profits, academics, ISPs—an opportunity to make their case. That is a significant improvement, and it’s how the process should work.

Substantively, however, the Chairman’s proposal hasn’t really changed. It still allows pay-to-play access fees. It still proposes a non-discrimination rule with a vague standard—a rule that creates high costs of regulation, does not provide certainty to market participants, and tilts the playing field in favor of large, established companies that can pay lots of lawyers and expert witnesses and afford long and costly proceedings at the FCC.

If we want to protect the Internet as a platform for free speech, application innovation, and economic growth, we need to ban pay-to-play access fees and adopt a bright-line non-discrimination rule that bans discrimination against applications or classes of applications. Users, entrepreneurs, investors, and public interest groups have already moved the debate in the right direction, getting reclassification off the table and into the NPRM. If we want an open Internet and the rules necessary to preserve it, we have to continue to make our voices heard and work hard to educate and convince the FCC, the White House, and members of Congress. The future of the Internet depends on it.

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