Net Neutrality: Fatal Regulation or Neutral Impact?

04 March 2015 Legal News: Privacy, Security & Information Management Publication
Author(s): Chanley T. Howell Michael R. Overly Steven M. Millendorf

Legal News: Privacy, Security & Information Management

On February 26, 2015, the Federal Communications Commission (FCC) voted to adopt its Open Internet Order (Order). The Order reclassifies both wired and mobile “broadband Internet access service” as a “telecommunications service” and brings broadband Internet service providers (ISPs) under Title II of the Communications Act (Act). Additionally, the Order adopts some “bright line” rules, and specifies those provisions of Title II that are not in the public interest and, therefore, will not apply to broadband.

The Order

The move to adopt the Order ends the FCC’s attempts for more than a decade to enforce its open Internet policies, including its two previous attempts that were struck down by the United States Court of Appeals for the District of Columbia (D.C. Circuit) for lack of authority to regulate “information services,” the classification previously used for broadband Internet services. These previous attempts were sparked when ISPs attempted to charge certain Internet content providers, such as streaming audio and video providers, higher rates to ensure priority over the network. The FCC hopes to prevent the courts from invalidating the Order and future regulations through reclassification of both mobile and wired broadband Internet service as telecommunications services.

The Order sets three bright line rules to prohibit broadband ISPs from engaging in the following activities:

  • ISPs cannot block access to any legal content, applications, services, or other non-harmful devices
  • ISPs cannot throttle Internet traffic on the basis of content, applications, services, or other non-harmful devices
  • ISPs cannot give priority to some types of traffic over others in exchange for consideration of any kind

In addition, the Order requires ISPs to disclose, in a common format, all promotional rates, fees, surcharges, and data caps to consumers. The disclosures must also include packet loss as a measure of network performance and provide consumers with notice of the ISP’s network management practices that may affect service levels. The Order offers a temporary exemption from the disclosure requirements for ISPs with 100,000 or fewer subscribers, and requests that the Consumer and Governmental Affairs Bureau make recommendations as to whether the FCC should retain this exemption in whole or in part.

The Order explicitly recognizes that ISPs need to engage in reasonable network management outside of the context of paid traffic prioritization. The FCC will consider the underlying technology involved to determine the reasonableness of an ISP’s network management practices, and specifically cautions against attempts by ISPs to justify network management practices primarily designed for a business purpose as reasonable network management.

The FCC is required by the U.S. Congress to only apply provisions of the Act that are in the public interest. While the FCC will endeavor to modernize Title II for broadband Internet service, it took an initial look at Title II to decide which provisions should immediately apply to modern broadband services, and which provisions are not relevant to such services.

The major provisions found to apply to broadband are:

  • ISPs cannot use unjust or unreasonable practices or discrimination
  • The FCC may investigate consumer complaints and pursue certain enforcement actions
  • Fair access to poles and conduits must be ensured in an effort to boost the deployment of new broadband networks
  • The FCC may protect consumer privacy
  • There must be protections for people with disabilities
  • Support is necessary for the universal service fund

The major provisions that do not apply are:

  • The FCC will not undertake utility-style rate regulation, including tariffs and last-mile unbundling
  • Broadband providers will not be required to contribute to the Universal Service Fund, although this will be considered in a separate, unrelated proceeding
  • Broadband service will remain exempt from state and local taxation under the Internet Freedom Act

Removes the FCC From Enforcing Privacy and Security Promises Under Section 5 of the FTC Act

Ever since its first enforcement action in United States v. ChoicePoint in 2006, the Federal Trade Commission (FTC) has held companies that do business over the Internet responsible for their privacy and security promises to consumers through its power to investigate unfair and deceptive trade practices under Section 5 of the Federal Trade Commission Act (FTC Act). However, Section 5 of the FTC Act explicitly holds the practices of entities considered common carriers, such as telecommunications companies, outside the FTC’s reach. The FCC’s decision to reclassify broadband Internet access services as telecommunication services appears to strip the FTC of its authority to regulate ISPs through its Section 5 powers. Instead, the FCC itself will be permitted to regulate the privacy and security practices of such entities. The FCC has been gearing up to bring such enforcement actions since 2014, when it filed complaints against mobile communications carrier Verizon Wireless (Verizon) and against Lifeline telephone carriers TerraCom Wireless and YourTel Wireless. This stripping of power is limited, however, and the FTC will continue to regulate the security and privacy practices of other businesses, including those that provide their goods and services over the Internet, but do not otherwise provide broadband Internet access services.

The Benefits and Challenges of the Order

The Order — and its potential meaning to consumers, ISPs, and other businesses — is not without controversy. Supporters of the Order cite the benefits of security for consumers, the end to “discrimination” in the delivery of broadband services, and the promotion of every individual’s right to communicate freely online. On the other hand, some question whether the Order will simply invite more legal fights between the FCC and the ISPs, and stifle investment and innovation in the Internet. Moreover, the process by which the Order passed is characterized as partisan by critics.

Verizon published a creative, if not wholly impartial, response in the form of a “Throw Back Thursday” 1930s-style press release, complete with typeface reminiscent of an old Remington typewriter. In this response, Verizon cites the Order as “unnecessary and unproductive…,” while also pointing out that Congress is currently working on legislation to codify rules for the Internet. AT&T Corporation’s response firmly points out that there should be a middle ground between the Order and the current status.

This controversy is sure to play out in the near future. Most likely, it will include ISPs and others challenging the Order, its enforcement, and its validity in court. Primary among the arguments will likely be what exactly is meant by being “in the public interest” under Title II. An additional test will be whether the post-2016 election commission, staffed by new players, will uphold the Order.

Impact on Businesses

The Order applies mostly to providers of broadband Internet access services and, therefore, the new regulations will not affect most entities that operate websites to provide their goods and services over the Internet. For the few types of businesses that took advantage of the so-called “fast lanes” ISPs provided at additional cost (mostly streaming video providers), the new regulations might negatively affect the speed and quality of service the end user experiences. This could result in increased complaints from consumers who are not able to achieve the download and/or streaming service speeds to which they have become accustomed. Broadband ISPs, on the other hand, will need to become familiar with the host of new regulations that will apply to them and maintain vigilance for additional regulatory changes, as the FCC fine-tunes what Title II regulations will apply to such services.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Chanley T. Howell
Jacksonville, Florida

Steven M. Millendorf
San Diego, California

Nicole L. Newman
Boston, Massachusetts

Michael R. Overly
Los Angeles, California