A Network Neutrality Primer

For those just tuning in, Network Neutrality (aka “NN”, becuase every public policy deserves its own acronym) has gone from sleepy tech issue to major policy fight. So I have prepared a rather lengthy primer below for folks who want a deeper understanding of what’s happening (at least as of today, May 3, 2006).

For those just tuning in, I will run through some brief history, because there is so much revisionist nonesense floating around and confusing the issue and because the stupid legal details that everyone but the lawyers hate really matter here.

SOME BORING BUT NECESSARY HISTORY OF NN
First, you need some necessary history (you can find most of this in Lessig’s “Code and Other Laws of Cyberspace”, as well as from my previous post here). The Internet managed to evolve quite nicely over the last 30 years becuase, contrary to popular myth, the Federal Communications Commission (FCC) regulated the sh#@ out of it. Specifically, until the Bush administration took over, the FCC required the companies that owned the lines over which the bits traveled (the phone companies) to leave the traffic alone — no getting in the way of customers and the information they want to download, the applications they want to run, or the devices they want to attach to the network.

Bad FCC! As soon as the Bush administration came in in 2001, it recognized that all this heavy handed regulation had created a fiercly competitive market spawning entirely new industries, as well as creating a medium for communication “as diverse as human thought” (in the words of the Supreme Court). So, naturally, they set about liberating it from the restrictive shackles of government regulation so that the telephone and cable cartels that control the connection between the customer and the broader internet (aka “the last mile”) would no longer have to bother with these silly rules that prevented them from taking advantage of their market power and leveraging access to their subscribers. Hey, if the “ownership society” still means anything, it means the rights of cartels to squeeze every last ounce of profitable juice from the economy. Right?

So in 2002, the FCC (then under Michael Powell) issued a declaratory ruling saying that cable broadband access was an “information service” and therefore exempt from all rules. A bunch of us appealed, won in the Ninth Circuit, then lost in the Supreme Court in 2005 in a case called National Cable Telecommunications Association v. Brand X Internet Services, usually referred to as just “Brand X.”

Once the Supreme Court greenlighted deregulation of cable and, by extension, telco broadband, the FCC made it happen. By this time, however, Michael Powell had left and Kevin Martin had become FCC Chair. Because the Bush administration had not gotten around to appointing a replacement for Powell’s slot, the FCC remained split 2-2 along party lines. So, when combined with a last minute lobbying push by the public interest community (including yr hmbl obdnt) and the tech industry, the FCC did not adopt the totally deregulatory framework it had adopted in the 2002 Declaratory Order. Instead, Republicans Martin & Abernathy agreed to a compromise with the Democrats Copps & Adelstien to declare dsl an information service and thus deregulated from most rules. At the same time, the FCC announced four “principles” that it would use as a guide for what behavior it would and wouldn’t allow from broadband access providers:
1) consumers (that would be us) can access any legal content they want;
2) consumers can run any application they want (subject to the needs of law enforcement);
3) consumers may connect to the network any legal device that does not harm the network;
4) consumers are entitled to competition among network providers, application and service
providers, and content providers.

On the one hand, this did not totally deregulate the broadband internet. The FCC asserted jurisidtion to take action (either directly against some action that threatened these principles or, in theory, through a future rulemaking) if it felt the need in the future. On the otherhand, the principles don’t actually provide much by way of concrete guidance on what providers can or cannot do. Nor does it make clear how real people (“consumers” in Washington speak) could file complaints or get enforcement of the principles.

THE FCC’S AUTHORITY TO REGULATE BROADBAND

Just to make things even less clear, industry folks began to loudly proclaim that the FCC did not have the authority to regulate broadband now that it had defined broadband as an “information service” rather than a “telecommunications service.” This hinges on the nature of federal administrative law and the fact that the DC Circuit is stacked with the worst sort of activist conservatives who hate the whole concept of the “administrative state,” “regulation,” and “the public interest.” (You can find a good general (and more neutral) backgrounder on the FCC’s jurisdiction at Bob Cannon’s most amazing and useful Cybertelecom site (MUCH better than Wikipedia)).

As briefly as possible, the FCC gets its power from the Communications Act of 1934 (as amended). That Act divides services up into titles. Title I gives the general powers and structure of the Commission, Title II deals with common carriers and telecommunication services, Title III deals with spectrum use, Title VI deals with cable (Titles IV and V not relevant here).

Anything not authorized by one of these Titles is beyond the FCC’s powers. That’s why the DC Circuit threw out the FCC’s broadcast flag regulations last year. The DC Cir. held that nothing in the Communications Act authorized the FCC to set rules about content control on consumer devices. So, since the FCC did not have authority to make such rules, the rules could not stand.

The FCC took broadband out of Title II by defining it as an “information service.” But that does not mean it has no authority to regulate. Under longstanding Supreme Court precedent the FCC has “ancillary jurisdiction” over matters “reasonably related to its core jurisdiction” under the general broad grant of authority given to the FCC by Congress in Title I of the Communications Act (particularly this broad statement of purpose in Section 1 (47 USC 151)). At the same time, however, the Supreme Court has also recognized that this ancillary jurisdiction has limits. In recent years, the DC Circuit has aggressively trimmed back the FCC’s ancillary jurisdiction. While sometimes (as with broadcast flag) that produces a good result, it also makes it questionable what regulatins the FCC can make these days under its general ancillary jurisdiction.

The problem for the cable and telco industry is that in the actual Brand X case, the majority opinion repeatedly referred to the power of the FCC to regulate broadband under its ancillary jurisditiction to avoid any of the anti-competitive evils Scalia and the dissenters anticipated. But we lawyers have a magic word that eliminates such unfortunate statements by the Supreme Court or other relevant courts, “dicta.” Dicta is Latin for “just yakkin’ rather than makin’ law.” If a subsequent court finds that otherwise binding statements of a previous opinion are “dicta,” then they don’t count.

So you have the one side (us) saying the FCC has authority to regulate and should regulate, the other side saying it hasno authority and shouldn’t regulate, and the FCC saying it has authority and may do something if it thinks it appropriate in the future, with no indication of what it might do or what circumstances would make it act.

SO HOW DID CONGRESS GET INTO THIS

Against this background, Congress has decided to act. The Brand X case relied on statutory definitions and the fact that Congress delegated authority to the FCC to make the decision on the definition. Nothing stopped Congress from putting broadband back in Title II. Conversely, nothing stops Congress from shutting out the FCC altogether and giving broadband providers carte blanche to do whatever they want.

A lot of folks want changes to the Communications Act. Would be competitors to cable want access to programming controlled by cable. Telephone companies want to get rid of local franchising because they say it takes too long for them to come in and offer competing video services. Etc., etc. So the Commerce Committees in both the Senate and the House decided to undertake “telecom reform” this year as a big issue.

THE HOUSE BILL — THE COMMUNICATIONS OPPORTUNITY ENHANCEMENT ACT OF 2006 (COPE)

The House went first. In November 2005, Commerce Committee Chair Joe Barton (R-TX) and Ranking member Dingell (D-MI) worked together to produce bipartisan drafts. These contained fairly good network neutrality provisions. Then the telco and cable lobbyists got to work. Each subsequent draft contained weaker and weaker NN provisions. Ultimately, the bipartisanship broke down, and the Republicans put forward COPE.

COPE puts the FCC’s four principles into law. So far so good. But it then strips the FCC of any rulemaking authority. It limits the FCC to doing case by case adjudications on the principles.

Those of us familiar with the history of the industry and the FCC understand this is just nuts. Prophylactic regulation in the 1970s, 1980s, and 1990s made it possible for people to develop the internet. If an emerging Amazon found it needed to file a complaint with the FCC to show that phone companies were blocking traffic to its website unless it paid up, or because the phone company had partnered with Barnesandnoble.com, they would have died before staff goit around to denying the complaint for want of evidence. No venture capitalist would have invested in web services anymore than they invest in cable channels. Blogs like this would not have happened, because no one would have bothered to develop them.

And we would never miss any of it, because we would never have known what we could have had.

As if stripping the FCC of rulemaking weren’t bad enough, COPE also allows the cable and telco companies to charge third parties for “premium access” to subscribers, a behavior I call “Whitacre Tiering” after AT&T CEO Ed Whiatcre. As I’ve written before, I think Whitacre tiering would prove a disaster for democracy and a disaster for business (and, apparently, the banking and financial services industry are starting to agree).

As I’ve reported previously, the House Commerce Committee defeated a strong NN amendment on a mostly party line vote. The Republican leadership, which supports the bill, has sought to get it to the House floor for a vote by next week. Meanwhile, Reps. Ed Markey (D-MA), joined by Rick Boucher (D-VA), Anna Eshoo (D-CA), and Jay Inslee (D-WA), have introduced a stand alone NN bill. In addition, the Republican Chairman of the House Judiciary, James Sensenbrenner (R-WI), has sought a referral to his anti-trust subcommittee because of the impact on competition. As resistance grows, we can expect opponents of NN to push for a quick vote, while supporters of NN will do what they can to continue to build momentum.

THE STEVENS BILL
Meanwhile, over in the Senate, Senate Commerce Chair Ted Stevens (R-AK) held a series of 14 hearings on telecom issues, including NN. On Monday, he and ranking member Daniel Inouye (D-HI) (who expressed grave reservations about the bill) released a massive telecom reform bill called the Communications, Consumer Choice, and Broadband Deployment Act of 2006. (For brevity, I will just call it the Stevens Bill.)

I’ve written elsewhere about what I like in the bill (unlicensed spectrum and program access) and what I don’t like (broadcast flag and limits on munibroadband). You can see my take on it NN provision here. Briefly, it strips the FCC even of the power to enforce the four principles through adjudication. The only thing the FCC can do is write an annual report to Congress about the “state of the ‘net.” Even then, the Stevens Bill would prevent the FCC from recommending to Congress that it grant the FCC new regulatory authority to address any problems it found, although the FCC can recommend “private enforcement mechanisms.”

At the moment, the Senate Commerce Committee intends to hold two hearings on the Stevens Bill in May, with mark up scheduled for early June. Obviously, the situation in the Senate is very fluid.

Needless to say, I hope folks will take this election campaign season to make their feelings about net neutrality known to your elected Senator and Representative. Lots of other people will talk to them about Iraq, the deficit, and other hot button issues that get huge play in the mainstream media. If they don’t hear from you about network neutrality, they’ll assume you don’t care and feel free to vote based on what they think best balances the needs of the industry. Indeed, no one expressed this opinion better than House Subcommittee Chair Fred upton (R-IL), who told Multichannel News on April 3, 2006 (right before the Subcommittee vote on COPE): “[C]able and phone companies will endorse the bill. We are very close to getting their sign off.” Apparently, Mr. Upton (and a number of his colleagues) feel that getting cable and telco sign off should be enough to guarantee passage and make good public policy.

Perhaps some of their constituents will trouble to tell them differently. But if we don’t, then we will surely have the government and the laws we deserve.

Stay tuned . . . .