Say goodbye to network neutrality… at least for now. That's my take after watching and evaluating the arguments over the issue at the D.C. Circuit Court recently.
Based on Verizon Communications Inc. (NYSE: VZ)'s challenge to the Federal Communications Commission (FCC) 's "no blocking" and "anti-discrimination" rules and lack of severability, Judges Laurence Silberman and David Tatel seem inclined to vacate parts, if not all, of the FCC's Open Internet regs because they impose common carrier obligations on an "information service." Meanwhile, Judge Judith Rodgers asked few questions. (Verizon v. FCC, 11 1355, D.C. Cir. argued September 9, 2013).
That's the good news. The bad news is that the judges gave short shrift to the claim that the FCC lacks the authority to adopt rules, as well as to Verizon's First Amendment and Fifth Amendment "takings" claims.
If my read is accurate and the regs are vacated, the FCC will then have three options: (1) seek en-banc review by the full D.C. Circuit; (2) petition for Supreme Court review; and/or (3) try again. Because few cable TV issues ever really die or fade away, look for more pressure by the Open Internet Coalition (OIC) on Congress and the FCC to declare Internet infrastructure providers to be common carriers when distributing the content and applications of others.
Judge Tatel, who is blind, seemed to have the most foresight and clearest understanding of the law, policy, and business implications of the case. He authored Comcast v. FCC, 08-1291 (D.C. Cir. April 6, 2010), which chastised the FCC for claiming ancillary authority over Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s interference with peer-to-peer file sharing. He also penned the opinion in Cellco Ptp. v. FCC, 11-1135 (D.C. Cir. December 4, 2012). That case upheld FCC authority to impose data roaming regs on mobile data providers in the face of Verizon's claim that this was impermissible common carrier regulation.
Because edge providers have to be given access at no charge, Judge Silberman found it difficult to understand how the FCC could claim its rules were not tantamount to common carrier regs. He agreed with Tatel that the anti-discrimination rules were clearly common carrier.
Silberman appeared confused about how the Internet works. No-one explained that over-the-top (OTT) traffic is on the public Internet, while VoIP and other services offered by phone and cable companies pass through dedicated facilities separate from the public Internet. Only the protocol (IP) is the same. FCC counsel Sean Lev struggled to clarify that edge providers already pay networks for interconnection and backhaul.
Pantelis Michalopoulos, who represented the OIC -- which includes Amazon.com Inc. (Nasdaq: AMZN), Dish Network LLC (Nasdaq: DISH), Facebook , Netflix Inc. (Nasdaq: NFLX), TiVo Inc. (Nasdaq: TIVO), Vonage Holdings Corp. (NYSE: VG), and YouTube Inc. -- argued that the anti-discrimination rule should be upheld so that carriers cannot double charge both consumers and edge providers.
That's the heart of this case. It's why some 200 attorneys started lining up in the hallway an hour before the argument began. If the anti-discrimination rule is invalidated but the anti-blocking rule is upheld, the stage will be set for a two-sided market. Telcos and cable companies will be free to offer edge providers "faster lanes" for a fee -- a healthy boost for cable's small-to-midsize business (SMB) revenue.
Despite little evidence, public interest groups, the OIC, and the FCC worry that telcos and cable companies will have a disincentive to maintain and upgrade their infrastructure if they can charge OTT providers. They also fret that carriers might degrade service, creating congestion and thereby forcing edge providers to pay for priority.
Verizon counsel Helgi Walker, who also represented Comcast and Cellco (Verizon), said her client was interested in charging edge providers for priority access but was reluctant to run foul of the FCC's "anti-discrimination" rule. She argued that even the no-blocking provision was a de facto nondiscrimination rule because it mandates that all edge providers be carried at no charge. That may be a stretch. Judge Tatel signaled approval of the "no-blocking" rule but not the "anti-discrimination" rule. This would allow pay-for-priority and not apply common carrier regulation to an information service.
Under questioning from Silberman, Walker initially conceded that an FCC finding of carrier market power might justify Open Internet regs but later said such a "flat finding" was not sufficient justification. The entire regime should be invalidated, she said, because the FCC never claimed severability -- that the court could strike down some regs without invalidating the entire regime.
The court is expected to hand down its decision by June.
- Verizon Appeals Net Neutrality Rules (Again)
- Verizon Fights Net Neutrality Order
- FCC Votes to Approve Net Neutrality Rules
— John Mansell, President, John Mansell Associates Inc. John Mansell is a member of the D.C. Bar, Michigan Bar, and Federal Communications Bar Association.