FCC tries to revive net neutrality without rocking the boat; politically weak decision could prove disastrous

by Andrew D. Selbst, guest blogger

A month ago, I wrote about Verizon v. FCC, the D.C. Circuit decision striking down the FCC’s net neutrality regulations. In that post, I noted that the decision contained two distinct holdings. First, the FCC could not impose common carrier regulations (net neutrality is one such regulation) on broadband providers while they remain classified as “information services” rather than “telecommunication services” under the Telecommunications Act. Although changing how the broadband providers are classified is entirely within the power of the FCC, the statute explicitly says that common carrier regulation cannot be imposed on information services. Second, the court held that the FCC has authority, without reclassifying, to regulate in ways that do not directly contradict the statute. In other words, if the FCC wants to reimpose common carrier regulations like net neutrality, it must reclassify.

             Yesterday, FCC Chairman Tom Wheeler announced his response to the decision, and it has both promising and strongly worrisome parts.

            Wheeler announced that the FCC would not appeal the D.C. Circuit’s decision. He also announced that the FCC would not reclassify broadband providers, though it is keeping the idea “on the table.” Instead, the FCC will impose and strengthen various regulations under its power derived from Section 706 of the Telecommunications Act. The D.C. Circuit’s decision last month decision specifically upheld the Open Internet Order’s transparency rule under this power, which Wheeler announced the FCC would strengthen. Although the rule is not the only one the public needs, it is a good thing, as it will allow companies that provide services over the internet, such as Netflix, to figure out how their data is interacting with the network if they are having trouble reaching customers.

             Wheeler goes wrong, however, by attempting to use Section 706 authority to impose what amount to common carrier regulations. He seeks to “fulfill the goals” of the “no blocking” and “non-discrimination” rules, both of which were struck down as essentially common carrier rules. Thus, the D.C. Circuit already ruled that the FCC cannot accomplish this under Section 706. This will not end well. If Wheeler succeeds in pushing through rules that even smell like common carrier regulations, they will be preliminarily enjoined in an instant in court. But even that is not the worst part, because if the FCC loses this gambit quickly, it can continue with the reclassification plan.

 The worst case here is that the D.C. Circuit takes another four years to come down with its inevitable decision blocking these rules. (The first case addressing the FCC’s authority in this regard was Comcast v. FCC, in 2010, and the second was this year, in 2014.) This delay is potentially a huge problem, but not in legal terms.

 The practical meaning of net neutrality is difficult to understand intuitively. We do not see the relationships between the various players in the market – the Netflixes, the broadcasters, the internet service providers (ISPs) – economic or technical. Since the ruling in Verizon, there have been various reports that Netflix’s service has been degraded on the major ISPs, though it is impossible to prove exactly what the cause is because of this opacity. It is easy to hide network discrimination as technical difficulties, and that is what the ISPs are claiming. (Who knows, it may even be true.) What many people don’t realize is that up until recently, neutrality, and specifically non-discrimination, has been the default setting for the internet. So if discrimination begins occurring, it will be a paradigm shift. But if it’s couched in terms of technical difficulties, with each party blaming the others, we will slowly become accustomed to its effects.

 Meanwhile, advocates on behalf of the ISPs will keep pushing the framing that ISPs are giving Netflix and Amazon better access for a cost (costs — they won’t mention — that will eventually be passed on to consumers), rather than noting that the ISPs are extracting more money out of Netflix and Amazon for the same “privilege” they have now. The ISPs are like department stores that double their prices before the blowout 50% off sale. Once we begin to accept that paradigm, the ISPs will admit that they’re discriminating, as is “their economic prerogative,” and lo, service will be what we’ve become accustomed to anyway because of technical difficulties.

 For an example of how consumers can become accustomed to a market arrangement, consider the bundling of cable packages: when you buy the package that gets you ESPN, you receive (and pay for) the Discovery Channel and the History Channel too, even if you don’t want them. There’s no reason cable needs to be bundled, other than that someone made that decision long ago, and it makes the cable companies money. We just accept that it is. That’s the acclimation I’m talking about.

 This is why Tom Wheeler’s plan — which seems to me like it will simply delay another four years until his hand is well and truly forced into reclassification — scares me. He should just summon up the political courage and do what he needs to do. The FCC must reclassify.