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Last Thursday, the Federal Communications Commission (FCC) on a party-line vote decided to reclassify broadband as a telecommunications service. This allows the FCC to impose more regulations on broadband Internet providers as if they were a public utility. The FCC intervened due to concerns that Internet Service Providers (ISPs) will discriminate against network traffic, speeding up some Internet sites that would be willing to pay them a special fee, while reducing the speeds of other sites that either refused to pay or were in competition with other operations of the ISP. This so-called “net neutrality,” which treats all Internet data the same, has become a highly charged political issue, with conservatives warning that the FCC’s decision will stifle innovation and liberals championing the FCC’s decision as a victory for consumer interests.
This topic brief will discuss the road to the FCC’s recent net neutrality decision, what its regulations will do, and the potential political and legal battles ahead regarding net neutrality. Extempers should read last year’s brief on net neutrality to obtain sufficient background on this issue, as this topic brief will center more on the FCC’s vote.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
The Road to the FCC’s Decision
The term “net neutrality” was coined by Columbia Law School Professor Tim Wu in 2003. As stated in the preview to this topic brief, net neutrality is a concept that says that all Internet data should be treated equally by Internet Service Providers (ISPs). Under net neutrality regulations, ISPs should not be able to charge fees to those who operate certain websites in order to speed up their connections to customers and/or discriminate against certain Internet traffic. For example, an ISP such as Time Warner Cable (TWC) should not be able to cut a special deal with Hulu, speed up the delivery of Hulu’s content to its subscribers, and then intentionally “throttle” competing services to Hulu such as Amazon Prime or Netflix. The Christian Science Monitor on February 26 writes that consumer advocates argue that having a free Internet is an important human right, saying that it is a vital instrument for the advancement of democracy and human rights. Companies such as Amazon and Netflix also argue that having an open Internet free of ISP discrimination is important because their services could be inhibited by having to cut special deals with various broadband companies.
However, The Huffington Post writes on February 26 that ISPs strongly oppose net neutrality. These providers, such as TWC, Comcast, and AT&T argue that certain content providers such as Netflix are straining their networks. They note that Netflix now accounts for one-third of “downstream” Internet traffic in peak hours (downstream traffic is data that is received by computers). ISPs explain that the pressure put on their networks by streaming mandates that they enhance their infrastructure, but there is a disagreement over who should pay for that. ISPs want content providers such as Netflix to pay for some of the upgrades, while Netflix and other companies say that those costs should be borne by ISPs alone. The BBC points out on February 4 that billions of dollars are at stake in this dispute. It explains in a separate article on February 26 that last year broadband providers in the United States spent $73 billion upgrading infrastructure, but this number will have to rise as Internet usage will double over the next decade, with data transmission increasing eight-fold. The argument of ISPs, according to the BBC, is that they need a guaranteed return on their investment in this infrastructure, which they say will either come from content providers or customers through higher prices.
In 2010, the Federal Communications Commission (FCC) waded into the net neutrality debate by passing “Open Internet Rules.” These rules mandated that ISPs be transparent about their handling of Internet traffic and prohibited discrimination against certain websites. These rules were immediately challenged by Verizon, which argued that the FCC did not possess the regulatory authority to make net neutrality rules. In January of last year the U.S. Court of Appeals for the District of Columbia agreed, saying that the FCC’s then-regulation of ISPs as an “information service” on par with other media products such as cable television did not allow it to impose net neutrality regulations. Back in 2002, the FCC decided to classify broadband Internet as an “information service” as opposed to a “telecommunications service,” which is a classification that covers infrastructure such as public utilities. However, The Week explains on February 25 that the Court of Appeals suggested that the FCC’s regulations could be deemed lawful in the future if it used its Title II authority under the Communications Act of 1934 to reclassify broadband providers as a “telecommunications service.”
Net neutrality advocates feared that the Court of Appeals decision would lead to Internet “fast lanes,” whereby certain content would be streamed more quickly for users, thereby harming start ups who did not have the capital or resources to pay the hefty fees demanded by ISPs. These fears grew after Netflix agreed last March to pay Comcast to speed up the delivery of its content to Comcast customers. Last April, FCC Chairman Tom Wheeler floated an idea that would allow for firms to charge data providers under certain circumstances, but he quickly met resistance from those in Silicon Valley, who warned him that anything short of an equal playing field on the Internet would threaten the ability of start-up firms to survive. The Week article previously cited explains that HBO comedian John Oliver’s Last Week Tonight helped flood the FCC with messages in favor of a strong net neutrality decision, with Oliver telling his viewers that net neutrality was a significant issue that should unite all who favor an open, equal Internet. The National Journal writes on February 5 that small groups such as Demand Progress, Fight for the Future, and Free Press rallied supporters to send thousands of e-mails to lobby for a strong net neutrality decision as well. These activists took hope in protests against the Stop Online Piracy Act (SOPA) in 2011, where a grassroots movement helped scuttle plans by the music industry and Hollywood to clamp down on pirated content online. Google was noticeably absent from the debate, largely because as Fortune explains on February 26, it has now become a “corporate colossus” rather than a small business and thinks – albeit not openly – that net neutrality may allow future competitors to emerge. Nevertheless, grassroots groups and small firms effectively rallied public opinion in favor of net neutrality. In total, the FCC received four million comments about net neutrality, with most favoring reclassification of broadband providers. Time writes on January 20 that the FCC received so many comments that it crashed its servers. All of this likely spurred the FCC to act more aggressively on net neutrality and back off of Wheeler’s fast lane proposal, since public opinion seemed to back strong net neutrality rules.
The push for a stronger FCC decision also came from the White House, with President Obama announcing shortly after the midterm elections that he thought the FCC should enact the “strongest possible rules.” In 2008, then-Senator Barack Obama was a supporter of net neutrality, but the White House had remained largely mute on the issue since that time. The Week article previously cited explains that some of President Obama’s advisors, largely R. David Edelman and Tom Power, aggressively petitioned the President to resist pressure from cable and telecommunications CEOs to remain mum on net neutrality. Washington insiders allege that Edelman and Power were influential behind the President’s decision to publicly back net neutrality, which was important because it showed the FCC that if it took strong action that the federal government would support it in future litigation with the telecommunications industry.
The FCC’s Net Neutrality Rules
All of this led to last week’s FCC meeting, where Wheeler and the other two Democratic commissioners on the five-member panel – Mignon Clyburn and Jessica Rosenworcel – voted in favor of new net neutrality rules that would reclassify broadband providers as a “telecommunications service.” The two Republican commissioners – Ajit Pai and Michael O’Rielly – voted against the proposal. The Atlantic on February 26 writes that the FCC’s new regulations come down to three simple phrases: no blocking, no throttling, and no paid prioritization.
With regards to no blocking and no throttling, the new regulations established by the FCC prohibit a broadband provider from unilaterally blocking access to legal Internet content. They also do not allow providers to intentionally speed up the connections to certain content in return for a fee from content providers. So in other words, an ISP such as Comcast cannot accept money from a data provider such as Netflix and speed up its online service at the expense of a competitor. While opponents of the regulations argue that these events were not currently happening on the Internet, Netflix disagrees, saying that reports show that prior to its deal with Comcast last March the speed of delivery of its content to Comcast customers was poor. Also, The Christian Science Monitor reports on February 26 that in 2008 Comcast intentionally slowed down (“throttled”) traffic from BitTorrent, a file-sharing application, since the site was taking up too much bandwidth on its networks.
The new rules also prohibit ISPs from reaching deals with content providers that are called “paid prioritization.” This means that deals like Netflix cut with Comcast in March will not become the norm for the Internet if the regulations pass judicial muster. This regulation was made to ensure that smaller firms are not prejudiced in the online marketplace, as they may struggle to compete with bigger firms who could pay ISPs larger sums of money to speed up their traffic and thereby acquire a larger market share.
However, the FCC is not utilizing its full authority as a regulator of broadband Internet, at least not at the moment. The FCC has announced that it will not try to oversee the pricing arrangements that ISPs create with their customers, meaning that for the moment ISPs will not need to have a rate increase approved by the FCC. This could become a battleground in the future because some companies such as Comcast are running trials for imposing data caps on customers. As streaming technology becomes more popular, these caps could become an issue as those who consume more bandwidth may have to pay significant sums for it. Vox explains on February 26 that the FCC’s decision not to impose price controls is a conservative victory, as other telecommunications firms such as phone companies have always had to get price increases approved through the FCC. To be sure, some progressives want a “public option” for the Internet, whereby the federal government, or even states and municipalities set up their own Internet service. The Christian Science Monitor writes in a separate article on February 26 that the FCC also voted last Thursday to override state laws that prohibit cities from constructing their own broadband networks, but there could be some problems with this progressive option. First, municipal and state budgets are tight at the moment, so the funds may not be there to create a public Internet infrastructure. Second, litigation over those FCC rules is likely to be imminent. And finally, even if major cities decided to construct their own Internet networks and operate them as a utility, as some do for water, electric, and gas service, it would take years to put them together, so it is not a short-term solution.
The FCC’s rules put the United States with a host of nations that have already established net neutrality rules. Chile became the first country in the world in 2010 to have net neutrality rules and the Netherlands in 2012 became a vanguard for pushing net neutrality rules in Europe. The BBC on May 14 of last year explains that in April 2014 the European Parliament voted to restrict ISPs on the continent from reaching paid prioritization arrangements with data providers. In addition to the Netherlands, Slovenia also has net neutrality enshrined in national law. Advocates of net neutrality in the United States argue that the Netherlands provides an excellent model for how net neutrality should operate. The New York Times explains on February 26 that customer bills have remained stable following net neutrality (Dutch telecommunications companies warned that bills for customers would skyrocket) and that their Internet infrastructure continues to improve. Of course, there are some problems with this parallel. As The Times explains, the Netherlands only has seventeen million people and their country covers the size of the state of Maryland. This makes it cheaper for companies to construct a nationwide Internet infrastructure, whereas companies in the United States have to have a large capital pool to establish a broadband network that will cover most of the country.
Future Legal and Political Battles
It would be wrong for extempers to assume that the FCC’s regulations will become settled law or will go into effect immediately. Newsweek writes on February 26 that the FCC must now release its 317-page order, which will go up on its website, and that once its rules are printed in the Federal Register that sixty pass must pass before they go into effect. ISPs will have thirty days after the publication of the FCC rules in the Federal Register to appeal them, which it is expected that they will do. Much like 2010, companies have also vowed to sue to block the regulations. If they do file their anticipated lawsuit, expected to take place this summer, a judge is likely to impose an injunction on the enforcement of the new rules until a decision is reached. It took nearly four years the last time the FCC rendered a decision on net neutrality to get a final judicial verdict, so it is very likely that the FCC’s recent net neutrality rules will not be finalized by the time your extemporaneous speaking career is finished!
And how is a lawsuit likely to proceed? Just like 2010, broadband providers are likely to sue on the grounds that the FCC lacks the authority to impose a net neutrality scheme, saying that such a system has to come from Congress. However, as stated earlier in this brief, the Court of Appeals last year suggested that the FCC would have the power to establish net neutrality regulations so long as it reclassified the status of broadband providers. Now that it has done so, the FCC has seemingly solved this legal problem, so that may help it win a future court battle. Even Supreme Court Justice Antonin Scalia, arguably the most conservative justice on the Court, seems to approve of the FCC’s authority on net neutrality. According to The Atlantic on February 4, Scalia has argued in the past that the FCC’s failure to regulate the Internet as a utility was “not only perplexing, but also illegal because confusing rules” have created an atmosphere of uncertainty and non-regulation. In other words, the FCC by not classifying broadband providers as a utility prior to last Thursday was being derelict in its duties as a public regulatory body. Future lawsuits may also have problems because as Tim Wu writes in The New Yorker on February 26, the FCC does not take kindly to being sued and this could increase its scrutiny of the attempted mergers before it among broadband providers. This includes the proposed mergers of Comcast and TWC and of AT&T and DirecTV. In addition, last month saw the stocks for telecommunications firms increase in value. The Wall Street Journal on February 26 says that this is due to the FCC announcing that it will not regulate prices. Why this increase in stock value matters, according to Wu, is that companies would be suing over FCC rules that seem popular with shareholders, thereby putting them in an uneasy position. Also, Comcast’s threat that it may significantly reduce spending on Internet infrastructure may not carry weight either because, as CNN explains on February 26, the approval of Comcast’s merger with TWC is on the condition that it heavily invests in its network infrastructure. Thus, if Comcast threw a fit and cut back on its investments that would jeopardize its merger with TWC and could create a shareholder revolt within the company.
There is also a political dimension to the battle as well. Republicans have been hostile to the FCC’s decision, arguing that it is unwarranted government interference with the Internet and will eventually create prohibitive costs for consumers as companies pass them the bill for infrastructure improvements. Republicans also argue, according to USA Today on February 26, that the FCC’s rules are the first step to government overregulation of the Internet, thereby stifling long-term investment and potentially slowing down the entire national broadband grid. Politico writes on February 26 that some House Republicans want to push a resolution of disapproval, allowing them to override the FCC’s actions. However, even though this resolution would be able to navigate Congress, President Obama would veto it. Other Republicans want to look into a bipartisan solution with Democrats that would keep elements of the FCC’s new rules such as not allowing content providers to block websites, but remove elements of its future authority over pricing schemes. Other elements of the Republican Party allege that the White House illegally interfered with the FCC’s decision on net neutrality, with House Oversight Committee Chairman Jason Chaffetz (R-UT) and Senate Homeland Security and Government Affairs Chairman Rob Johnson (R-WI) investigating this issue. Speaker of the House John Boehner has not been a fan of net neutrality either, remarking that it is a “secret plan to put the federal government in charge of the Internet.” Of course, as The Week explains, Boehner is the largest recipient of donations made by Comcast so that has probably affected his view of the question.
The net neutrality decision is likely to bleed into the 2016 presidential race. Al-Jazeera explains on February 26 that presidential hopefuls such as Senator Rand Paul of Kentucky and Senator Ted Cruz of Texas have blasted the FCC’s decision. Senator Cruz has said that net neutrality is “ObamaCare for the Internet,” while Senator Paul has said that it is a threat to liberty. Other Republican hopefuls such as former Florida Governor Jeb Bush have remained mum about their views, which might be a positive since polls have shown that the public is in favor of the FCC’s decision. In fact, polls taken last fall showed that a majority of Democrats and Republicans both agreed with the principle of net neutrality. Therefore, net neutrality might be a way for moderate Republicans to win some ground away from far-right forces. The danger, though, for Republicans is that if they strongly oppose net neutrality that they risk enhancing their image as defenders of corporate rights. Companies like Comcast are not very popular with the average American, so if the GOP cozies up to the telecommunications giant that would likely be a poor public relations move.
And what of the Democratic presidential contenders? The Nation explains on February 26 that former Secretary of State Hillary Clinton has given speeches that are favorable to net neutrality, but some of her language has been vague. Socialist Vermont Senator Bernie Sanders, who might seek the Democratic nomination next year, has been a long-time supporter of net neutrality, favoring media reform issues since he came to Congress in 1991. Therefore, Democrats have more goodwill on the net neutrality issue. If for some reason the FCC’s rules are struck down in court that might aggravate the urgency for a legislative solution to the problem and if that happens, Republicans could find themselves at a significant disadvantage, as polls show that the public wants something done.
Thus, the fight over net neutrality is not yet over. The FCC has issued its rules, but those will likely be challenged by broadband providers. Experiments with net neutrality elsewhere in the world have shown that it is not a hindrance to innovation or bad for consumers, but no experiment with it has been done on a scale like the United States. The country is facing a “brave new world” of Internet regulation in an attempt to preserve an “open Internet,” but the outcome of the 2016 presidential election, where a new president will name new FCC commissioners, or a future court decision may shatter the FCC’s recent rules and force policymakers to cobble together a new solution that satisfies consumers, startups, and broadband providers.