Comcast v. FCC: A Game Changer For Net Neutrality Regulation

In Comcast v. FCC, the FCC suffered a severe setback in its plans to impose network neutrality regulation on the Internet. The U.S. Court of Appeals for the District of Columbia Circuit vacated the FCC's controversial Comcast Network Management Practices Order from 2008. In a unanimous opinion authored by Judge David Tatel, the Court concluded that the Commission failed to establish its jurisdictional authority to regulate the network management practices of an Internet Service Provider (ISP). In particular, the Commission "failed to tie its assertion of ancillary authority over Comcast's Internet service to any 'statutorily mandated responsibility.'" The immediate result was the Court's vacating the Order. But the net neutrality saga is far from over, as the FCC's defeat has important implications for the current plans of an FCC majority to adopt a set of network neutrality rules.

Significantly, Comcast v. FCC clarifies the limited contours of the FCC’s ancillary authority to impose regulation in the context of broadband Internet. That authority is contained in Section 4(i) of the Communications Act of 1934, and it authorizes the Commission to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions." Judge Tatel's opinion for the D.C. Circuit extensively analyzed prior D.C. Circuit and U.S. Supreme Court rulings concerning the parameters of the FCC’s ancillary authority.

In those cases where ancillary authority was sustained, concluded Judge Tatel, the FCC linked the policies backed by its ancillary authority to express declarations of regulatory authority. Judge Tatel explicitly rejected the Commission's arguments that mere statements of congressional policy that lack delegation of power by Congress can create 'statutorily mandated responsibilities' that support section 4(i) ancillary authority. Wrote Judge Tatel: "Policy statements are just that—statements of policy. They are not delegations of regulatory authority."

The FCC also failed to persuade the D.C. Circuit that any arguably express statutory delegations of regulatory power to the FCC supported the Commission's exercise of ancillary authority against Comcast. In particular, Judge Tatel rejected the Commission's reliance on: section 706 (promoting deployment advanced telecommunications capability), section 256 (establishing procedures for coordinated network planning and interconnection of public telecommunications networks), section 257 (granting 15 months to identify and eliminate market entry barriers for entrepreneurs and small businesses in provision and ownership of telecommunications and information services), Title III (authority over broadcasting), and section 623 (cable ratemaking authority). However, because the FCC did not rely upon the same line of argument concerning section 201 and Title II (telecommunications services common carrier regulation), the Court considered that argument forfeited and did not address its merits.

The D.C. Circuit's ruling in Comcast v. FCC vaporized the jurisdictional basis of the FCC's pending net neutrality rulemaking. After all, the FCC's Notice of Proposed Rulemaking relied entirely on the Comcast Order. (See NPRM page 36). As a technical matter, the Court’s ruling did leave the FCC some room in the future to offer a more limited rationale based on section 623 or a reinterpretation of section 706 to justify its ancillary jurisdiction to adopt the proposed rules. But with section 706, the FCC would have to explain its way out of its earlier order recognizing that it provides no separate delegation of regulatory authority. It's also highly unlikely that a narrower reliance by the FCC on section 623 cable ratemaking would fly in federal court.

Comcast v. FCC may render more likely a future FCC attempt to concoct a Title II common carrier basis for its proposed net neutrality regulatory regime. (See my prior blog post "Save The Internet From Title II Regressives.") This hardly means the D.C. Circuit would find Title II a more plausible basis for FCC ancillary authority over the Internet than the candidates it just rejected. But the Court never foreclosed a Title II basis for net neutrality regulation because it never reached the question in the first place. So without obtaining a congressional delegation of authority, how can the FCC break free of its ancillary authority limits and impose its net neutrality rules? Most likely by tearing up key deregulatory policies that have led to high-speed broadband being declared an "information service" not subject to "telecommunications service" regulatory mandates. This means foisting old monopoly-era telephone regulatory apparatus on the Internet. It also means subjecting cable modem services to common carrier regulation for the first time.

None of this is to say that an FCC regulatory reclassification of broadband Internet would survive legal challenge either. The Commission will have serious factual difficulties to overcome if it hopes to cobble together a rationale for suddenly reversing the agency's prior course. For starters, the FCC's record is devoid of instances of ongoing harm. Its NPRM could only cite two instances of alleged violations of Internet Policy Statement, and the order in one of those instances was just vacated in Comcast v. FCC. To date, the FCC's record also lacks any evidence of market power being possessed by ISPs. In particular, the FCC will be hard pressed to identify marketplace developments in the past 5 years that warrant disregard of its prior precedents.

At this point it's too soon to tell whether the FCC will strike back from defeat in Comcast v. FCC by urging that net neutrality regulation become a condition of pending or future telecommunications and media mergers, such as…Comcast-NBCU. Hopefully, the FCC won't make the mistake of using its merger approval process as a temporary means of imposing net neutrality “regulation by condition.” Merger conditions should only be targeted to specific anti-competitive harms posed by the transaction in order to remedy those perceived harms. And such conditions should not take the form of regulation more appropriate for industry-wide application and adoption through rulemaking proceedings. (I blogged about this previously in "Take Net Neutrality Out of Merger Review.")

In response to the D.C. Circuit's ruling, the FCC announced that the Court "did not close the door to other methods" for imposing net neutrality regulation. Rather than ratchet things up further by resorting to a Title II nuclear option, the FCC should consider less drastic steps on the road ahead. A much better option is touched on in FSF President Randolph May's statement from yesterday on the Comcast v. FCC ruling:

If the agency believes some form of Internet regulation is desirable, it should work with Congress to fashion a new statutory framework. Indeed, the court's decision ought to provide an impetus for Congress to begin a rewrite of the Communications Act which ties the Commission's regulatory activity over broadband explicitly to evidentiary showings of abuse of substantial market power and demonstrable consumer harm.