Friday, March 09, 2018

Thinking Things Through - Maintain That National Policy Line

In a piece titled, “Thinking Things Through – Maintain That Line,” published on February 27, 2018, I contended that, as a matter of fundamental principle, it is important that “[d]igital broadband services should not be regulated under the same public utility-like Title II regulatory regime established for analog narrowband telecommunications services and applied to them throughout the 20th Century.” I contended that the “line that prevents Internet service providers from being classified and regulated as common carriers in a public utility-like fashion should not be crossed.”

Here I want to think through – contend for if you will – another fundamental principle: Digital broadband services should not be subject to state regulation that is inconsistent with the decades-old national policy favoring light touch regulation of information services.

Of course, it is well-known by now that many states, either through the adoption of new laws or the promulgation of executive orders, are attempting to impose various “net neutrality” mandates on Internet service providers (ISPs) offering services to the general public and/or through procurement contracts to state agencies. In effect, these laws and executive orders, absent preemption by the FCC, would re-impose the very public utility-like regulation that the FCC repealed in its December 2017 Restoring Internet Freedom Order (RIF Order).

If Internet service providers are required to operate under a patchwork of regulation imposed by the various states – a patchwork of public utility-like regulation incompatible with the federal deregulatory policy – then it is likely investment in new broadband facilities will be deterred and innovation chilled with respect to the development of new services.

This is exactly what the FCC concluded in the early 1980s in its seminal Computer II decisions when it first drew what it called a “bright line” between the newly emerging online services – then called “enhanced services” but now “information services” without any material change in definition – and basic telecommunications services. There the Commission established the policy of non-regulation for information services as distinct from common carrier regulation of telecommunications services. Importantly for present purposes, the Commission declared that its deregulatory policy preempted inconsistent state regulation so that the online services could grow free from state economic regulation that would stifle their growth. The FCC’s preemptive authority was upheld by the D.C. Circuit in Computer & Communications Industry Ass’n v. FCC in 1982.

Likewise, the FCC’s preemptive authority regarding state regulation incompatible with federal policy was affirmed by the Court of Appeals for the Ninth Circuit upon review of the agency’s late 1980s Computer III proceedings. The FCC had relaxed some of the requirements applicable to the Bell Companies provision of information services – moving from a strict structural separation regime to one employing nonstructural safeguards – and preempted state regulations that would have imposed more stringent mandates. Significantly, in California v. FCC (1994), the court declared: “The FCC has presented adequate record support for its conclusion that because of economic and operational factors, enhanced service providers would separate their facilities for service that are offered both interstate and intrastate, thereby essentially negating the FCC’s goal of allowing integrated provision of both enhanced and basic services.”

With this backdrop in mind, it should not be surprising – nor is it insignificant – that when Congress enacted the Telecommunications Act in 1996 it declared it to be federal policy “to preserve the vibrant and free market that presently exists for Internet and other interactive computer services” and further that information services should remain “unfettered by Federal or state regulation.’ 47 U.S.C. Section 230. In essence, Congress stated clearly that information services should continue to be subject to the deregulatory policy established in the early 1980s in Computer II and that this is a matter of national policy.

Of course, there have been many, many more pronouncements along the way to the same effect, by both the FCC and the courts. So, the FCC’s declaration in the Restoring Internet Freedom Order – like Congress’s declaration in the 1996 Telecommunications Act – should in no way be surprising. Indeed, the surprise would have been had there been no such declaration.

Here is what the FCC stated in the RIF Order:

Federal courts have uniformly held that an affirmative federal policy of deregulation is entitled to the same preemptive effective as a policy of regulation. In addition, allowing state or local regulation of Internet access service could impair the provision of such service by requiring each ISP to comply with a patchwork of separate and potentially conflicting requirements across all of the jurisdictions in which it operates.

The FCC went on to explain that it is “well-settled that Internet access service is a jurisdictionally interstate service because ‘a substantial portion of Internet traffic involves accessing interstate and foreign websites.’” And then, once again significantly: “Because both interstate and intrastate communications can travel over the same Internet connection (and indeed may do so in response to a single query from a consumer), it is impossible or impracticable for ISPs to distinguish between intrastate and interstate communications over the Internet or to apply different rules in each circumstance.” In this situation, state actions that have the effect of regulating and burdening an inherently interstate service are impermissible under the Commerce Clause.

It should be crystal clear from the foregoing that, dating back to the landmark Computer II decisions, there is a long history supporting the Commission’s declared intent to preempt inconsistent state public utility-like economic regulation that conflicts with the national policy that Internet providers should not be subject to a patchwork of conflicting state regulation, whether in the form of laws, executive orders, or other regulatory impositions.

I should reiterate once again, as I did in  “Thinking Things Through – Maintain That Line,” that the exercise of the Commission’s preemptive authority does not leave consumers or competitors unprotected or without recourse with regard to claims of alleged abusive ISPs practices. Not only will they have recourse to the Federal Trade Commission, with its consumer protection and competition authority, and the Department of Justice, with its antitrust authority, but they will have recourse as well to state laws and regulations, including consumer protection laws, of general jurisdiction. As the FCC stated in 2004 in the Vonage Preemption Order, the federal deregulatory policy regarding information services “refers primarily to economic public utility-type regulation, as opposed to generally applicable commercial consumer protection statutes, or similarly generally applicable state laws.”

So, in sum, just as one fundamental principle requires maintaining the deregulatory line that prevents today’s Internet service providers from being regulated like public utilities, another, correlative fundamental principle requires that, in order for Internet services to continue to thrive and to respond to consumer demands in a fast-changing marketplace, the FCC’s deregulatory policy must be applied on a national basis.

It should be evident that these two long-standing principles – first articulated almost four decades ago – have stood the test of time.