State-Level Rate Regulation of Broadband Faces Reckoning with Title II Preemption

On June 17, the U.S. Court of Appeals for the Second Circuit issued its mandate reversing and vacating the District Court decision that enjoined enforcement of New York's Affordable Broadband Act, a state law regulating the rates of broadband Internet access services. The New York law at issue requires broadband providers offering Internet access services in the state to make available plans that are subject to rate ceilings. Apparently, as many as one-third of New York households would qualify for such rate regulated plans. The law was challenged under the FCC's 2017 Restoring Internet Freedom Order.

In a May 10 Perspectives from FSF Scholars titled "Second Circuit Preemption Decision Won’t Save New York Broadband Rate Regulation Scheme," Law Professor Daniel Lyons – a member of the Free State Foundation’s Board of Academic Advisors – analyzed Second Circuit’s decision in NYSTA v. James. Prof. Lyons critiqued the court's narrow understanding of conflict preemption, while recognizing the court's acknowledgment that the decision would be short-lived because of a change in law. Just a day before the Second Circuit’s decision, the FCC's 2024 Safeguarding and Securing Order reclassified broadband Internet access service from a Title I "information service" to a Title II "telecommunications service." Prof. Lyons explained that the Commission's decision to forbear from ex ante and ex postrate regulation in its new Title II order preempts similar rate regulation at the state level. 

By a June 14 letter to the Second Circuit the broadband providers challenging the New York Affordable Broadband Act declined to seek a rehearing en banc. They similarly declined to file a motion to reconsider the court's decision based on the change in law from Title I to Title II. In his Perspectives, Prof. Lyons wrote that if a motion to reconsider proves unavailing that broadband providers "should seek relief from the Commission and hold it to its promise that it 'will not hesitate to exercise…authority' to preempt state laws that 'interfere or are incompatible with the federal regulatory framework' established under the order."

Will there soon be a petition filed at the FCC seeking a declaratory order preempting state-level rate regulation of broadband Internet access services under Title II? Whether it's the Commission or a future court decision, one should expect that the state-level rate regulation of broadband services will face a reckoning under the new Title II order. Stay tuned. 

For further background on the case and the likely bad effects of the FCC's new Title II order, see the summary of the Second Circuit's decision in NYTSA v. James in my May 3 Perspectives from FSF Scholars, "Second Circuit Rejects Preemption Challenge to New York's Broadband Rate Regulation" as well as my May 24 Perspectives, "The FCC's New Title II Order Allows Harmful Rate Regulation." 

FCC Releases Text of New Title II Order

On May 7, the FCC released the text of its Safeguarding and Securing the Open Internet Order – that is, the agency's new Title II Order. By a 3-2 vote on April 25, the Commission reclassified broadband Internet access services as "telecommunications services" under Title II of the Communications Act. It established a public utility regulatory regime for broadband. Under that regime, broadband Internet service providers are subject to bright-line restrictions on network management and a vague "catch-all" standard. Broadband providers will be subject to informal and formal complaint proceedings for alleged violations of the Commission's rules and "catch-all" standard.

The Free State Foundation filed comments and reply comments in the FCC's Safeguarding and Securing the Open Internet proceeding that opposed public utility regulation of broadband services. In the weeks and days leading up to the Commission's April 25 vote, Perspectives from FSF Scholars papers were published on the agency's empty national security and public safety rationales for Title II regulation, the legal problems with Title II reclassification under the Supreme Court's Major Questions Doctrine, and the harm to innovative 5G "network slicing" under Title II. Additionally, an April 25 Press Release by FSF President Randolph May and I provided a brief initial response to the Commission's vote to adopt its new Title II Order. 

My Federalist Society Blog post from May 3 analyzing the Second Circuit's decision in New York State Telecommunications Association, Inc. v. James, pointed to questions still needing to be directly sorted out regarding preemption and specific state-level rate regulation of interstate broadband Internet services. Now that the text of the new Title II Order has been publicly released, expect forthcoming analyses from FSF scholars about rate regulation as well as other law and policy issues and implications of the Order. 

FSF Submits Reply Comments on the Safeguarding and Securing the Open

 

Today, Free State Foundation President Randolph May and Director of Communications Policy Studies Seth Cooper filed reply comments showing why the FCC’s proposal to convert Internet service providers into public utilities is unwise and unlawful.

Here are a few key excerpts from the Introduction and Summary:

 

"It's well-documented that proponents of public utility regulation of broadband Internet services decried the RIF Order’s repeal of that regulation as the unleashing of a dystopian nightmare in which the Internet would grind to a halt and broadband providers would prey on consumers, innovators, and small businesses. Of course, their deliberately outlandish claims were quickly proven wrong. For this reason alone, the views of these pro-utility regulation advocates should be given no credence whatsoever. Indeed, were they to be given credence, the Commission’s own credibility would be further called into question.”

"Despite being so spectacularly wrong about the effect of the RIF Order, many of those same pro-regulatory proponents are back, calling for the reimposition of the short-lived public utility regime established in the now-repealed 2015 Title II Order. The FCC cannot accord the claims of these parties – or the claims of allied parties – any credibility whatsoever regarding the future of broadband services when they were so wrong last time around. If it does so, it will confirm that the Commission is intent on regulation as an end in itself, not a means to an end when warranted. Since the RIF Order was adopted in late 2017, Internet speeds have significantly increased. Next-generation technologies such as fiber, 5G mobile wireless, and fixed wireless access have deployed and offer significantly improved capabilities as well as more competitive choices for consumers. And broadband service pricing has been more consumer friendly and resistant to price increases than most other service markets.”

"Title II reclassification will not protect Internet openness, national security, or public safety. To the limited extent that pro-utility regulation comments actually try to prop up the Commission’s dubious national security, public safety, cybersecurity, and network resiliency rationales for Title II reclassification, such comments offer no analysis or facts, or concrete dangers or solutions, to substantiate those claims. There is no reason to expect government interference, based on supposed bureaucratic expertise, will make networks perform better or more safely. Comments opposed to the proposed rulemaking rightly point out that broadband Internet service providers (ISPs) already have economic incentives to make available high-performance, resilient networks. Indeed, ISPs demonstrated their performance capabilities under the stress of traffic demand spikes amidst COVID-related government-imposed lockdown orders.”

"It is no surprise that comments by many longtime supporters of public utility regulation of broadband do not cite any specific credible examples of ISPs blocking or throttling their subscribers’ access to legal content of their choice. Instead of the predicted broadband Internet wasteland following Title II regulation repeal, since early 2018 there is no record evidence that ISPs engage in such harmful conduct or that they are likely to do so. The fact that ISPs do not block or throttle indicates that the existing light-touch policy based on the Commission’s transparency rules and Federal Trade Commission enforcement of ISP terms of service pledges is working. ISPs’ consensus against blocking or throttling cannot be explained away by pointing to state net neutrality laws. Net neutrality laws exist only in a handful of states, and yet blocking and throttling have not occurred in states that have no net neutrality laws.”

"We agree with comments opposed to the proposed rulemaking that the Commission’s pretensions to secure or safeguard Internet openness, national security, and public safety are illusory and arbitrary because the rulemaking focuses on only one aspect of the Internet – Internet access services – and does not address far more serious concerns posed by other aspects of the Internet – including Big Tech platforms and other online edge providers that actively censor, shadow ban, and deprioritize speech content. Also, the Commission’s myopic focus on ISPs for supposed security and safety purposes leaves completely untouched numerous other major providers in the Internet ecosystem that may pose much greater risks to security and safety than ISPs.”

A PDF of the complete FSF reply comments, with footnotes, is here.

PRESS RELEASE: The FCC's Proposal to Convert Internet Providers Into Public utilities Should Be Stopped

Today, Free State Foundation President Randolph May and Senior Fellow and Director of Communications Policy Studies Seth Cooper filed comments in the FCC proceeding proposing to classify broadband Internet access service providers as common carriers. The FSF comments, which are available on FSF's website and which contain an Introduction and Summary, are 74 pages with 196 supporting footnotes. The comments demonstrate conclusively the Commission should not move forward with its proposal. 

Here are a few key excerpts from the Introduction and Summary of the comments:

The Commission’s proposal to convert broadband Internet networks into public utilities is legally unsupportable as well as unwise, unnecessary, and unjustified from a policy perspective. Stated bluntly, the Commission’s proposal, if adopted, by asserting stringent bureaucratic control over the practices and operations of private sector Internet service providers, would constitute one of the 21st century’s most flagrant government power grabs.

 

Supreme Court decisions such as West Virginia v. EPA (2022) have embedded the Major Questions Doctrine in the Court’s jurisprudence. And even if the Chevron doctrine is not directly overruled by the Court in the pending Loper Bright Enterprises v. Raimondo case, in effect its scope already has been meaningfully curtailed. As a result, the Commission cannot rely on the claimed ambiguity of Communications Act statutory terms as the basis for authority to reclassify Internet services under Title II. If adopted, the proposed reclassification decision undoubtedly would be a major rule falling within the Major Questions Doctrine. Transforming massive broadband Internet access networks built with over $2.1 trillion in private capital since 1996, and upon which so much of our nation’s economy is now dependent to function, unmistakably involves issues of vast economic significance. Reclassification of broadband services away from a lightly regulated Title I “information service” into a heavily regulated Title II “telecommunications service” would impact all broadband Internet service providers (ISPs), online edge companies, and residential broadband subscribers – whether through the regulation of revenues, prices, or service offering terms and conditions. “Net neutrality” regulation also has been a matter of vast political significance and considerable public controversy for two decades, up to and including Chairwoman Rosenworcel’s recent call for the public to “make some noise” and “raise a ruckus” so as to influence the Commission’s decision. The Major Questions Doctrine requires a clear statement of authority from Congress authorizing a major rule such as one that would impose public utility regulation on Internet networks that have thrived in a primarily market-oriented environment. But the lack of any such clear statement in the Communications Act almost certainly would be legally fatal, as even two former Obama Administration Solicitors General have concluded.

 

Surely the case for Title II reclassification is far weaker in 2024 than it was in 2015 – and it was demonstrably weak then. Myriad gloom-and-doom predictions about the “end of the Internet as we know it” after repeal of the Commission’s short-lived public utility regulation were quicky proven false. That the Notice cannot point to any real-world instances of ISPs blocking, throttling, or otherwise harming consumers ability to access lawful Internet content is readily explainable by economic realities. Increases in broadband network availability, competing alternatives, and broadband speeds have followed in the wake of Title I reclassification. The competitiveness of the broadband Internet access services market has increased since early 2018 due to the expansion of fiber, the rapid nationwide deployment of 5G mobile and 5G fixed wireless access (FWA) services and new satellite services, as well as the launch of DOCSIS 4.0 cable broadband and hybrid cable mobile virtual network operator (cable MVNO) services. And, significantly, U.S. broadband networks passed the ultimate stress test by successfully accommodating dramatic spikes in Internet traffic and actually improving service during the lockdowns of 2020.

 

An additional problem is that the Commission’s proposal opens the Internet to rate regulation. Title II, at its core, is a rate regulation regime. The Notice does not propose to forbear from applying Sections 201(b) and 202(a); it suggests the agency will only refrain from ex ante rate regulation, not ex post. Those statutory provisions would impose on the Commission a positive duty to consider complaints that rates charged by broadband ISPs are unjust or unreasonably discriminatory. The Notice also suggests rate regulation with its proposed ban on paid prioritization; its assertion of agency authority over network interconnection agreements that set pricing for peering; and its possible ban on “free data” mobile plans. Rate regulation will defeat what should be the Commission’s priorities – promoting network investment and deployment, along with consumer choice and innovation.

 

In a surprise to many who have observed the two decades-long policy debate over “net neutrality” regulation and “Internet openness,” the Notice tries to reframe proposed Title II regulation of broadband services into a national security and public safety measure. But it is highly doubtful that regulating ISPs as public utilities will make the nation and its people more secure and safe. The Notice’s security and safety rationale for public utility regulation is a classic case of the tail wagging the dog.

 

The Commission also proposes to adopt an impermissibly vague “general conduct standard” as an admitted “catch-all backstop” that would restrict an unknown and unknowable number of network practices that the Commission believes might “unreasonably disadvantage” retail service end users or Internet edge providers like Google and Facebook. This proposed “catch-all backstop” consists of several unclear factors that are not tied to any safe harbors, ascertainable economic theory, or legal precedents that would provide predictable application. The elasticity of those factors would enable the Commission to restrict nearly any network practice it chooses. Also, it appears that the Commission’s enforcement rules, in many instances, would require ISPs to prove that they comply with the agency’s ad hocdeterminations regarding what technical network practices best promote Internet openness. The result would be a gross expansion of agency power over private networks and a negative impact on innovation and investment. The “general conduct” standard would be the Commission’s tool of choice to ban popular “free data” mobile plans and other innovative offerings.

 

Aside from the agency’s lack of legal authority already described above, the Commission’s proposal to regulate broadband ISPs like common carriers under Title II raises significant issues under the First Amendment. The proposed rulemaking would burden broadband ISPs’ First Amendment right to make editorial decisions involving paid priority arrangements as well as “free data” or “sponsored data” offerings. Although an ISP can claim no First Amendment right to hold itself out as a neutral and indiscriminate pathway but then conduct its operations differently, an ISP likely has a First Amendment right to qualify the meaning of that offering in its written terms of service to include certain traffic priority, speed, pricing, content, or other terms. Moreover, the Commission’s suggestion that its proposed regulation is likely to be upheld as content-neutral and subject to intermediate First Amendment scrutiny is questionable because the Commission is unconcerned with findings of market power.  

Press Release: The FCC's Digital Discrimination Order Includes "The Long Tail of Intangible Variables"

Free State Foundation President Randolph May issued the following statement regarding the FCC’s adoption of its Digital Discrimination order.

The FCC and the Biden Administration both acknowledge that there is no evidence in the record or otherwise that Internet service providers intentionally have discriminated based on income or otherwise in deploying broadband facilities or providing access to broadband networks. So, rather than using this finding as a point of departure for establishing a sensible framework to prevent any digital discrimination that may occur in the future, the Commission opts to use it as a basis for perhaps the most far-reaching unauthorized power grab in the history of the agency. The foundation upon which the Commission's Democrat majority hopes to rest this power grab is the adoption of a "disparate impact" standard, rather than a disparate treatment standard. Based on existing judicial precedent, I predict the courts will find this a shaky foundation indeed.

 

As astonishing as it may seem, it is no exaggeration to say that the Commission claims for itself the power to regulate all — yes, all — aspects of the policies and practices of Internet providers, including a provider's decisions regarding deployment, network reliability, network maintenance, the equipment it distributes to customers, pricing, promotional discounts, customer service, language options, credit checks, marketing and advertising, and more. And, as astonishing, the Commission claims the power to regulate the policies and practices of landlords, banks, construction firms, unions, advertising, and other business sectors. The order makes clear that, for Internet providers and for those firms that have no idea even where the FCC is located, the list of policies and practices which the agency claims the right to examine, and the list of businesses covered, is non-exhaustive.

 

Indeed, the FCC actually touts "the long tail of intangible variables" that can't be foreseen as a justification for placing no tangible limits on the power it asserts to regulate all aspects of the operations of all the businesses now within its sights.

 

Anyone who doesn't foresee that the Commission's order will lead to rate regulation, however denominated, of Internet providers is engaging in willful blindness. The Commission has emphasized it will examine a provider's pricing, and, in assessing "economic feasibility," it will consider the provider's projected income, expenses, demand, and expected rate of return. Those factors are at the core of regulating the rates charged by public utilities — which the FCC now has no hesitancy in admitting that’s what it is determined for Internet providers to be. It's difficult to see how the agency will not get bogged down in years-long proceedings that resemble old-fashioned utility rate cases.

 

Finally, what ought to be as disturbing as anything else is the certainty that the effect of the order will be to curtail the investment and innovation which should be the primary objective of government policy, including promoting equal access.   

PRESS RELEASE: The FCC's Proposal to Impose Public Utility Regulation on Internet Providers Is Deeply Flawed

 

In response to the FCC’s adoption of a notice of proposed rulemaking to reclassify Internet service providers as common carriers, Free State Foundation President Randolph May issued the following statement:

“Despite the over-the-top scare tactics and doom-and-gloom predictions employed by Chairwoman Rosenworcel and net neutrality proponents throughout 2017 in opposing the Restoring Internet Freedom Order, the FCC’s own rulemaking notice doesn’t purport to claim there is any present evidence of consumer harm to justify imposing a costly intrusive public utility regime on Internet service providers. Instead, the proposal concededly is based on conjecture about what ‘could' or ‘might' occur at some time in the future. For this reason alone, today’s proposed agency action will go down in history as one of the most egregious overreaches in regulatory history. Rather than “net neutrality,” the proposed strict government control of Internet providers by the imposition of public utility regulation might more properly be called “net neutering." 

Chairman Rosenworcel claims that public utility regulation is justified because the Internet is now 'essential' like water and electricity, and providers of those services are most often public utilities. This claim is misguided because, unlike water and power companies, Internet service providers operate in a facilities-based competitive marketplace, and one that is steadily growing increasingly competitive. Regardless of whether Internet service should be characterized as ‘essential’ for some purpose or another, in light of the competitive conditions in which Internet providers operate, likening them to water and electric utilities is especially inapt. Food and clothing are 'essential' too, but no one suggests they should be subjected to public utility regulation. If they were, there almost certainly would be less food and clothing available because, as most economists acknowledge, public utility regimes almost always, over time, suppress investment and innovation. This is because of the regulatory costs imposed and uncertainties created regarding regulators’ decisions.

As but one example in this instance of such inevitable regulatory uncertainties that necessarily disincentivize investment and innovation, the FCC is proposing to adopt what it calls a 'general conduct standard.' But the conduct standard is inherently ambiguous and subject to abuse, based as it is on ad hoc determinations of ‘reasonableness’ and 'totality of the circumstances' evaluations.  

Rather than proposing regulatory solutions for non-existent problems, at a time when Congress has appropriated over $100 billion to promote ubiquitous broadband deployment, especially to unserved areas, and to support adoption, it would make far more sense for the FCC and the Biden Administration to devote their full attention and resources to implementing these programs in an efficient and cost-effective manner, with as little fraud and abuse as possible.

On top of the reasons why, as a matter of policy, the FCC’s proposal is so seriously flawed, as I have explained elsewhere, it is very unlikely to survive judicial review because Congress has not clearly authorized the Commission to take an action of such major economic and political significance. Indeed, Congress has rejected several attempts to amend the Communications Act to provide the FCC with such authority.”

Please direct any press inquiries to Mr. May at info@freestatefoundation.org

Recent Free State Foundation Resources Regarding Net Neutrality:

Seth L. Cooper, Net Neutrality Regulation Is Not a Public Safety Measure, October 17, 2023

 

Randolph J. May, Net Neutrality Redux: A Fight Over First Principles, October 16, 2023

 

Seth L. Cooper, FCC Ambiguous 'General Conduct' Standard Is Bad Policy and Likely Unlawful, October 13, 2023

Randolph J. May, There’s Little Question Net Neutrality Is a Major Question, September 28, 2023

 

Randolph J. May, Reimposing Burdensome Net Neutrality Mandates Will Harm Consumers, September 21, 2023

 

Randolph J. May, Don’t Regulate Internet Providers as Public Utilities – Again!, July 6, 2023