Below are quick reactions from three members of the Free
State Foundation's distinguished Board of Academic Advisors – Christopher Yoo,
Justin (Gus) Hurwitz, and Daniel Lyons – to yesterday's D.C. Circuit decision
in Verizon v. FCC. Each of these
members of FSF's Board of Academic Advisors is acknowledged expert in the field
of communications law and policy.
While upholding the FCC's authority under Section 706 to
take certain actions regarding the oversight of broadband providers, the court
held unlawful the anti-discrimination and the anti-blocking prongs of the FCC's
net neutrality regulations. The court found the FCC lacked the authority to
promulgate these regulations.
Here are the reactions:
FSF's Justin (Gus) Hurwitz – University of Nebraska
College of Law
Yesterday’s network neutrality decision was in line with
most expectations. The DC Circuit found that the Communications Act gives the
FCC broad power to regulate networks that the Commission classifies as
“information services” (such as the Internet), but that it imposes clear
restrictions on treating such networks as “telecommunications” networks (e.g.,
the traditional telephone system). In so finding, the judges got things right
on the law. The Commission’s ability to construe its power broadly is in line
with modern administrative jurisprudence, as most recently affirmed by the
Supreme Court last May in its City of
Arlington opinion; the prohibition on imposing common carriage requirements
on information services follows from the DC Circuit’s recent CellCo decision.
Of course, getting things right on the law doesn’t mean that
the judges have left everyone – or even anyone – happy as a matter of policy.
Both Net Neutrality proponents and opponents are expressing concerns about the
implications of yesterday’s decision. Proponents are decrying the death of
network neutrality, and even of the Internet itself – they say that the FCC
must reclassify the Internet as a telecommunications service – or, at a
minimum, must use its broad power (just affirmed by the DC Circuit) to issue
new rules that will fit within the constraints indicated by the DC Circuit’s
decision. Opponents are expressing alarm at the broad construction of the
Commission’s power allowed by the judges, saying that that power must be
constrained.
Taking the latter concern first, the simple fact is that
Communications Act gives the FCC very broad power. One could almost say that
the way in which courts interpret laws such as Section 706, which speaks to the
Commission’s authority over “advanced telecommunications capabilities,” is
generative in nature, giving the Commission power to do almost anything it
deems appropriate to promote competition and remove barriers to investment
(short of that which is expressly prohibited by the statute, viz., treating
information services as common carriers). This is an alarmingly broad scope of
authority – and it is almost certainly beyond the scope intended by either the
1934 or 1996 Congresses. But any change to constrain this broad power needs to
come, and should come, from Congress, not the courts. Importantly, while the
Commission’s power may be broad, we should remember that there are important
procedural safeguards in place governing how it uses that authority. Let us not
forget the Commission’s high-profile losses in Comcast, the original network neutrality case, and more recently in
Fox, a case unrelated to network
neutrality but that reminds us that the Commission’s enforcement actions are
subject to basic Due Process and Fair Notice requirements.
On the other side, demands for another round of rulemaking
or reclassification are premature. Here the simple fact is that the concerns
animating network neutrality proponents have never substantiated a need for
broad regulation. The few cases that have raised net neutrality concerns
haven’t required new rules to address these concerns – the resources expended
by the FCC to date in creating the Open Internet Order almost certainly exceed
any harm they have kept from befalling consumers. And there is substantial evidence
that “non-neutrality” (an Orwellian term if ever there was one) can be
beneficial for consumers. Unfortunately, these benefits have never been given
the opportunity to develop because of the Commission’s prophylactic rules.
Rather than adopt ex ante rules that forego likely benefits to avoid
speculative harms, the Commission should adopt an ex post adjudicative approach
that takes action to remedy actual harms that may develop while allowing firms
to experiment with new, pro-consumer, business models.
Fortunately, this appears to be the approach that Chairman
Wheeler has advocated. In a posting to the Commission’s blog late yesterday, he
expressed his “strong preference [to develop the Commission’s power] in a
common law fashion, taking account of and learning from the particular facts
that have given rise to concern. The preference is based on a desire to avoid
both Type I (false positives) and Type II (false negatives) errors. ... If
something appears to go wrong in a material, not a trivial, way, the FCC will
be available to use the totality of its authority for adjudication and
enforcement. ... I am not advocating intervention unless there is an
unmistakable warrant for it."
This is exactly the right approach for the Commission to
take. It allows firms to develop new business models, to demonstrate whether
they are, in fact, beneficial to consumers. It doesn’t forego the Commission’s
ability to take action against such conduct if it is, in fact, harmful to
consumers. And it provides all of us – not least Congress – with information
needed to make informed decisions as we move forward.
FSF's Christopher Yoo – University of Pennsylvania Law
School
Introduction
On January
14, 2014, the U.S. Court of Appeals for the D.C. Circuit handed down its
eagerly anticipated decision in Verizon
v. FCC, in which the court assessed the legality of the Federal
Communications Commission’s (FCC’s) 2010 Open
Internet Order. The result is that
the FCC’s order was struck down with respect to the nondiscrimination and
nonblocking rules, although the transparency rule was left in place. The fact that the D.C. Circuit deviated from
its usual practice of simply remanding noncompliant agency actions and instead
vacated portions of the FCC’s order arguably reflects skepticism that the
agency could find an alternative justification for those rules.
That said,
the opinion contains language likely to serve as sources of both encouragement
and anxiety to the Order’s proponents and opponents alike. On the one hand, Part II of the opinion
upheld the FCC’s conclusion that both section 706 of the Telecommunications Act
of 1996 represents an affirmative grant to the FCC of
authority to regulate broadband providers. On the other hand, Part III of the
opinion imposed strict limits on the ways in which the FCC may exercise that
authority. Most notably for the network neutrality debate, the prohibition of
common carriage obligations appears to leave little room for the FCC to impose
a nondiscrimination mandate. Speculation
about the opinion’s implications for the future has only just begun.
Much can
(and surely will) be said about the implications of the D.C. Circuit’s
decision. For the time being, I thought
I would offer a few quick observations about the statutory source of the FCC’s
authority over broadband providers, which may well prove to be the most
important aspect of the D.C. Circuit’s decision.
The Missing Argument
The D.C.
Circuit first concluded that section 706(a) represents an affirmative grant of
authority to the FCC. The FCC ruled in
1998 that section 706(a) did not represent an affirmative grant of authority,
and the D.C. Circuit relied on that determination in 2010 when holding that
section 706(a) did not give the FCC the statutory authority to sanction Comcast
for using TCP resets to rate-limit BitTorrent, widely regarded as the most
high-profile violation of network neutrality principles to date. The D.C. Circuit revisited that determination
in Verizon v. FCC, observing quite
properly that agencies are allowed to change their minds so long as they
acknowledge that they are changing their positions and set forth their reasons
for doing so. So long as the agency
properly explains its change of heart, courts will defer to any reasonable
interpretation that is not precluded by the language of the statute.
The
threshold question is whether Congress has directly spoken to the precise
question at issue. This inquiry naturally requires an examination of the
statutory text. Section 706(a) provides:
The Commission and each State commission with regulatory
jurisdiction over telecommunications services shall encourage the deployment on
a reasonable and timely basis of advanced telecommunications capability to all
Americans (including, in particular, elementary and secondary schools and
classrooms) by utilizing, in a manner consistent with the public interest,
convenience, and necessity, price cap regulation, regulatory forbearance,
measures that promote competition in the local telecommunications market, or other regulating methods that remove
barriers to infrastructure investment.
The D.C. Circuit focused on the last phrase, holding that
ordering the FCC to utilize “regulating methods” represented an affirmative
grant of authority.
This last
phrase, “other regulating methods that remove barriers to infrastructure
investment,” is a classic “catchall” clause.
As a result, the traditional canon of statutory construction known as ejusdem generis “limits general terms
[that] follow specific ones to matters similar to those specified.” In other
words, the scope of the catchall phrase is limited by the terms that precede
it. The joint brief submitted by Verizon
and MetroPCS raised precisely this argument. A related canon known as noscitur a sociis “counsels that a word
is given more precise content by the neighboring words with which it is
associated.” In other words, if an ambiguous statutory term is embedded in a
list, courts should construe it in light of the other terms in the list.
The first
two items in the list contained in section 706(a), “price cap regulation” and
“regulatory forbearance,” are deregulatory in focus. The third item, “measures that promote
competition in the local telecommunications market,” also does not at first
blush lend itself to a reading that would impose heavier regulatory obligations
on broadband providers. The FCC
concluded that promoting competition in access and content would ultimately
stimulate demand for greater investments in infrastructure. The FCC based this
conclusion on a single empirical study, and one that focused on the cable
television industry (not broadband) and was unable to find clear evidence of
discrimination. Against this is arrayed the growing corpus of empirical studies
showing that access requirements deter investment and competition in local
telecommunications services. Even more importantly, this construction would be
significantly out of steps with the other terms contained in the list.
Whether the
catchall can support the regulation of broadband providers thus depends on
whether a court is willing to accept a fairly indirect argument that is
considerable tension with the empirical findings of the majority of the
peer-reviewed literature and with the text and structure of section
706(a). The D.C. Circuit was willing to
do so. Should the FCC decide to appeal the decision, it remains to be seen
whether the Supreme Court will agree.
The Missing Section 706 Report
The D.C.
Circuit held that section 706(b) also gave the FCC statutory authority to
regulate broadband providers. If the FCC
concluded that “advanced telecommunications capability is [not] being deployed
to all Americans in a reasonable and timely fashion,” it “shall take immediate
action to accelerate deployment of such capability by removing barriers to
infrastructure investment and by promoting competition in the
telecommunications market.” Again, the specified means of “removing barriers to
infrastructure investment and by promoting competition in the telecommunications
market” mirror the language of the third and fourth clauses of section
706(a). Thus, the same arguments
advanced above apply.
More
importantly, the FCC is only authorized to act under section 706(b) if it finds
that advanced telecommunications capability, defined by the statute to include
broadband, is not being deployed to all Americans in a reasonable and timely
fashion. The first five of the annual
reports issued pursuant to section 706 had concluded that broadband deployment
did meet this standard. Only in the
sixth report, the last one issued prior to the Open Internet Order, did the FCC find broadband deployment to be
inadequate.
Under the
previous Administration, the FCC was criticized for its tardiness in issuing
annual reports. As a general matter, the
current Administration has better adhered to the statutory deadlines,
consistently issuing its annual section 706 reports somewhere between May and
August and with the last report being issued in August 2012. If the FCC had held to its current pattern,
it should have issued its most recent section 706 report no later than August
2013. Five months have passed since that
date with no sign of the report.
One can
only speculate as to why. Interestingly,
the primary basis for the FCC’s finding in its last report that broadband
deployments was not reasonable and timely was the fact that as of June 2011, 19
million Americans (or 6% of the population) lacked access to broadband, which
the FCC defined as service providing download speeds of 4 Mbps. Commissioner
Pai pointed out, however, that if wireless broadband were included, the number
of unserved Americans dropped to 5.5 million or 1.7% of the population.
Moreover, the last section 706 report was based on data reflecting the earliest
stages of the deployment of the fourth-generation wireless technology known as
LTE. Since that time, Verizon has
completed its LTE buildout. AT&T’s
LTE network now reaches 80% of the U.S. population and is scheduled for
completion by the end of 2014. Sprint
and T-Mobile are racing to catch up, each reaching 200 million by the end of
2013. In addition, recent studies indicate that Verizon’s, AT&T’s, and
T-Mobile’s LTE offerings provide an average download speed of 12 to 19 Mbps and
peak download speeds of 49 to 66 Mbps. The near ubiquity of LTE suggests that
the number of people who cannot access broadband that meets or exceeds the
FCC’s 4 Mbps standard is now likely to be considerably less than the 1.7%
reported as of June 2011. And if
broadband deployment is reasonable and timely, section 706(b) provides the FCC
no authority to act.
Conclusion
These are a
few initial thoughts about the D.C. Circuit’s opinion itself. There are doubtlessly some important
responses to the concerns I have raised, and I look forward to exploring the
nuances of the various arguments. In the
meantime, one of the few clear implications is that the lull that had settled
over Capitol Hill, the FCC, the public interest community, and the industry
while waiting for the D.C. Circuit to render its opinion is now over. The next round of the debate over network
neutrality has only just begun.
FSF's Daniel Lyons – Boston College Law School
The Court’s decision is good news for innovation and
ultimately for consumers. The Commission’s conception of one-size-fits-all
Internet access is increasingly at odds with the diverse demands of broadband
customers. Broadband providers are increasingly offering innovative,
non-traditional pricing structures to differentiate themselves from their
competition. This is particularly true in the wireless space—witness, for
example, AT&T’s “sponsored data” initiative and T-Mobile’s successful
campaign to decouple handset subsidies from service contracts. Today’s court
decision allows broadband providers to innovate further by developing the other
half of broadband’s two-sided market.
But it is worth noting that this decision is unlikely to
be the final word on the issue. The Commission may try to re-impose net
neutrality by reclassifying broadband service as a Title II telecommunications
service. And even if it does not do so, the court’s decision appears to leave
the Commission with some wiggle room to regulate commercially reasonable
agreements, especially when considered in light of last year’s data roaming
order. For example, while the Commission can no longer prohibit priority access
agreements with content providers, it may be able to require broadband
providers to offer any priority deal on a commercially reasonable basis and
prohibit exclusive agreements that would deny priority access to content
providers willing and able to pay for such service.
It will be interesting to see what develops in this space.
But one thing is certain: the Court’s decision has both identified the need for
Chairmen Walden and Upton’s proposed Communications Act update to proceed, and
has helped clear some of the underbrush that may otherwise have impeded their
efforts to do so.
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