Badges? We don’t need no stinking badges: Reading the FCC’s Net Neutrality Order (Part V)

(Follow the links for Part I, Part II, Part III and Part IV.)

In this final post on the FCC’s Dev. 23, 2010 Open Internet Report and Order, I’ll look briefly at the problematic legal foundation on which the FCC has built its new regulations on broadband Internet access.  That discussion need only be brief largely because the extended legal analysis has already been admirably detailed by FCC Commissioner Robert McDowell.  His dissent (see pages 145-177 of the Report and Order) calmly and systematically dismantles the case made by the majority (See ¶¶ 115-150).

This is no theoretical discussion of statutory interpretation.  Even before the rules have been published on the Federal Register, two broadband providers—Verizon and then MetroPCS—have already filed lawsuits in the D.C. Circuit Court of Appeals challenging the FCC’s authority to regulate.  (See Jim DeLong’s definitive deciphering of Verizon’s efforts to secure exclusive jurisdiction in the D.C. Circuit)  The arguments sketched out in Commissioner McDowell’s dissent are likely to mirror the complainants’ briefs in these and likely other Petitions for Review of the Order.

The Need for Authorization

Nate Anderson of Ars Technica, who did a great service in running side-by-side the provisions in the FCC’s final Order and the terms of Verizon-Google’s proposed legislative framework, asks the key question, “Why is Verizon suing over net neutrality rules it once supported?”

I wouldn’t and didn’t (see Part III) go as far as Anderson, who concludes that Verizon, “on substance, it got exactly what it wanted.”   Both the final rules and the Verizon-Google proposal closely tracked, with important differences, the original order the FCC proposed in October, 2009.  And there are material differences between what Verizon-Google proposed and what the FCC ultimately voted on, notably in the treatment of mobile broadband.

But those details aside, there is one crucial difference that Anderson acknowledges.  As he writes, “the Verizon/Google proposal did make one other suggestion: it should be passed by Congress, not the FCC….”

That might seem like a small enough difference.  Rules are rules, what difference if the FCC passed them under its rulemaking authority or if Congress had put them into a new statute, such as the Internet Freedom Preservation Act, which would have naturally given the FCC authority to enforce them anyway?

But in fact that procedural difference embodies the principle objection not only to the Report and Order but to the process by which it was completed. Put simply, Congress alone has the power to regulate; the FCC can only act on authority delegated to it by Congress.  Any rulemaking undertaken without authority is not only dangerous, but also unconstitutional.

And Congress, it’s clear, has not delegated authority to the FCC to regulate broadband Internet access.  What Verizon and others are most concerned with is that if the FCC somehow gets away with passing new rules anyway, the agency will have established a dangerous precedent.  Any time in the future that the FCC or any other federal independent agency wants to extend its power, it need only deputize itself.

That is the feature of the Open Internet Report and Order that has most alarmed the communications industry, members of Congress, and advocates of limited government.  And that is principally why the House has promised to reverse the ruling, even as Verizon and others challenge it in court.  In short, the text of the rules aside, it very much matters that the FCC, and not Congress, took up elements of the framework proposed by Verizon-Google.

Regulatory Overreach is not a New Problem

The problem of regulatory overreach goes far beyond net neutrality.  Under a novel and somewhat fragile arrangement that was worked out during the New Deal, independent federal regulatory agencies can exercise considerable authority that the Constitution, on its face, reserves to the Legislative and Judicial branches.  Indeed, the early New Deal Supreme Court overturned much of FDR’s regulatory agenda under the so-called “nondelegation doctrine.”

After FDR threatened to “pack the court” with more sympathetic Justices, a key swing Justice changed sides, saving the Court and the New Deal.  (The so-called “switch in time that saved nine,” which few people realize is a pun on the sewing parable of a “stitch in time saves nine.”)

But even so, federal regulators operate under strict controls that ensure they do not become, to use the Supreme Court’s word for earlier FCC power grabs, “untethered” in their authority.  FCC Commissioners are appointed by the President and confirmed by the Senate, and can only be removed from office by impeachment.  At least two of the five Commissioners must be members of a party different from the President’s.

Both the rulemaking (legislative) and adjudicatory (judicial) powers of the agency are strictly limited by implementing statutes passed by Congress.  If the agency isn’t given explicit powers to regulate, regardless of the appearance or reality of significant market failures, only Congress can delegate additional powers.    And the courts, in the checks-and-balance system, are the final determinants of what powers have and have not been granted to an agency.

So the FCC has a problem.  It wants to regulate broadband Internet providers to ensure the “level playing field” it believes essential to the success of the Internet.  But Congress has never given them authority to do so, and has failed since 2004 to pass new legislation that would grant additional authority.

The FCC has actually lost ground during the rulemaking process.  An effort to enforce its Open Internet policy statement through adjudication against Comcast was rejected in April, 2010, further limiting the wiggle room the agency might have had to go forward with the formal rulemaking it began in October 2009.   (The rulemaking was, in some sense, an effort to formalize the policy statements.)

What’s the problem?  Briefly:  Under the Communications Act of 1996, and consistent with earlier versions of the FCC’s implementing statute, the agency was given broad authority over common carrier telephone service (Title II of the Act) but almost no authority over information services or what used to be known as “enhanced” or “ancillary services” (pre-Internet access, these included call waiting and other supplements to telephone service) (Title I of the Act).  The one exception was Internet access provided by dial-up modems, which of course is no longer a significant source of access.

The Comcast case, in line with several earlier D.C. Circuit and Supreme Court cases, made clear that Title I simply did not delegate authority over broadband access.

There was nothing new in that.  The FCC has made numerous efforts to attach otherwise unauthorized regulations to Title I’s so-called “ancillary jurisdiction,” but the courts frequently reject these efforts as overreaching.

For example, in 2005 the D.C. Circuit rejected regulations the FCC approved that would have required consumer products manufacturers to include “broadcast flag” technology in any device capable of receiving a television signal—a regulation that was grounded in ancillary jurisdiction over television broadcasters.  But while the agency had unquestioned authority over broadcasters, they could not require non-broadcasters to comply with rules aimed at helping the broadcasters control unauthorized home taping.

At oral argument, the judges nearly laughed the FCC out of court.  “You’re out there in the whole world, regulating. Are washing machines next?” asked Judge Harry Edwards. Judge David Sentelle added, “You can’t regulate washing machines. You can’t rule the world.”

The result in the Comcast case was much the same.  And the October, 2009 NPRM had grounded its authority to proceed solely with Title I.  With that avenue all but foreclosed to the agency by Comcast, the Chairman found himself in one of several corners he inhabited over the last year.  Congress was unlikely to move on any of the net neutrality bills floating around committees (and indeed, did not do so), but Genachowski was committed to the rulemaking.

The FCC’s “Very Smart Lawyers” Try Again

What to do?  One option was to undertake a “reclassification” of broadband Internet to categorize it as a telephone service subject to Title II, a section of the law that comes with fifty-plus years of baggage from the regulation of the former telephone monopoly.  The Commission (for now) has wisely avoided taking that step, which itself would have been subject to substantial legal challenges.

The authority stalemate seemed to doom the net neutrality proceeding.  But then in late Fall FCC Chairman Julius Genachowski told the audience at the Web 2.0 Summit that the FCC’s “very smart lawyers” had figured out a way to get around the Title I/Title II problem.  The net neutrality faithful and faithless waited, with breath held.

In the final Report and Order, however, all we really got was a rerun of the argument that had failed in the Comcast case, with only minor tweaking.  Again, Commissioner McDowell’s detailed dissent explains the weakness of the argument without the need for much added commentary.

The courts have consistently told the FCC that to invoke ancillary jurisdiction, a rulemaking must be reasonably related to a specific delegated power elsewhere in the Communications Act.  It has to be “ancillary” to some other authority the Commission already has, in other words.  Title I gives no powers on its own over “information services.”  In the Comcast case, the FCC listed off several provisions in hopes that at least one of them would stick, but the court rejected all of them.

In the Order (¶¶ 124-137), the FCC tries several new provisions.  Obviously the best bets were already exhausted in the Comcast case, so here they provide even weaker bases for ancillary authority over broadband Internet than the laundry list rejected by the court in Comcast.    Most get only perfunctory explanation.  The FCC knows it is on thin thin ice.

Instead, the Order relies principally on a new and unconvincing reading of Section 706 of the Act.  (See ¶¶ 117-123)  Section 706 had formed the principal argument in Comcast as well, but there the agency argued that Section 706 was the provision that enabled it to use ancillary authority over Title I Information Services.  The court rejected that argument.

The revised Section 706 argument is that that provision in and of itself provides sufficient authority for the FCC to implement the Open Internet rules.  Well, here it is:


(a) IN GENERAL-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.

(b) INQUIRY-The Commission shall, within 30 months after the date of enactment of this Act, and regularly thereafter, initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) and shall complete the inquiry within 180 days after its initiation. In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission’s determination is negative, 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.

(c) DEFINITIONS- For purposes of this subsection:

(1) ADVANCED TELECOMMUNICATIONS CAPABILITY- The term `advanced telecommunications capability’ is defined, without regard to any transmission media or technology, as high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology.

On its face, neither 706(a) nor 706(b) would appear to give the FCC power to put regulatory constraints of any kind on how broadband Internet access providers operate.  The goal of this section is to encourage the FCC to promote broadband by “regulating methods that remove barriers to infrastructure investment,” including forebearance from use of its existing powers.  The history of this provision, as Commissioner McDowell explains, was aimed at removing regulations of Title II telephone carriers that hindered their ability to provide advanced telecommunications capability.

The reliance on Section 706(b) is even stranger, and deeply cynical.  It requires the FCC to issue a regular report on broadband deployment and, if it finds such deployment is not taking place in a “reasonable and timely manner,” to take “immediate action to accelerate deployment” by “removing barriers” to investment.

Again, as Commissioner McDowell notes, the 706(b) Reports have consistently found broadband deployment to be proceeding at a rapid pace, confirming what everyone already knows.  Americans are signing on to the Internet faster than any previous information technology, whether through wireline or, increasingly, wireless broadband,

That is, until July, 2010, a few short months after the Comcast decision.  For the first time ever, the 706(b) Report found that “broadband deployment to all Americans is not reasonable and timely.”  (The Report, along with the Open Internet Order, was approved on a party-line 3-2 vote of the Commission.)  This despite the fact that broadband availability grew from 15% of Americans in 2003 to 95% in 2010 (data made available in the National Broadband Plan as well).

The negative 706(b) Report was clearly a pretext to give the agency the ability to trigger the “immediate action” language of the 706(b), but even then, see above, the action the FCC is supposed to take is in the nature of deregulating broadband, not adding additional regulations.  How will rules that limit the operational flexibility of broadband providers “accelerate deployment”?  The majority argues simply (¶ 123)  that “Section 706(b) provides express authority for the pro-investment, pro-competition rues we adopt today.”  Hardly.

The effort to connect Section 706 to the Open Internet rules is, charitably, flimsy at best.  But there’s yet another problem.  The FCC has already foreclosed that connection.  The agency has long rejected the view it now adopts that Section 706 provides any explicit authority for rulemaking, whether on its own (the new argument) or as a hook for ancillary jurisdiction under Title I.

As the D.C. Circuit noted in the Comcast case (Slip. Op. at 30-31), “In an earlier, still-binding order, the Commission ruled that section 706 ‘does not constitute an independent grant of authority.’  Instead, the Commission explained, section 706 ‘directs the Commission to use the authority granted in other provisions . . . to encourage the deployment of advanced services.’”  So Section 706 doesn’t give the agency any regulatory authority, just guidance on how to apply (or not) other provisions in the Act.  That, at least, has long been the FCC’s own view of the law, a view courts will give considerable deference.

In dispensing with the Section 706 argument in Comcast, the court concluded that “Because the Commission has never questioned, let alone overruled, that understanding of section 706, and because agencies ‘may not . . . depart from a prior policy sub silentio,’ the Commission remains bound by its earlier conclusion that section 706 grants no regulatory authority.”  (citations omitted)

That last sentence seemed to leave the door open just a crack for the FCC to “depart from its prior policy” in an explicit way.  And, it’s possible to read the Report and Order as doing just that.  (See ¶ 122 for the majority’s hilarious explanation for why it had never before noticed that Section 706 granted explicit authority.)

But not so fast.  While agencies have broad discretion to overrule earlier decisions, there must be some rational basis for doing so. There must be some changed circumstances, some evidence, some explanation that passes the sniff test. A reviewing court will look to see if there is some external evidence that justifies the changed interpretation of Section 706.

And there’s nothing here that meets even that minimal standard.  Again, to quote Commissioner McDowell (Report at 148), “This move is arbitrary and capricious and is not supported by the evidence in the record or a change of law.”  Losing the Comcast case is not reason enough, but that seems to be all that’s happened to justify this surprising new understanding of a 15 year-old provision in the FCC’s implanting statute.

Preserving which Internet again?

The rest of the FCC’s “Authority” section, as noted, throws in the rest of the kitchen sink, largely provisions of Title II, that Comcast didn’t already dispose of.  The connection between the Open Internet rules and the Commission’s regulatory powers over telephone service, television and radio broadcasting, cable TV and spectrum management are just too tenuous to be convincing to a reviewing court.  If that authority is close enough to support net neutrality, it’s close enough to support anything, including, for example, the broadcast flag rules already overturned.

There’s more.  Trying the net neutrality rules to problems of VoIP, IP-based television broadcasting, IP radio, and other video and audio services, as one of my law professors used to say, proves too much.  It actually undermines the FCC’s position by bringing into sharp focus the reality behind the agency’s real problem here.

Since Congress last reviewed the agency’s authority in 1996, the Internet’s packet-switching protocols have quickly and surprisingly taken over as the super-dominant technology for all forms of communications, traditional and new.  The world of television, radio, and computing have changed completely, leaving little of the world the 1996 Act gave the FCC authority to regulate.  Even the “Internet” as we knew it in 1996 looks little like the robust ecosystem of digital life that we enjoy today.

Which brings us squarely back to the problem of “nostalgia” I described in the previous post.  The FCC is operating under a statute that has its origins in the 1930’s, and which was lasted updated (poorly) fifteen years ago, when dial-up consumer Internet was still very much in its infancy.  The communications, computing and entertainment industries operated in silos with little overlap.  Each had its own established players and long histories of regulatory intervention.

But these and other related industries have all undergone nearly complete transformation in the intervening years, largely outside the notice or authority of the FCC to intervene.  Device and content convergence is a reality.  Consumers now use far more computing resources than do businesses.

Meanwhile, those aspects of the industry still under strict FCC control—including Plain Old Telephone Service (POTS) and over-the-air television and radio—have gone into deep decline.  They’ve become a legacy business that owners can’t even exit from, because there’s no one interested in the dwindling assets.

That’s no coincidence.  Those businesses (in some cases parts of companies whose unregulated operations are thriving), thanks to the regulatory environment in which they operate, are simply unable to respond quickly to rapidly evolving new technologies, applications, and consumer demands.   They suffer from a regulatory disease closely related to the Innovator’s Dilemma.  They can’t adapt, even if they had the will to do so.

Continued efforts, including this one, to fit round regulations into square statutory pegs underscores that the FCC has no authority over what has evolved to be our new and magical communications platform.   They have no authority because Congress hasn’t given them any.  Period.

Moreover, invocations (incantations?) of outmoded, obsolete, and inapplicable provisions of the old communications law also reminds us how much progress has been made during the period when the FCC has been unable or unwilling to intervene in the evolution of that platform.

Probably not the conclusion the FCC was hoping to have drawn from its nearly 200-page Report.  But there you have it.