On a party-line 3-2 vote, the FCC on February 26, 2015, approved new Open Internet (or Net Neutrality) rules, although it has not released the text of its actual ruling. 

Based on an FCC press release and a written statement from each Commissioner, it appears that the final ruling will closely resemble what was in the “Fact Sheet” released by Chairman Wheeler three weeks ago (February 4), and summarized in our earlier advisory.

Here is what we’ve learned:

Key Points:

• Broadband as a Title II Telecommunications Service.  Retail broadband Internet access service – wired and wireless – will become a regulated “telecommunications service” under Title II of the Communications Act. We now know that:
  • The regulations will apply to interconnection and traffic exchange between broadband providers and other networks, including backbone networks, transit providers, and content delivery networks (CDNs), although those other networks will not be regulated.
  • The FCC will not separately regulate a “service” that broadband providers supposedly provide to edge providers sending information to end users. (This idea had been proposed as a possible way to justify the new rules.)
• “Bright Line” Rules.  Broadband providers will face three “bright line” rules and a “general rule of conduct.”  The “bright line” rules are:
  • No blocking access to “legal content, applications, services, or non-harmful devices.”
  • No throttling, i.e., a broadband provider may not “impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices.”
  • No paid prioritization, i.e., a broadband provider “may not favor some lawful Internet traffic over other such traffic in exchange for consideration of any kind[.] This rule also bans ISPs from prioritizing content and services of their affiliates.”
• Slightly Changed “General Rule.”  The “general rule” of conduct has evolved since the February 4 Fact Sheet:
  • The Fact Sheet said that broadband providers “cannot harm consumers or edge providers.”
  • The Press Release says that broadband providers may not “‘unreasonably interfere with or unreasonably disadvantage’ the ability of consumers to select, access, and use the lawful content, applications, services, or devices of their choosing; or of edge providers to make lawful content, applications, services, or devices available to consumers.” The “unreasonably interfere with or unreasonably disadvantage” language likely reflects the FCC’s reliance on Sections 201 and 202 as the legal foundation of its new regulations.
  • It also appears that the FCC will use this “general rule” to evaluate “zero-rated” services (where usage of certain services is not counted against a data cap) and usage-based allowances.
• No General Exemption for Small or Municipal Providers: It appears that the FCC will apply nearly all of the new rules to all broadband providers, with (except as noted below, regarding transparency) no express exemption for small or municipally-owned networks. It remains to be seen whether the FCC, in particular cases, will take the scale of a provider’s operations into account in determining whether particular practices are “reasonable.”

• Transparency/Disclosures: As the Fact Sheet indicated, broadband providers will have to make disclosures of the terms, conditions, and performance of their services that are more extensive than required under the 2010 rules. We now know that:
  • Broadband providers will have to disclose “in a consistent format, promotional rates, fees and surcharges, and data caps.”
  • Broadband provider will have to disclose information about “packet loss as a measure of network performance.”
  • The FCC will provide a “safe harbor” format for the required disclosures, i.e., providers who follow the required format will apparently be safe from penalties for inadequate disclosures. This approach appears less burdensome for providers than the mandatory “nutrition label” approach the FCC originally suggested.
  • There will be a “temporary” exemption for broadband providers with fewer than 100,000 customers from the new aspects of the transparency rules. (The FCC delegated to a Bureau to decide later whether to continue the exemption, make it permanent, or eliminate it.) For now, smaller providers that follow the 2010 transparency rules will not have to do more to comply with the transparency requirements.  There is no suggestion of an exemption for small providers from any other rules.
• Reasonable Network Management. Other than the ban on paid prioritization, broadband providers may use “reasonable network management practices… to manage the technical and engineering aspects of their networks.” While wireless broadband providers are covered by the new rules, their capacity and other limitations will evidently be embraced by the FCC’s plan to take account of “the particular engineering attributes of the technology involved.” As indicated in the Fact Sheet, network management must be “used for and tailored to achieving a legitimate network management – and not commercial – purpose.”  We have no further information about how that requirement will be applied to particular existing or potential network management practices.

• “Specialized Services” Subject to Monitoring. The rules do not apply to data services that do not use the “public” Internet (such as cable-operator-provided VoIP services). The FCC will, however, will monitor the operation of such services to make sure that they don’t indirectly degrade a provider’s Internet access service.

• Rate Regulation. While it is clear that the FCC is not going to require rates to be tariffed, the FCC may entertain complaints from consumers that rates are “unreasonable” (i.e., too high) under the terms of Section 201(a) (which generally requires rates and practices to be “just” and “reasonable”).

• No Unbundling. As stated in the Fact Sheet, broadband providers will not have to “unbundle” their networks, i.e., make broadband connections to consumers available to third parties as a stand-alone offering.

• Scope of Forbearance.  We have learned a few more details about the scope of the FCC’s “forbearance” from certain parts of Title II. First, as indicated in the February 4 Fact Sheet, the following Title II provisions will apply to broadband Internet access service:
  • Section 201 (rates, terms and practices must be just and reasonable; interconnection) and Section 202 (banning unreasonable discrimination as to rates, terms, and practices).
  • Section 222 (governing protection of “customer proprietary network information), although it remains to be seen how the FCC will try to apply these traditional telephone rules to the broadband context, or where other rules already apply (e.g., the special cable privacy rules contained in Section 631).
  • Section 224 (governing access to utility rights-of-way, and the rates and terms for use of utility poles and conduits).
  • Sections 225 and 255 (dealing with accessibility of telecommunications services and equipment for persons with disabilities).
  • Sections 206-209 and 216-217 (dealing with enforcement and complaints, either to the FCC or to the courts, and potential damages and attorneys’ fees).

Meanwhile, the following Title II provisions will not apply to broadband Internet access service:

• “Utility-Style Rate Regulation,” which encompasses Sections 203-205.
• Section 254, at least with respect to the provisions requiring providers to pay into the Universal Service fund. However, the FCC will decide if Universal Service contributions will be required in a separate, ongoing proceeding. In that proceeding, the FCC expects to receive a recommendation by April 7 from a group (a “Joint Board” of state and federal regulators) that may well recommend requiring such contributions
• We also learned (from Commissioner O’Reilly’s statement) that the FCC intends to forbear from Sections 251, 252, and 256, which deal with opening local exchange markets to competition and impose some obligations on all local telephone companies, and special additional obligations on “incumbent” local companies like Verizon, AT&T, and CenturyLink.
• Commissioner O’Reilly’s statement also revealed that the FCC intends to forbear from Section 214(a), which requires (among other things) that carriers get permission from the FCC before exiting a market or reducing/impairing services

The Commissioners’ oral and written statements reveal a great deal of controversy as to how meaningful and effective the FCC’s efforts to “forbear” from applying these various obligations will actually be. A key point of contention was that, even as the FCC claims to be “forbearing” from certain statutory requirements, many of same (or similar) requirements will be imposed via case-by-case review under the general language of Sections 201 and 202.

• Some Insights Into Enforcement.  The February 4 Fact Sheet did not provide any details about how the FCC will enforce the new rules.  We now know that:
  • The FCC will enforce the rules “through investigation and processing of formal and informal complaints,” indicating that it does not now plan to issue prescriptive “ex ante” rules; instead, it will use a “case-by-case” approach to (in effect) feel its way in this new area.
  • The FCC will permit the Enforcement Bureau to issue non-binding “advisory opinions” on whether particular practices comply with the rules, and will establish a new ombudsman position to provide guidance.
  • The FCC will permit the Enforcement Bureau to “request objective written opinions on technical matters from outside technical organizations, industry standards-setting bodies and other organizations.”
• Details of the Legal Rationale Still Murky. The newly released material provides some hints as to how the FCC is going try to justify reclassifying broadband Internet access as a telecommunications service and forbearing from applying many of the statutory provisions that normally apply to such services.  Most of those hints come from the dissenters, and relate more to claims that the FCC’s process was inadequate (e.g., not enough public notice that certain decisions were being considered) than to the specific legal analysis on which the FCC has chosen to rely for its actions. As a result, rather than speculate about the details of the agency’s legal analysis now, we will provide a review of the legal reasoning of both the FCC majority and the dissents – and what that reasoning tells us about the likely practical impact of the new rules – when the actual order is available.