On May 15, 2014, the Federal Communications Commission announced a Notice of Proposed Rulemaking in its Open Internet proceeding. The Notice was issued in response to the recent federal court ruling in Verizon v. FCC which upheld the FCC rule requiring transparency/disclosure in broadband provider network management practices, but overturned the agency's rules prohibiting the blocking of traffic and discrimination by broadband providers.

The FCC is proposing to maintain and enhance the transparency rule, reinstate its internet no-blocking rules subject to the proviso that individualized negotiations are permitted, and replace the non-discrimination rule with a more flexible approach which prohibits only commercially unreasonable practices. The proposed rules will directly impact broadband service providers, edge content providers and retail consumers alike. The rules would allow broadband service providers the discretion to charge for prioritized access to their networks and thereby potentially raising the cost of the services provided by some edge providers and limiting the access of others to the market. On the other hand, the rules would also possibly subject broadband service providers to common carrier type regulation thereby limiting their overall flexibility and discouraging infrastructure investment. Comments are due on July 15, 2014 and Reply Comments are due on September 10, 2014.

New Rules

The FCC’s new rules will:

• Retain the definitions and scope of the 2010 rules, which governed broadband Internet access service providers, but not services like enterprise services, Internet traffic exchange and specialized services.
• Enhance the existing transparency rule, which was upheld by the D.C. Circuit in the Verizon case. The proposed enhancements would provide consumers, edge providers, and the Commission with tailored disclosures, including information on the nature of congestion that impacts consumers’ use of online services and timely notice of new practices.
• Ensure that all who use the internet can enjoy robust, fast and dynamic internet access, as part of the revived “no-blocking” rule.
• Confirm that priority service offered exclusively by a broadband provider to an affiliate should be considered illegal until proven otherwise.
• Ask how to devise a rigorous, multi-factor “screen” to analyze whether any conduct hurts consumers, competition, free expression and civic engagement, and other criteria under a legal standard termed “commercial reasonableness.”
• Ask a series of detailed questions about what legal authority provides the most effective means of keeping the Internet open: Section 706 or Title II.
• Propose a multi-faceted process to promptly resolve and head off disputes, including an ombudsperson to act as a watchdog on behalf of consumers and start-ups and small businesses.

The FCC has asked a series of complex questions with regard to each proposal. For example, with regard to its tentative decision to not revise the scope of its Open Internet Rules, the FCC asks whether it should continue to exclude enterprise and specialized services from coverage under the rules.

Similarly, in an effort to enhance the current transparency rule (which requires effective disclosure of network practices, performance and terms of service), the FCC seeks comment on issues relating to how the rule can be enhanced; making the content and form of disclosure more accessible and understandable; fuller disclosure of network practices, e.g. packet loss, latency, etc.; methods of disclosure; transparency to edge providers; transparency to the Internet Community and the Commission; and applicability to mobile broadband.

With regard to the no-blocking rule, the FCC indicates that it believes that as long as individualized bargaining is permitted, it can safely reinstate the rules prohibiting fixed broadband providers from blocking lawful content, applications, services or non-harmful devices, and mobile broadband providers from blocking access to lawful websites or competitive applications. Consequently, the Commission seeks input on related matters such as how to establish a minimum level of access which would still allow broadband providers sufficient flexibility to negotiate individualized terms and how its no-blocking rules should apply to mobile broadband and devices. In the alternative, the Commission seeks comment on whether it should adopt a no-blocking rule which prohibits broadband providers from entering into priority agreements with edge providers.

In addition to seeking comment on the no-blocking rule, the FCC also seeks comment on its separate proposal to adopt a rule (based on its authority under Section 706 of the Communications Act) requiring broadband providers to use only commercially reasonable practices. Under this proposal, the FCC, when trying to determine if the conduct at issue was commercially reasonable, would act on a case-by-case basis considering the totality of the circumstances. The Commission seeks input on alternative legal standards which it might consider as well as the factors which should guide its application of a general legal standard (e.g. impact on competition, customers and speech and civic engagement; technical characteristics; good faith negotiation; industry practice and safe harbors).

Finally the Commission seeks input on several critical legal issues. It asks whether it has authority under Section 706. It also seeks comment on whether the agency should rely on its common carrier authority under Title II of the Communications Act, including whether it should revisit its classification of broadband Internet access service as an information service, and whether it should separately identify and classify broadband provider service to edge providers as a telecommunications service. In either case, the Commission would retain the ability to forbear from regulation as appropriate.

Impact of the New Rules

The Commission's proposals are controversial. Some argue that the majority has gone too far and others that it has not gone far enough. Moreover, the FCC's Open Internet rules have already been overturned twice by the D.C. Circuit and it is far from clear that the result would be any different in this instance. Although this is one of FCC Chairman Wheeler's signature undertakings, it can be predicted, based on past experience, that there will be substantive modifications to any proposed Open Internet regulations before they are finally adopted.