Net Neutrality Revisited in the Wake of the Court of Appeals' Decision in Verizon v. FCC


On January 14, 2014, the latest chapter of the net neutrality controversy closed when the U.S. Court of Appeals for the District of Columbia decided that the Federal Communications Commission (FCC) was statutorily authorized under the Telecommunications Act of 1996 (Act) to regulate the treatment of Internet traffic by broadband Internet service providers (ISPs), but struck down the heart of the net neutrality regulations set forth in the FCC’s Open Internet Order, 25 F.C.C.R. 17905 because they ran afoul of the very same statute.  Accordingly, the FCC cannot implement its no-blocking or anti-discrimination rules, which would impose obligations upon ISPs akin to those a common carrier would be subject to, because the FCC previously decided not to regulate ISPs as common carriers.  The Court of Appeals ultimately held the FCC to the consequences of the agency’s decision not to treat ISPs as common carriers, which are obligated to serve the public indiscriminately for purposes of the Act.  The Court of Appeals did, however, uphold the FCC’s transparency rules, which require ISPs to disclose their network management practices.


The FCC’s Open Internet Order


In December 2010, the FCC first approved compromise net neutrality rules that forbid the nation's largest cable and DSL ISPs from blocking or slowing online services, while leaving wireless companies with much more latitude.  Fundamentally, net neutrality is the idea that the Internet works best when ISPs deliver every Internet site's traffic without discrimination.  At its core, net neutrality demands ISP equality in the treatment of consumers who pay for the same or a greater quality of service, permitting peer-to-peer communication in any platform of the consumers' choosing, regardless of the amount of content transmitted or bandwidth utilized.  Accordingly, the Open Internet Order included a no-blocking rule prohibiting ISPs from blocking legal content from being carried on their network and an anti-discrimination rule prohibiting ISPs from favoring traffic from those content providers willing to pay for the privilege of having their content prioritized ahead of those unable to pay for the same premium access.  Prior to being struck down by the Court of Appeals, the FCC’s rules ensured that ISPs could not block traffic, such as Skype, on wired networks, and outlawed unreasonable discrimination on those networks – meaning they cannot put a competing online video service in the slow lane to benefit their own video services.


Supporters of net neutrality – which ensures that everyone has open access to the Internet – maintain that revolutionary Web startups such as Google, Facebook and Twitter may never have gotten off the ground without a level playing field.  In that regard, the FCC has campaigned to enforce this principle of equality as if it were a constitutionally guaranteed fundamental right.  On the other hand, detractors of net neutrality, who generally believe that government regulation should be minimal in the private sector, have argued that net neutrality stifles innovation and competition in the market for broadband access by making it harder for ISPs to recoup their investments in broadband networks.


Verizon and Metro PCS Challenge the Open Internet Order


In October 2011, Verizon was the first to file an appeal of the Open Internet Order challenging the FCC’s net neutrality rules for ISPs.  Verizon v. Federal Communications Commission et al., Case No. 11-1355 (D.C. Cir.).  At the time the lawsuit was filed, Michael Glover, Verizon's senior vice president and deputy general counsel, said in a statement that “Verizon is committed to preserving an open Internet, but the lawsuit comes after a 'careful review' of the FCC order.”  Later the same month, wireless service operator Metro PCS filed a similar lawsuit to overturn the FCC's net neutrality rules.  Metro PCS Communications, Inc. et al. v. Federal Communications Commission, Case No. 11-1404 (D.C. Cir.).  The company has been the subject of criticism by consumer groups that say Metro PCS' 4G pricing plans purposely block certain applications, which violates the FCC's Internet access rules.  "Metro PCS' concerns regarding the jurisdictional basis for the net neutrality rules, the recent appeal filed by Verizon, and challenges raised by some proponents of net neutrality to Metro PCS' recent 4G rate plans, have caused Metro PCS to appeal the FCC's net neutrality order to ensure that the concerns of competitive wireless carriers, like Metro PCS, are addressed,” said Roger D. Linquist, Metro PCS' president and CEO.  Although Verizon’s and Metro PCS’ lawsuits were consolidated for the appeal, Metro PCS (upon its merger with T-Mobile) dropped its challenge of the Open Internet Order in May 2013, leaving Verizon to argue its case before the Court of Appeals on September 9, 2013.


Interestingly, however, in concluding that the FCC was empowered under the Act to regulate Internet traffic carried by ISPs, a majority of the Court of Appeals rejected Verizon’s assault on the FCC’s rationale underpinning net neutrality.  The majority acknowledged the reasonableness of the FCC’s conclusion that implementation of no-blocking and anti-discrimination rules would “accelerate development” of advanced telecommunications capability for all Americans “by removing ‘barriers to infrastructure investment’ and promoting ‘competition.’”  Nevertheless, the Court of Appeals held that the FCC’s net neutrality regulations were impermissible because they imposed common carrier-like obligations on ISPs, and the FCC had previously voluntarily classified ISPs as entities immune to common carrier requirements under the Act.


Going Forward, the Future of the Open Internet


The likely risk of the Court of Appeals’ decision rejecting the FCC’s no-blocking and anti-discrimination rules is the potential deregulation of ISPs.  Conceivably, ISPs would be allowed to treat their own content better than that of rivals, and block content that they do not like or they compete with for customers.  Verizon and Metro PCS have about 48 percent of wireless subscribers.  Approximately 78 percent of Americans live in areas with only two wireline broadband providers.  In a market with such slender competition, consumers are likely to be subjected to the business decisions of few, or even only one, ISP.


It is currently unclear what, if any, action will be taken by the FCC in light of the decision.  However, FCC Chair Thomas Wheeler issued the following statement after the Court of Appeals’ decision emphasizing the FCC’s commitment to a free and open platform on the Internet:


“The D.C. Circuit has correctly held that ‘Section 706 [of the Act] . . . vests [the FCC] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure’ and therefore may ‘promulgate rules governing broadband providers’ treatment of Internet traffic.’  I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment.  We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”


The future at this juncture for American consumers is either a continuation of the open broadband they have come to expect – in which they can view any content from sources big and small – or a carefully controlled Internet such as cable television, where ISPs will decide what their customers can see and at what price.  Which would you rather have?


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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