Earlier this month, an appeals court overturned the Federal Communications Commission rules intended to prohibit broadband providers from charging high-volume websites – like Netflix, voice-over Internet providers, and YouTube – higher prices to ensure higher quality. The background, from attorney Ken Keane at Duane Morris:

"[The FCC] Order required broadband Internet providers to disclose their pricing and network management practices and, subject to reasonable network management, prohibits carriers from blocking access to lawful content and applications, or engaging in unreasonable discrimination between and among competing applications and services such as Amazon and Netflix. The rules were adopted out of a concern that carriers might block, or otherwise grant preferential treatment to, their own Internet services, thereby disadvantaging competing content providers and consumers—and ultimately impairing the growth of the Internet.”

But the court found that the Open Internet Order overstepped the FCC’s authority, explain attorneys at Skadden Arps:

"The regulations excepted reasonable network management practices from the prohibitions only if such practices were narrowly tailored to further a legitimate objective, such as fighting network congestion, spam or malicious network activity. […] The court found that the prohibitions on unreasonable discrimination and Internet content blocking improperly imposed common carrier regulations on broadband access providers in violation of the Communications Act of 1934."

At the same time, however, the court held that the FCC not only has the authority to regulate the Internet, it also has the power to impose rules like the anti-blocking and anti-discrimination measures if they are necessary for open development of the Internet. Attorney Christopher Savage of Davis Wright Tremaine:

"The majority affirmed that the FCC has jurisdiction over the Internet (since it involves ‘communications by wire or radio,’ the relevant language in the Communications Act) and thus over broadband providers; it affirmed that Section 706 of the Telecommunications Act of 1996 provides a separate and independent grant of authority to the agency to impose regulations on broadband providers, if such regulation is needed to ensure the deployment of broadband facilities and services; and it even affirmed that the specific rules the FCC had adopted were reasonable under Section 706 (considered alone) and fully justified based on the record, even though it ultimately struck them down."

In other words, the FCC broke its own rules when it implemented the Order, explain MIchael Drobac and Jennifer Richter of Patton Boggs:

"[S]ince the FCC has classified broadband providers as information service providers exempt from common carriage requirements, it cannot impose common carriage regulations.”

So what’s next? For broadband providers, the only real question appears to be whether or not to raise prices. Again, Ken Keane:

"One effect of the decision is to free broadband providers to charge Internet services like Amazon, higher rates for faster, better Internet connections to their customers. Whether and how carriers will seek to take advantage of this ability—in effect charging more for content providers which use more of the carriers' broadband pipes—remains to be seen.”

But the FCC has a number of options, all of which could have an important impact on providers and users alike:

1. They could rewrite the rules:

“[T]he majority opinion suggests that the FCC may be able to salvage its no-blocking rule if it can craft an order (perhaps with further record evidence) clearly explaining why that rule does not impose common carriage obligations and makes sense on its own. The FCC also may seek to re-craft its non-discrimination rule by, for example, attempting to align it more closely with the ‘data roaming’ rule that the FCC successfully defended in Cellco Partnership v. FCC.” (Savage)

2. They could appeal the ruling:

“One middle-ground approach the FCC might pursue is to seek rehearing from the D.C. Circuit or review by the U.S. Supreme Court. Given the snail's pace at which the case has proceeded thus far, this could entail additional years of litigation during which time the Commission could defer having to decide whether to undertake what has been referred to as the ‘nuclear option’ of common carrier reclassification. In the meantime, the agency could continue to use a case-by-case approach, should individual abuses be brought to its attention.” (Keane)

3. They could draft entirely new rules to achieve similar objectives:

“[T]he FCC (encouraged, no doubt, by public interest advocates) could consider a variety of new requirements, in the nature of consumer protection and pro-competition obligations, that it might be able to justify using its virtuous cycle/triple cushion-shot logic but that are not inherently akin to the core obligations traditionally imposed on common carriers (e.g., holding out to serve the public indiscriminately and reasonable and non-discriminatory rates, terms and conditions).” (Savage)

4. They could change the regulatory status of broadband:

“Chairman Wheeler could seek to have the FCC reverse the information service classification. Attempting to reclassify broadband Internet service as a telecommunications service would carry broad implications for the future of communications law and technology policy and would be extremely contentious politically.” (Drobac and Richter)

5. They could seek additional powers from Congress:

“A legislative fix, in theory, could solve all of the FCC’s problems by granting it express authority to impose carrier-like regulatory obligations on broadband providers, but in our view any such proposals have no any realistic prospect of success in the present political climate. That is particularly so since the House of Representatives in April 2011 issued a resolution (by a vote of 240 to 179, mostly along party lines) ‘[d]isapproving the rule submitted by the Federal Communications Commission with respect to regulating the Internet and broadband industry practices.’” (Savage)


The updates: