On September 21, FCC Chairman Julius Genachowski announced he will seek to launch a rulemaking proceeding to codify the obligations of broadband Internet Service Providers (ISPs) regarding traffic they carry. The context was a speech before the Brookings Institution in Washington. The rulemaking notice, due out in the next few weeks, will shed more light on what's intended. Here are the main highlights:

Codify the “Four Freedoms”

Former FCC Chairman Michael Powell articulated “Four Freedoms” for the Internet in 2004. The Chairman summarized them as: "Network operators cannot prevent users from accessing the lawful Internet content, applications, and services of their choice, nor can they prohibit users from attaching non-harmful devices to the network." There has been considerable debate as to whether these requirements, subsequently part of a 2005 FCC Policy Statement, are enforceable or merely advisory. The Chairman’s remarks seem to agree that the Four Freedoms are not FCC rules today, although his wording suggests some FCC endorsement of them already. He would codify them as FCC rules.

Fifth Principle: Non-Discrimination

The Chair would add Commissioner Michael Copps'-favored "non-discrimination" principle, forbidding blocking or degrading lawful traffic over networks or favoring some content or applications over others. The Chairman added that an ISP can't disfavor an Internet service (e.g., a other-the-top video provider) who competes with a service offered by the ISP.

Sixth Principle: Transparency

This disclosure-based requirement is not too detailed in the Brookings speech, but it would include: give customers information about what they've paid for; give innovators information to make offerings work effectively over the Internet; and give the FCC the ability to ensure that ISPs are preserving the Internet as "a level playing field." (This popular regulatory refrain recited in the speech is not a term that has been much applied to the net neutrality debate so far.)

Exception for Managed Services in Limited Circumstances

The Chairman seems open to excepting such a category from the six principles if they could provide "benefits to innovation and investment." In follow-up questions it wasn't clear to some in the audience how far "managed services" extends. Will video or other offerings be allowed in the spirit of "innovation and investment?" This is apt to be a keen focus of ISPs who offer video and voice services, who will want to preserve as much discretion over how its services are offered.

Case by Case Consideration of Violations

This approach seems inevitable. Unless the FCC has no jurisdiction to do any of the foregoing (and that is an open question that the Chairman did not bring up, so one must assume this is a foregone conclusion for him), "discrimination" complaints will be entertained by the FCC.

Network Management through Facilitated Discussion

This is a welcome acknowledgement on the disclosure point from the ISPs viewpoint. The cable industry has favored using non-governmental forums to hash out network management issues like the one raised in the 2008 Comcast case, now on appeal. Indeed, Comcast changed its practices through the give-and-take in such forums and its own review.

Different Platforms and Technology May Require Different Application of These Principles

Wireless in particular has argued for a different net neutrality regime based on its limited bandwidth compared to cable or wireline. This is an opening for wireless companies to establish different rules.

Observations

From the broadband ISPs' perspective, maintaining the "vigilant restraint" of the early 2000's would be vastly better than a pro-regulation undertaking. However, the Chairman was at pains to say the dangers here are not "imaginary" with "breaks and cracks” emerging that threaten the Internet. Other than the Comcast case, however, there have been no significant complaints filed at the FCC about broadband ISP behavior. So one preliminary issue is the extent the problem the FCC seeks to solve, a point raised in a statement reacting to the speech by the two FCC Republican commissioners.

Still, this initiative is not unexpected. Chairman Genachowski has frequently expressed his support for “network neutrality” as has President Obama. The week before this speech, Chairman Henry Waxman of the House Energy and Commerce Committee also endorsed a network neutrality bill introduced by Congress members Ed Markey and Anna Eshoo.

As a practical matter, though, it is doubtful that even a very deregulatory FCC would shy away from dealing with specific complaints had they arisen. The challenge of a rulemaking is that it could create enforceable rules using vague words like "non-discrimination" and "transparency" whose violation will be difficult to predict beyond the obvious blocking-type cases (like Madison River, where a rural telephone company blocked a VoIP provider). And the rulemaking could lead the FCC to construct its own quasi-antitrust jurisprudence, whether or not the behavior of a would-be violator rises to a Sherman or Clayton Act violation. This extra layer of competition law may well exceed the authority of the agency over Title I services. These many issues will have to be addressed by affected parties in the rulemaking.

The timing of any decision will be influenced the D.C. Circuit appeal of the 2008 FCC Comcast decision involving its management practice regarding Bit Torrent ( a decision is not expected until late Q1 2010); and the Markey-Eshoo bill, which would codify FCC authority, authority that an order on network neutrality must assume. In addition the FCC will issue its National Broadband Plan report in latte February, which can be expected to address Internet “openness” and may give more indication where the rulemaking is headed by that point.