Yesterday FCC chairman Julius Genachowski, in a speech to the Brookings Institution, proposed new rules to supplement the FCC’s existing network neutrality principles. In addition to codifying the existing principles and applying those principles to all broadband providers, Chairman Genachowski proposes to add two new requirements: non-discrimination and disclosure of network management techniques. These rules would be adopted through a notice of proposed rulemaking that has not yet been released. While the Democratic commissioners, Michael Copps and Mignon Clyburn, were quick to release statements praising this initiative, the Republicans, Robert McDowell and Meredith Baker, were much more cautious. The speech and a press release are available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293568A1.pdf and at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293568A1.pdf,  respectively. The statements by Commissioners Copps and Clyburn are available on the FCC web site at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293569A1.pdf and http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293570A1.pdf, respectively. The statement by Commissioners McDowell and Baker is at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293574A1.pdf.

OVERVIEW

The FCC adopted its network neutrality principles in 2005 when it approved its Internet Policy Statement, but took no action to enforce the four principles embodied in the statement until 13 months ago, in response to a complaint about Comcast’s network management practices. One of the key issues in the Comcast proceeding was whether the statement and the principles were binding on providers of Internet service. That issue is pending in Comcast’s appeal of the FCC’s decision.

Since the Comcast decision, there also has been discussion of whether the four existing principles were sufficient. Commissioner Copps, for instance, proposed in May that the FCC adopt a fifth principle forbidding discrimination.

Yesterday’s announcement by Chairman Genachowski was a logical outgrowth of these events. Formally adopting the principles as rules would address concerns about whether they are binding (although doing so would, as discussed below, raise other issues) and would make them applicable to a wider range of providers. The adoption of a non-discrimination principle and of a requirement to disclose network management techniques also would follow from the Comcast order. Indeed, the order effectively adopted a non-discrimination requirement and specifically ordered Comcast to disclose how it managed its network.

Although yesterday’s speech merely announced a proposal and the FCC has not taken any of the concrete steps necessary to adopt that proposal, it is very likely that formal network neutrality rules will be adopted. Network neutrality was part of President Obama’s platform and all three Democratic Commissioners are on record as supporting it. The real question is how the rules will be designed and whether there will be accommodations to obtain at least one vote from a Republican Commissioner.

THE PROPOSAL

Non-Discrimination

Chairman Genachowski described the nondiscrimination principle in this way:

[B]roadband providers cannot discriminate against particular Internet content or applications. This means they cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers’ homes. Nor can they disfavor an Internet service just because it competes with a similar service offered by that broadband provider.

Consistent with the FCC’s decision in the Comcast case, he also suggested that broadband providers will not be precluded “from reasonably managing their networks.” That management would include limiting bandwidth available to “very heavy users” when there is network congestion and blocking content that violates laws, specifically including violation of copyright requirements.

Network Management Disclosure

Chairman Genachowski refers to his sixth principle as “a transparency principle.” This transparency, however, is limited to one topic: the techniques used by providers to manage their networks.

Although the speech and the FCC’s press release do not go into any detail as to how disclosure would be accomplished, the model from the Comcast order would require a filing at the FCC and a description on the company web site. It is not clear, however, whether the FCC would want to receive filings from every broadband provider every time a policy was changed.

Regardless of how disclosure is implemented, it is likely that the FCC staff and Chairman Genachowski view this requirement as a way to ensure that service providers do not adopt inappropriate network management techniques. For instance, the Comcast decision required public disclosure of the new network management techniques before they were implemented. This approach gave the public an opportunity to review the new techniques. Thus, the disclosure limited Comcast’s incentive to adopt new techniques that had the same impact as the old ones.

Adoption of New Rules

Chairman Genachowski plans to adopt the principles in the Internet policy statement as formal rules. Although the speech did not describe the reasons for doing so in any detail, it is likely that the most important reason for this action is to eliminate questions about the extent to which Internet service providers must comply with the principles.

Adopting the principles as rules will require the FCC to issue a notice of proposed rulemaking, to take comments and then to issue final rules. The rules and the order adopt the rules likely would provide additional detail about how the FCC would expect Internet service providers to comply with them. However, Chairman Genachowski stated that at least one principle – non-discrimination – likely would require “case-by-case” review. This suggests that he does not believe that the rules should be very specific.

The other key element of the proposal to adopt rules is to apply the rules to all providers of broadband services, specifically including wireless providers. The FCC’s press release notes that one question that will be asked in the rulemaking is “how the rules [should] apply to differing platforms, including mobile Internet access services.” Thus, it might be possible that network management practices that would be deemed discriminatory for wired broadband services would be acceptable for wireless broadband services.

REACTION

Reaction to the proposal was, in many respects, easy to predict and largely broke down along party lines. Commissioner Copps described Chairman Genachowski’s speech as a “bold announcement” that was “a significant further investment in safeguarding Internet Freedom.” Commissioner Clyburn was not as effusive, but she did state that she “fully support[s] Chairman Genachowski’s intention to take affirmative measures to preserve the openness of the Internet.”

The Republican commissioners did not specifically oppose new rules, but made it clear that they were, at a minimum, skeptical about the proposal. Among other things, their joint statement said:

[T]his dramatic proposal to grow government’s involvement in Internet governance and management would appear to be a reversal of decades of precedent and of the Clinton-Gore Administration’s bipartisan policy to allow a diverse assortment of technical experts, rather than politicians and bureaucrats, working in loosely knit non-governmental organizations to make such engineering decisions. Many unanswered questions lie ahead.

A similar split was apparent in Congress, with Democrats supporting the proposal and Republicans opposing it. Representative Edward Markey indicated that he supported the proposal but would continue to press for legislation to “complement” any FCC action, while Speaker of the House Nancy Pelosi said that adoption of the proposals would “ensure that the Internet continues to be an engine of innovation, job creation and free speech for all Americans.”

At the same, Senate Republicans, including Senators Hutchison, Brownback, DeMint and Ensign, indicated that they would oppose the initiative. Senator Hutchison introduced an amendment to a pending appropriations bill that would prevent the FCC from spending any funds to adopt or implement new network neutrality regulation. While this amendment has little chance of becoming law, it is reflective of the Republican view of network neutrality in general.

In practice, it is unlikely that Republican opposition will prevent the FCC from adopting new regulations, given the Democratic majorities on the FCC and in Congress. It is possible, however, that Chairman Genachowski could seek a compromise with Commissioners Baker and McDowell that might limit the scope of any regulations that are adopted. The likelihood of such a compromise is dependent on the extent to which Chairman Genachowski believes it is useful to have one or both of the Republican commissioners support the final rules and the extent to which those commissioners are willing to support any formal network neutrality requirements.

IMPLICATIONS

As a practical matter, it is unclear what immediate impact network neutrality regulation would have on wired Internet access services and other services, such as the Clearwire service, that follow the standard Internet access business model. While activists and advocates have expressed concern about ways that these services could be manipulated to discriminate against specific content providers, applications or services, in practice there have been very few examples of actual discriminatory behavior, even against competitors – telephone companies do not block Vonage and cable companies do not hinder access to Hulu.

The most likely consequence for traditional Internet service providers if the FCC adopts the proposed rules is that their future options for managing network usage may be limited. The combination of a nondiscrimination requirement and a requirement that network management techniques be disclosed will greatly increase the likelihood that activists will complain to the FCC, and any technique that has the effect of disadvantaging particular content providers or applications likely will be viewed as suspect. Thus, providers will have incentives to adopt mechanisms that appear to affect all customers equally, such as reducing users’ bandwidth equally in times of congestion or adopting monthly usage caps for individual customers.

There is potential that network neutrality rules will require more significant changes in the business models for wireless broadband services. Services like Verizon’s V Cast could be deemed to provide preferential treatment to favored content providers, such as easier access from mobile devices. This could create doubt about the validity of a wireless company’s contracts with content providers like local television stations, or could give competing content providers the right to the same access to the wireless company’s customers.

The FCC’s wireless analysis also may affect the relationships between wireless providers and equipment vendors. One concern that has emerged in the context of Apple’s apparent rejection of the Google Voice application for the iPhone is whether that rejection was related to AT&T’s desire to avoid competition from Google. Similar questions could be addressed as part of the network neutrality rules. In addition, while it does not seem likely that the FCC would extend any network neutrality rules to cover exclusive handset contracts, adoption of network neutrality for wireless would reinforce notions of consumer choice that also would support elimination of exclusivity.

Finally, it may be significant that Chairman Genachowski, in discussing the limitations of his proposed non-discrimination requirement, spoke specifically about the need to protect copyrighted material and other intellectual property:

It is vital that illegal conduct be curtailed on the Internet. As I said in my Senate confirmation hearing, open Internet principles apply only to lawful content, services and applications – not to activities like unlawful distribution of copyrighted works, which has serious economic consequences. The enforcement of copyright and other laws and the obligations of network openness can and must co-exist.

While previous FCC discussions of network neutrality issues, such the Comcast order, have noted that unlawful content would not be protected, the specific emphasis on copyrighted work is unusual. In the past, this type of material has been included in the discussion, but in a broader context that included, for instance, child pornography. It is likely that Chairman Genachowski’s specific emphasis on intellectual property is intended to address concerns raised by Republicans about non-discrimination requirements, but it also may reflect his own priorities in this area.

NEXT STEPS

Chairman Genachowski acknowledged that yesterday’s announcement was much closer to the beginning of the process than the end. In particular, he must depend on the other commissioners to move the process forward, and several milestones remain before rules can be adopted.

First, the staff must complete a draft notice of proposed rulemaking. As Chairman Genachowski explained, this notice then is circulated among the commissioners for their review and comments. While he indicated that he hoped to include the rulemaking on the agenda for the FCC’s October meeting, it could be delayed if one or more of the other commissioners asks for changes or simply asks to push action off to the November meeting.

Following the adoption of the notice of proposed rulemaking, the FCC will take comments on the proposal. While 6 comment deadlines are set by the FCC, and there is no specific time period required, it is likely that the FCC will ask for initial comments no sooner than four weeks after official publication of the notice and reply comments at least two weeks later. It would not be surprising, however, for the deadlines to be longer, particularly considering the complexity of some of the issues raised in this proceeding. It also is possible that the FCC will extend any comment deadlines it adopts, and may be likely given the number of comments that the FCC can expect to receive.

New rules cannot be issued until the comment period is complete. Chairman Genachowski might attempt to time the adoption of the rules to match the completion of the national broadband plan in February. This, however, would be an ambitious schedule, particularly because much of the FCC staff that would be likely to work on network neutrality rules already is involved in the broadband plan. Adoption of rules in February also would become much less likely if there is any delay in the release of the notice of proposed rulemaking.

Once rules are adopted, it is almost certain that they will be challenged in court. The rules likely will remain in effect during any challenge. The key issue in any appeal will be whether the FCC’s general jurisdiction over interstate communications extends far enough to cover regulation of Internet access services. While the FCC has not succeeded every time it has asserted such power, its general jurisdiction is fairly broad. Moreover, the FCC’s success in convincing the courts that its previous decisions to impose voice over IP regulation were within its power provides useful precedent to support a claim that it can regulate Internet access services.