1 Federal Communications Commission Releases Much-Anticipated Open Internet Order William E. Cook, Jr., Maureen R. Jeffreys, Stephanie M. Phillipps, Scott Feira, Peter J. Schildkraut March 2015 On March 12th, the Federal Communications Commission (Commission) released the 400-page Order adopted last month in its Open Internet proceeding.1 This Order comes after an earlier effort to adopt open Internet rules was largely overturned by the D.C. Circuit.2 Release of the Order has done nothing to quell the controversy surrounding the proceeding, which contributed to a 3-2 party-line vote of the Commissioners. Whereas Internet access previously had been viewed as an “information service” exempt from common carrier regulation, the Commission majority reclassified it as a “telecommunications service” subject to Title II of the Communications Act (Act), which originated to regulate monopoly telephone companies. Reclassification formed the major basis for establishing rules the Commission says are intended to maintain an open Internet — one where broadband Internet access service (BIAS) providers,3 including both fixed and mobile providers,4 do not unreasonably interfere with the ability of edge providers5 to make 1 Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, GN Dkt No. 14-28, FCC 15-24 (rel. Mar. 12, 2015) (“Order”). 2 Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014). 3 “Broadband Internet access service” means: [a] mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in [the open Internet rules]. Order ¶ 187. “Mass market” is defined as “‘a service marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries.’” Id. ¶ 189. 4 A “fixed BIAS” means a “broadband Internet access service that serves end users primarily at fixed endpoints using stationary equipment” and includes “fixed wireless services (including fixed unlicensed wireless services), and fixed satellite services”; whereas a “mobile BIAS” means a “broadband Internet access service that serves end users primarily using mobile stations.” Id. at Appendix A, 47 C.F.R. § 8.2(d) & (e). 5 “Edge provider” means “[a]ny individual or entity that provides any content, application, or service over the Internet, and any individual or entity that provides a device used for accessing any content, application, or service over the Internet.” Id. at Appendix A, 47 C.F.R. § 8.2(b). 2 content, applications, services or devices available to consumers — while allowing BIAS providers’ investments and innovations to flourish. (¶¶ 1-6) The dissenters disagree the Order is necessary to preserve an open Internet and worry it will lead to regulatory uncertainty, depressing investment and innovation in this key economic area.6 Opponents are likely to challenge the Order in the federal courts of appeal.7 Press reports also indicate that the U.S. Congress may enact legislation addressing the issue.8 In the Order at the heart of this controversy, the Commission concluded that (a) BIAS is a “telecommunications service” subject to common carrier regulation under Title II of the Act, (b) the Commission has the authority to extend the rules to mobile BIAS under its Title III authority to “protect the public interest through the management of spectrum licensing,” and (c) section 706 of the Act grants the Commission the authority to “adopt these open Internet rules to encourage and accelerate the deployment of broadband to all Americans.” (¶ 274; see also ¶¶ 275-287) The Commission stated that it would forbear from enforcing 27 statutory provisions and over 700 codified rules inapplicable to BIAS providers, including, but not limited to, those related to the unbundling of lastmile facilities, tariffing, rate regulation and cost accounting. (¶¶ 5 & 37) However, the Commission concluded that it would not forbear from enforcing “sections 201 and 202 of the Act, along with section 208 and certain fundamental enforcement authority, necessary to ensure just and reasonable conduct by broadband providers and necessary to protect consumers.” (¶ 440) Nor did the Commission forbear from enforcing a number of other sections of the Act discussed below that the Commission concluded did not meet the standard for forbearance. (¶¶ 456-492) Bright-Line Rules for BIAS Providers The Commission adopted “clear, bright-line rules” to address three practices by fixed and mobile BIAS providers that the majority believe “demonstrably harm the open Internet.” (¶¶ 14-18, 110-132) 6 Dissenting Statement of Commissioner Ajit Pai at 1, 7-8 (rel. Mar. 12, 2015), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0312/FCC-15-24A5.pdf; Dissenting Statement of Commissioner Michael O’Rielly at 1, 5 (rel. Mar. 12, 2015), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0312/FCC-15-24A6.pdf. 7 See Joshua Brustein, Net Neutrality Goes to Court: A Guide to the Internet’s Legal Fate, Bloomberg Business (March 16, 2015), available at http://www.bloomberg.com/news/articles/2015-03-16/net-neutrality-goes-to-court-aguide-to-the-internet-s-legal-fate. 8 Id. 3 No Blocking: A BIAS provider “shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.” (¶ 15) No Throttling: A BIAS provider “shall not impair or degrade lawful Internet traffic on the basis of Internet content, application, or service, or use of a non-harmful device, subject to reasonable network management.” (¶ 16) No Paid Prioritization: The Commission sought to prohibit so-called “fast lanes,” and thus declared that a BIAS provider “shall not engage in paid prioritization.” “Paid prioritization” refers to “the management of a broadband provider’s network to directly or indirectly favor some traffic over other traffic . . . either (a) in exchange for consideration (monetary or otherwise) from a third party, or (b) to benefit an affiliated entity.” (¶ 18) The Commission may waive the ban on paid prioritization only if a provider “demonstrates that the practice would provide some significant public interest benefit and would not harm the open nature of the Internet.” (¶ 130) No Unreasonable Interference or Unreasonable Disadvantage Standard The Commission adopted a “catch-all” standard of conduct requiring that fixed and mobile BIAS providers “shall not unreasonably interfere with or unreasonably disadvantage (i) end users’ ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice, or (ii) edge providers’ ability to make lawful content, applications, services, or devices available to end users,” subject to an exception for reasonable network management (which is discussed below). (¶ 136) The Commission will follow a case-by-case approach and consider the “totality of the circumstances” when reviewing conduct under this standard. (¶ 138) The Commission listed the following areas it would consider in applying this conduct standard: amount of end-user control; competitive effects; consumer protection; effect on innovation, investment or broadband deployment; impact on free expression; whether conduct interferes with end users’ choice of content, applications, services or devices to use; and whether a practice conforms to best practices and certain types of technical standards. (¶¶ 139-145) The Commission also noted that BIAS providers’ practices with respect to data usage allowances and the use of sponsored data plans9 would be subject to case-by-case review under this standard. (¶¶ 151-153) 9 Sponsored data plans enable broadband providers to exclude certain online content from end users’ data usage allowances. Order ¶ 151. 4 Reasonable Network Management As noted, the Commission created exceptions to blocking, throttling, and unreasonably interfering or disadvantaging use of the Internet, for “reasonable network management.” In its 2010 Order, the Commission seemed to allow more latitude for network management, especially for mobile networks, by declaring that a “network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service.” (47 C.F.R. § 8.11(d)) In the 2015 Order, the Commission revised the definition to clarify that a “network management practice” must have primarily a network management justification and not include other business practices.10 Transparency Requirements The Commission stated that its 2010 transparency rule, upheld by the Verizon court, remains in full effect.11 (¶ 23) However, the Commission expanded the transparency obligations by adopting, among other things, requirements that BIAS providers (a) disclose the full monthly service charge and promotional rates, all fees and/or surcharges, and all data allowances; (b) disclose additional performance characteristics, including, among others, packet loss; (c) disclose certain network practices, including, but not limited to, practices that are applied to traffic associated with a particular user or group; and (d) directly notify end users if their individual use of the network will trigger a network practice, based on their demand prior to a period of congestion, that is likely to have a significant impact on the end users’ use of the service. (¶¶ 163-171) The Commission clarified that BIAS providers have a duty to update material changes in disclosures. The Commission also created a “safe harbor” process for the format and 10 The 2015 rule defines “reasonable network management” as follows: A network management practice is a practice that has a primarily technical network management justification, but does not include other business practices. A network management practice is reasonable if it is primarily used for and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. Id. ¶ 32 11 The 2010 rule provides as follows: A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings. 47 C.F.R. § 8.3. 5 nature of the required disclosure to consumers, and adopted a “temporary exemption” from the transparency enhancements for small providers with 100,000 or fewer subscribers, subject to a future determination of whether to make the exception permanent. (¶¶ 172-181) Application of Open Internet Rules to Other Services Interconnection: The Commission held that because BIAS is a “telecommunications service,” “commercial arrangements for the exchange of traffic with a [BIAS] provider are within the scope of Title II” — i.e., they potentially are subject to the Commission’s traditional tools for regulating common carriage. While the Order does not apply the open Internet rules discussed above to interconnection arrangements, the Commission stated that it will be available to hear disputes “on a case-by-case basis: an appropriate vehicle for enforcement where disputes are primarily over commercial terms and that involve some very large corporations, including companies like transit providers and Content Delivery Networks (CDNs), that act on behalf of smaller edge providers.” (¶¶ 29-30; see also ¶¶ 194-206) This opens the door to the Commission’s adjudicating disputes between edge providers and BIAS providers over the terms and conditions of network access, which have been the subject of recent controversies. Non-Broadband Internet Access Service Data Services: The Commission noted that “non-broadband Internet access service data services” — such as, but not limited to, facilities-based VoIP offerings, ereaders, heart monitors, and energy consumption sensors — may be offered by a broadband provider but do not provide access to the Internet generally. (¶ 35) While these services are not subject to the open Internet rules described above, the Commission “expressly reserve[d] the authority to take action if a service is, in fact, providing the functional equivalent of broadband Internet access service or is being used to evade the open Internet rules,” and noted that “its actions will be aided by the existing transparency requirement that non-broadband Internet access service data services be disclosed.” (¶ 35; see also ¶¶ 207-213) Others: The open Internet rules do not apply to enterprise services, virtual private network services, hosting or data storage services, or Internet backbone services. (¶¶ 26, 190) The rules also do not apply to “premises operators” such as, but not limited to, coffee shops, bookstores, airlines, and private enduser networks (e.g., libraries and universities). (¶ 191) Title II Forbearance The Commission stated that it was exercising a “light-touch regulatory framework” with respect to Title II and would forbear from enforcing 27 statutory provisions and over 700 codified rules inapplicable to BIAS 6 providers. (¶ 5) Section 10 of the Communications Act grants the Commission authority to forbear from applying a regulation or provision of the Act under specified circumstances. (47 U.S.C. § 160(a)) However, the Commission concluded that it would not forbear from enforcing sections 201 and 202 (except for ratemaking regulations adopted under those sections), and 208, along with the related enforcement provisions and the associated complaint procedures in other sections. (¶¶ 434, 456) Sections 201 prohibits common carriers from imposing unjust or unreasonable charges, practices, classifications, or regulations, while Section 202 prohibits common carriers from engaging in unjust or unreasonable discrimination. (47 U.S.C. §§ 201- 202) Section 208 grants the Commission the authority to investigate complaints. (47 U.S.C. § 208) The Commission also did not forbear from enforcing section 222 (consumer privacy); sections 225, 255, and 251(a)(2) (disability access); section 224 (nondiscriminatory access to poles and other infrastructure controlled by utilities); and section 254 and the interrelated requirements of section 214(e) (universal broadband, except the Commission will forbear from enforcing rules that would immediately require mandatory universal service contributions). (¶¶ 456, 461-492) If you have any questions about any of the topics discussed in this advisory, please contact your Arnold & Porter attorney or any of the following attorneys: William E. Cook, Jr. +1 202.942.5996 William.Cook@aporter.com Maureen R. Jeffreys +1 202.942.6608 Maureen.Jeffreys@aporter.com Stephanie M. Phillipps +1 202.942.5505 Stephanie.Phillipps@aporter.com Scott Feira +1 202.942.5769 Scott.Feira@aporter.com Peter J. Schildkraut +1 202.942.5634 Peter.Schildkraut@aporter.com © 2015 Arnold & Porter LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.