FCC Releases Details on Net Neutrality Rules

By Paul Glist

On Dec. 23, 2010, the Federal Communications Commission (FCC) released its Report and Order (R&O), and the text of the net neutrality rules it adopted on Dec. 21, 2010. The rules are summarized in our prior advisory, but the R&O contains many important details and nuances. (For the full text of the order, see Report and Order).

Transparency

The R&O offers a detailed illustration of the wide ranging disclosure that wireline and wireless providers must provide of commercial terms, performance, and network management practices. The sample disclosure includes “typical frequency of congestion” for networks that manage congestion; how any specialized services may affect the last-mile capacity available for, and the performance of, broadband Internet access service; third-party device and application approval procedures for mobile broadband providers; security mechanisms; details on any inspection of network traffic, and the storage or transfer of such data; and practices for resolving end-user and edge provider complaints and questions. 

The FCC envisions disclosures that will not only educate consumers on commercial terms and likely experience, but will also assure that “startups and other edge providers have the technical information necessary to create and maintain online content, applications, services, and devices, and to assess the risks and benefits of embarking on new projects.” The FCC cautions that even its detailed sample notice is neither exhaustive nor a safe harbor.

Borrowing from the draft bill that Rep. Henry Waxman had brokered, the rule does not require public disclosure of competitively sensitive information or information that would compromise network security or undermine the efficacy of reasonable network management practices.

There is no requirement that disclosure to existing customers be in printed or paper form.

No blocking

The R&O clarifies that although wireline providers may not block lawful content, applications, or services, and wireless providers may not block lawful websites, this principle does not impose an obligation on a broadband provider to determine what “lawful” content is, but gives an example of blockable unlawful content—child pornography. The rules do not prohibit “reasonable efforts to address” unlawful traffic.

The rule allows end-users to attach and use any lawful, non-harmful equipment of their choice, although a broadband provider may require that devices conform to widely accepted and publicly available standards applicable to its services (e.g., DOCSIS equipment for DOCSIS networks).

No unreasonable discrimination

The FCC offers some examples of what may or may not be “unreasonable” discrimination by wireline providers in transmitting lawful traffic.

Protocol-agnostic tools, such as fair share congestion management, are likely reasonable.

Offering end-users control is “unlikely” to violate the rule. “Thus, enabling end users to choose among different broadband offerings based on such factors as assured data rates and reliability, or to select quality-of-service enhancements on their own connections for traffic of their choosing, would be unlikely to violate the no unreasonable discrimination rule, provided the broadband provider’s offerings were fully disclosed and were not harmful to competition or end users.”

Borrowing from the Waxman framework, the FCC will also look to conformity with the standards of certain Internet governance and engineering organizations. “The conformity or lack of conformity of a practice with best practices and technical standards adopted by open, broadly representative, and independent Internet engineering, governance initiatives, or standards-setting organizations is another factor to be considered in evaluating reasonableness.”

The more transparent, the more likely that discrimination is reasonable.

The R&O considers it “unlikely” that paid prioritization would satisfy the rule, but does not prohibit it. (By contrast, it explicitly declines to extend its rules to cover comparable practices by content distribution networks (CDNs) or to edge providers.)

The R&O declines to adopt a standard that discrimination is unlawful if it creates substantial harm to consumers or is anticompetitive. It considers its “public interest” standard to be broader, and to include a general principle that broadband providers “should not pick winners and losers.”

What is covered?

The rules apply to mass-market retail broadband Internet access services “marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries.” The rules also include services purchased with support of the E-rate program, even if customized or individually negotiated. The rules do not cover enterprise service offerings.

The R&O offers illustrations of other services that would be likely swept in under the rules as an “evasion,” functional equivalent or substitute, and those which would likely be excluded.

In:

  • “An Internet access service that provides access to a substantial subset of Internet endpoints based on end users preference to avoid certain content, applications, or services”;
  • “Internet access services that allow some uses of the Internet (such as access to the World Wide Web) but not others (such as e-mail)”;
  • “[A] ‘Best of the Web’ Internet access service that provides access to 100 top websites”;
  • “Blocking end users’ access to some Internet endpoints.”

Out:

  • “Connectivity to one or a small number of Internet endpoints for a particular device, e.g., connectivity bundled with e-readers, heart monitors, or energy consumption sensors, to the extent the service relates to the functionality of the device”;
  • Virtual private network services;
  • Content delivery network services;
  • Multichannel video programming services;
  • Hosting or data storage services;
  • Internet backbone services (if those services are separate from broadband Internet access service);
  • In addition to excluding coffee shops, bookstores, and airlines, the rules exclude “free access to individuals’ wireless networks, even if those networks are intentionally made available to others.”

Network management

The FCC provides additional detail on what constitutes “reasonable network management” which tempers the “no blocking” and “no unreasonable discrimination” rules. Legitimate network management purposes include:

  • Ensuring network security and integrity, including by addressing traffic that is harmful to the network;
  • Addressing traffic that is unwanted by end-users (including by premise operators), such as by providing services or capabilities consistent with an end user’s choices regarding parental controls or security capabilities;
  • Reducing or mitigating the effects of congestion on the network.

The technique adopted need not be the narrowest form of management. The FCC rejects that “narrow or carefully tailored” standard, which it likens to a Constitutional “strict scrutiny” analysis, which it is not adopting. Moreover, the more transparent, the more likely that network management will be considered reasonable.

Specialized services

The FCC explicitly includes facilities-based VOIP as a specialized service not bound by these rules.  In general, specialized services are those that “supplement but do not supplant the open Internet.”

The FCC expressed its expectation that as specialized services use network capacity, “broadband providers will increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.”

Enforcement

Enforcement is case-by-case under procedures which allow for expedited resolution based on the pleadings, with discovery by permission, and potential reference to an administrative law judge. Although the complainant must initially meet the burden of proof, the evidentiary burden shifts to the broadband provider once the complainant demonstrates a prima facie case.

Legal approach

As the dissenters noted, the R&O includes no market analysis. Instead, it builds its justifications for prophylactic rules from hypotheticals about what broadband providers “may” and “might” do, given their “incentive” and “ability.” It then requires explicit proof by broadband providers of “public interest” benefits for future practices that might depart from the broad prophylactic rules, even if they do no harm to consumers or competition.

As noted in our earlier advisory, the FCC draws on a variety of Communications Act provisions to tether its claim to Title I “ancillary” authority over the Internet. The legal analysis offered by the R&O may stretch the FCC’s logic and authority beyond the breaking point. At some points, its legal theory appears disconnected from its decision. For example, it claims that the rules “do not compel new services,” and predicts that “costs associated with the open Internet rules adopted here are likely small;” but it then warns broadband providers of its expectation that they must “increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.” The FCC’s First Amendment analysis is disturbing, labeling broadband providers not as speakers but “as conduits for speech.”

Effective date

Various entities and interest groups are considering filing court challenges to the rules. Unless a court issues a stay, the rules will become effective 60 days after Federal Register notice of OMB approval of the information collection requirements.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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