Negotiated Rates for Broadband Telecom Capacity After Verizon

On January 14, 2014 in the Verizon v. Federal Communications Commission (FCC) decision (No. 11-1355), the D.C. Circuit held that the strict common carriage standards of Communications Act Title II applied to the FCC’s regulation of broadband telecommunications. This effectively invalidated the agency’s requirement that broadband providers charge all users the same for the same amount of capacity—the “Open Internet Order.” Netflix thus could not outbid a smaller content producer, in order to deliver its product first to viewers.

Probably quite wisely in terms of upcoming by-elections and internal agency pressures, Chairman Tom Wheeler chose not to seek Supreme Court review. The Commission currently is looking for alternative means of requiring uniform price and service obligations for broadband carriers, without running afoul of Title II. Its task is somewhat daunting, because of the vagueness of the underlying statute, which gives only the following definition of Title II status: a common carrier is “any person engaged in rendering communication for service to the public.”

Whether the process will move quickly, however, still is less than clear. The Commission originally announced that it would consider possible options at a meeting next Wednesday, May 15. But the blowback again any form of network neutrality regulation, however, has increased among both industry and public groups during the last few weeks. A number of them have called on the Commission to delay holding a meeting on open internet rules, and to take further comments. This has the strategic benefit not only of buying more time for rule opponents, but also increasing the period during which off the record ex parte discussions with commissioners and senior Commission staff are allowable (as long as they are disclosed with a public memorandum). Moreover, in Verizon the D.C. Circuit was careful to reserve jurisdiction to revisit any of its factual findings or legal conclusions, so the specter of judicial intervention yet again still hangs over the FCC.

Since the FCC allows—indeed encourages—broadband carriers to provide broadband service to all comers, it cannot simply ignore the situation. Indeed, one of the Commission’s traditional policy goals has been promotion of all electronic services to underserved rural, educational, and similar users. Even in those situations, however, the agency has tolerated a disparity between urban residential or business users and underserved populations. For example, it recently announced rates for rural users which are significantly different from those for commercial customers. But very few observers have any difficulty with that approach under Title II, for a variety of societal reasons.

Indeed, the FCC has made a lot of its own trouble in terms of jurisdiction. Generations ago, it adopted a rule requiring cable systems to offer “access”—public, educational, governmental—channels on a free or nominal basis. The Supreme Court ultimately invalidated the requirement, because it not only imposed common carrier principles, but also applied a standard it found similar to Title III in broadcasting. It found that in some obscure fashion this violated the Communications Act’s definition of “broadcasting,” which provides that “a person engaged in broadcasting shall not be deemed a common carrier.” FCC v. Midwest Video Corporation, 440 U.S. 689 (1979) (MWV II) (in which the author participated as counsel.) Although the Court had a chance to walk away from this rather rigid interpretation in the later NCTA v. Brand X Internet Services case, 545 U.S. 967 (2005), it declined to do so. The Court ended up deciding the case on a fairly technical question of statutory interpretation.

The Court’s emphasis on mandatory carriage may be a bit overdone. The Communications Act and the Commission’s rules have required uniform financial agreements in a variety of situations, without creating any particular upset. For example, Section 315 of the Act guarantees reply time, but restricts a political candidate to paying only what its opponent did for a given amount of airtime—even though it may be willing to pay much  more or able to pay only less. Similarly, the agency itself has a complex system of standard salary levels for its own employees.

Whether the uniform pricing requirements of the Open Internet Order is  economically or socially wise obviously is a judgmental question. If there is substantial intellectual and political support for it, however, there may be ways to implement it despite the Verizon decision. In addition to Title II, a number of other possible jurisdictional bases may be available.

The nuclear option naturally would be for Congress simply to amend the Communications Act to empower the agency to create exceptions to traditional Title II requirements—for example where the FCC finds that uniformity is essential to increase price and/or service competition or to encourage new entry in a market. After all, relatively small producers—e.g., of luxury cars—might find it advantageous to pay a premium for exposure of their wares. (Product placement seems to have become a way of life in U.S. business.) In effect, there may be a valid trade-off between decreasing economic power in one market to increase it in another. Given the large size of many U.S. media companies battle may not be desirable with by-elections and a presidential campaign in the near future.

A somewhat less painful approach might be to use other, largely overlooked Communications Act provisions, simply to avoid a Title II controversy. In 1996 Congress added Section 706 (codified as 47 U.S.C. § 1302), which gives the Commission broad federalism powers by providing that it “shall encourage…competition in the local telecommunications market.” A small tweak might expand its scope to a mandatory or advisory role with federal law.

Finally, the Commission could adopt a new interpretation for one or more provisions of Title II. Many administrative law observers believe the most important case in the last 50 years to be Chevron, U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), which speaks eloquently of “deferring” to agencies. At this point, the FCC certainly needs as much deferral as it can get.

Where is this likely to end up? The Commission staff has been conspicuously low-key in giving hints. But major changes may be on their way to avoid or reduce the effect of Verizon. Perhaps more important, even the possibility of a further delay makes handicapping the agency’s ultimate action impossible or at least ill-advised.

More by | Michael Botein Michael Botein , Contributor