Handicapping the Viability of the Third Way Model for Internet Access Regulation

Like many I have grave doubts about the viability of the Third Way regulatory model proposed by FCC chaiman Genachowski and General Counsel Austin Schlick, see Federal Communications Commission, Chairman Julius Genachowski, The Third Way: A Narrowly Tailored Broadband Framework (May 6, 2010); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-297944A1.doc  (rejecting a renewed attempt to find a way to extend Title I ancillary jurisdiction or reclassifying Internet access as a telecommunications service); Austin Schlick, General Counsel, A Third-Way Legal Framework for Addressing the Comcast Dilemma (May 6, 2010); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-297945A1.doc (providing legal rationale for narrow application of selected sections of Title II regulatory authority over Internet access). The model comes across as after the fact scrambling to re-arrange the wingspan of Title II jurisdiction.

On further reflection, I am coming around to the possibility that the Chairman may be able to pull this off. In the absence of regulatory clarity provided by amendments to the Communications Act, the FCC might successfully apply Title II, subject to forbearance, to Internet access bitstreams using four rationales (only one of which Austin Schlick identified in his Third-Way Legal Framework paper of May 6, 2010):

1) Despite a preference for applying a single, least regulatory classification to convergent services, e.g., Internet access, the FCC has explicitly applied two different regulatory classifications to wireless telephony/Internet access provided by a single venture over a composite wireless carrier. When wireless carriers offer telephony (whether to other wireless subscribers or terminating to the wireline Public Switched Telephone Network (“PSTN”) the Commission applies Title II, subject to forbearance. This is the gist of the Third Way model and it unquestionably applies to wireless cellular carriers in light of their classification as providers of Commercial Mobile Radio Service (“CMRS”), a Title II service subject to forbearance.

When wireless carriers offer Internet access, or for that matter video services that increasingly look like Internet Protocol Television and Title VI cable communications, the FCC does not apply Title II. The Commission has stated that the information service (and Title I only) applies to wireless Internet access, but has tried to avoid having to make a call on wireless IPTV/video/cable service.

2) The Commission can explicitly state that it does not have to make an either/or determination about which single statutory classification applies to a convergent service such as Internet access which combines telecommunications and information services along with content. Why not declare that not all forms of Internet access always constitute an information service? The Commission has stated that it thought it needed to sustain and apply a telecommunications service/information service dichotomy, but nothing in the Communications Act explicitly requires it. The Commission has stated only that it thinks “[t]he language and legislative history of [the Communications Act of 1996] indicate[s] that the drafters . . . regarded telecommunications services and information services as mutually exclusive categories.” In re Federal-State Joint Board on Universal Service, 13 F.C.C.R. 11501, 11522-23 (1998); see also Vonage Holdings Corp. v. Minn. PUC, 290 F. Supp. 2d 993, 994, 1000 (D. Minn. 2003).

In essence the FCC would have to acknowledge that Justice Scalia was correct in his dissent in the Brand-X case where he chided the FCC for ignoring the inconvenient truth that ISPs combine telecommunication and information services. Justice Scalia used pizzerias and pizza delivery for his primary analogy and asserted that one could not ignore the fact that pizza baking and pizza delivery constitute two separate elements of the pizza business. He concluded, “[i]t is therefore inevitable that customers will regard the competing cable-modem service as giving them both computing functionality and the physical pipe by which that functionality comes to their computer—both the pizza and the delivery service.” National Cable & Telecommunications Association v. Brand X Internet Services, 125 S. Ct. 2688, 2715 (2005).

3) No one disputed the FCC’s jurisdiction and authority, to sanction the Madison River telephone company when the company blocked DSL subscriber access to VoIP services. See http://www.fcc.gov/eb/Orders/2005/DA-05-543A2.html. The matter resulted in a voluntary forfeiture of $15,000 by the company instead of litigation without a complete examination of the jurisdictional basis for claiming jurisdiction over a DSL information service. However the Commission did reserve the option of reviewing any complaints against the company—presumably retroactively and prospectively—under its authority in Sec. 208 (Title II) of the Communications Act. Madison River provides some basis for FCC intervention to safeguard the public interest and assert jurisdiction over the telecommunications links used to provide DSL Internet access.

4) If the FCC can rely on changed circumstances to justify a re-classification from regulated telecommunications service (DSL) to unregulated information service, might further changed circumstances justify another re-classification? Bear in mind that the information service classification applies to competitively provided non-essential services. Arguably Internet access has become more essential even as it remains a monopoly or duopoly-provided service in many parts of the nation. Perhaps eventually terrestrial and satellite wireless will provide a competitive option, in terms of price, bit rate and monthly throughoput quotas, but that is not the case now.

New Publication: Case Studies in Abandoned Empiricism and the Lack of Peer Review at the Federal Communications Commission

The Journal on Telecommunications and High Technology Law at the University of Colorado law school has published my article that provides ample evidence to prove that the FCC rarely does an adequate job at fact finding when making decisions having substantial impact on our national economy; see http://jthtl.org/content/articles/V8I2/JTHTLv8i2_Frieden.PDF.

I examine six case studies where the Commission deregulates, approves a merger, and relaxes ownership and spectrum restrictions. In each instance the FCC makes expansive claims how the proposed transaction or shift in policy will promote competition, serve the public interest and enhance consumer welfare. The Commission makes these claims based often exclusively on the filings of stakeholders in lieu of internal fact finding and analysis. Often reviewing courts refrain from questioning the FCC’s findings and rejecting the Commission’s lack of empirical analysis subject to statutorily required peer review.

I offer recommendations for an improved process at the FCC. However, no one should expect progress unless and until reviewing courts do a better job of requiring a match between a policy outcome and the evidence supporting it.