Award Winning Blog

Wednesday, October 2, 2019

What You Need to Know About the Restoring Internet Freedom Court Decision

            The D.C. Circuit Court of Appeals affirmed most of the FCC’s Restoring Internet Freedom Order [1] largely on Chevron Doctrine deference grounds.  This two-pronged judicial review model first considers whether applicable statutory language is ambiguous.  If applicable law is clear and unambiguous, the court must assess whether the FCC complied with the legislative mandate.  If the applicable law has ambiguities, the court must consider whether the FCC’s chosen course of action was reasonable under the circumstances.  Because judges lack expertise in statistics, economics, electronic engineering, accounting, corporate management, finance etc. they must rely on the expertise resident at the regulatory agency and which advocacy and sponsored research it embraces.  In this case, the court opted not to second guess the FCC’s legal and economic rational, despite the agency’s clear preference for the filings that support its deregulatory agenda. [2]
            Put another way, experts at the FCC and ones financed by stakeholders will have ulterior motives precluding an unbiased assessment, but appellate courts will not reject selective and even one-sided evaluation unless the process exceeds generous deference and a basic assessment of reasonableness.  In this case, the court opted not to question the FCC’s reclassification of broadband Internet access as an information service, wireless broadband access as a private, non-common carrier mobile service and the limited scope of new transparency requirements in lieu of prior open-ended general conduct standard and the specific rules prohibiting blocking, throttling, and paid prioritization of traffic.
            The court did reverse the FCC on four specific areas where the court determined that the agency failed to set out its legal authority or address the implications and impact of its deregulatory initiative.  The court vacated the FCC’s blanket preemption of state laws and that would impose regulatory requirements, despite the FCC’s near complete abdication of jurisdiction.  The court also remanded to the FCC the duty to address three discrete issues that the agency largely ignored:
(1) The Order failed to examine the implications of its decisions for public safety; (2) the Order does not sufficiently explain what reclassification will mean for regulation of pole attachments; and (3) the agency did not adequately address Petitioners’ concerns about the effects of broadband reclassification on the Lifeline Program. [3]

            The court fully embraced the FCC’s legal, technical and economic rationales for reclassifying broadband Internet access as a largely unregulated information service.  The decision validates the FCC’s emphasis that Internet Protocol domain name identity queries (“DNS”) and temporary storage of traffic—caching—justify an overall information service classification.  Because these two information service functions are inextricably linked with other functions, which do include a telecommunications transport function, the overall composite service cannot be functionally subdivided into separate information services and telecommunications service elements. [4]
            In making this finding, the court heavily relied on the Brand X case precedent [5] for guidance and validation.  In this prior case, the Supreme Court also relied heavily on the Chevron Doctrine to support a prior reclassification of broadband Internet access from telecommunications, common carriage to the largely unregulated information services designation.  Brand X also determined that DNS and caching were “inextricably intertwined” with high speed bit transmission that the FCC could reasonably conclude that Internet Service Providers did not offer a telecommunications service on a standalone basis, a conclusion reached by Justice Scalia in dissent. [6]
            The court also rejected the view that these two functions fit within an exception to the normal application of the information service classification for a subset of information processing functions that satisfy necessary telecommunication management requirements, rather than constitute part of an information service.  The court refers to its prior affirmance of the FCC’s common carrier reclassification decision, United States Telecommunications Ass’n. v. FCC, 825 F.3d 674 (D.C. Cir. 2016) to emphasize that the case only permitted Title II common carrier attribution to functions like domain name look ups and caching, but did not mandate it. [7]
            The court also validated the FCC’s reclassification of mobile broadband Internet access as a private, non-common carrier service, despite an amendment to the Communications Act creating a definition for Commercial Mobile Service provided by cellular companies in their provision of voice and text services accessible to and from the wireline public switched telephone network (“PSTN”). [8] The court was predisposed to side with the FCC so that the Commission would not have to confront a “statutory
contradiction” [9] of having reclassified wired broadband access an information service, but not its wireless counterpart that the FCC increasingly believes constitutes a functional and competitive alternative.  Such regulatory asymmetry could adversely impact the commercial attractiveness of wireless services, particularly if one believes any sort of government oversight imposes costs, such as reduced innovation, infrastructure investment and flexibility.
            The court addresses three areas that support the FCC’s information services reclassification.  First, the court notes that the applicable statutory language uses public switched network and not public switched telephone network.  The absence of telephone, in conjunction with the Chevron Doctrine and the Brand X case precedent, supports “leaving the door open to a different, adequately supported, reading, which the Commission has provided here.” [10] The FCC now considers the use of IP addresses, in conjunction with telephone numbers, as sufficiently uncoupling wireless broadband networks from the telecommunications service classification even though cellular telephone networks surely provide voice telephony, including access to the wired PSTN, in addition to broadband Internet access.  The court also accepts the FCC’s argument that even though Voice over the Internet Protocol services make it possible to originate and receive telephone calls, that functionality by itself does not make wireless networks fully interconnected with the PSTN, nor does it deemphasize the core, non-telecommunications nature of broadband Internet access.  In a nutshell, “blurring [of information and telecommunications services] is not erasing.” [11] Lastly, the court supports the FCC’s determination that mobile broadband does not qualify as a functional equivalent to mobile voice even though consumers use a single handset and wireless network to access both services.
            Arguably the most questionable aspect of the court’s decision lies in its endorsement of sponsored research claiming to show that network neutrality regulation had a direct and significant impact on infrastructure investment and innovation. As part of its analysis to determine whether the FCC acted reasonably and not in violation of the Administrative Procedure Act prohibition on arbitrary and capricious decision making, the court reviews the evidentiary record.  The court did not question the validity, significance, methodology, or rigor of research supporting the Commission’s view that network neutrality rules and regulations created significant disincentives for innovations and investment.  Instead it appears to downplay the scope, nature and reliance of the Commission’s reference to sponsored research supporting its views established well before the issuance of a decision.  While deeming the FCC’s references and reliance on these studies as reasonable, the court also appears to characterize the Commission’s use of the research as minor and fully apprised of the “modest probative value to studies attempting to draw links between the Title II Order and broadband investment . . ..”[12]  This characterization does not jibe with the many instances where FCC rulings [13] and statements by Chairman Pai [14] and others emphasized the disastrous impact on network neutrality regulation. The FCC and D.C. Circuit refer to Title II regulation as “utility-style regulation,” [15] even though the FCC had established rules that substantially exempted broadband Internet access providers from conventional oversight including the elimination of any regulation of rates for service, or profit margins. [16]
            The court did not entirely endorse the FCC’s world view and deregulatory agenda.
The court rejected as unlawful the FCC’s attempt to foreclose any state regulation inconsistent with the Commission’s policy including efforts to impose network neutrality regulations for over which he Commission now lacks jurisdiction. [17] In effect, the FCC cannot abandon jurisdiction over broadband Internet access and then foreclose states from asserting jurisdiction over intrastate service: “[I]n any area where the Commission
lacks the authority to regulate, it equally lacks the power to preempt state law.” [18]
We can expect some states, such as California, New York and Vermont to enact network neutrality regulations that the FCC probably will reject as unlawful despite the clear direction provided by the D.C. Circuit.
            Additionally, the court considered it arbitrary and capricious for the FCC not to have considered the implication for public safety in light of the Commission’s statutory duty to promote “safety of life and property through the use of wire and radio communications.” [19]  The court noted that Verizon had deliberately slowed the data speeded available to first responders in California as they tried to contain forest fires.  Such “throttling” is now permissible under the FCC rules, but the court required the Commission to address its impact on public safety.
            The court also recognized that the FCC left unresolved issues pertaining to pole attachments, because the FCC shares jurisdiction with states and municipalities on this matter and providers of cable, telecommunications and information services seek access to utility poles even though the directly applicable statutory mandate, 47. U.S.C. § 224(a)(4) refers only to Title II regulated telecommunications services. [20]
            The court also required the FCC to address the impact of the largely deregulated information services classification on the Lifeline Program that subsidizes low-income consumers’ access primarily to Title II regulated telephone service and handsets. [21]  The court determined that the FCC left unanswered important questions whether stand alone broadband service providers can qualify for universal service funding despite eligibility criteria limiting eligibility to Title II regulated common carriers. [22]



[1]           Mozilla Corp. v. FCC, No. 18-1051 (D.C. Cir. Oct. 1, 2019); Retrieved from:$file/18-1051-1808766.pdf [hereinafter cited as Mozilla Corp. v. FCC].

[2]           “Regulation of broadband Internet has been the subject of protracted litigation, with broadband providers subjected to and then released from common carrier regulation over the previous decade. We decline to yet again flick the on-off switch of common-carrier regulation under these circumstances.” Id. at 145-46.
[3]           Id. at 13.

[4]           “[J] just as the USTA petitioners ‘fail[ed] to provide an unambiguous answer to’ whether ‘broadband providers make a standalone offering of telecommunications,’ USTA, 825 F.3d at 702, Petitioners have not done so here. Nor have they shown the Commission’s stance to be unreasonable. We conclude, under the guidance of Brand X, that the Commission permissibly classified broadband Internet access as an ‘information service’ by virtue of the functionalities afforded by DNS and caching.” Id. at 45.

[5]              National Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).

[6]              See Rob Frieden, What Do Pizza Delivery and Information Services Have in Common? Lessons from Recent Judicial and Regulatory Struggles with Convergence, 32 RUTGERS COMPUTER & TECH L.J., No. 2, 247-296 (2006).

[7]              “To begin with, Petitioners misconstrue USTA. As they do persistently, they gloss passages that find parts of the Title II Order to be permissible readings of the statute as mandating those readings—when the passages plainly do not do so. A case in point is the treatment of the TME. Petitioners say that ‘[t]his Court has already agreed that DNS and caching fall within the terms of the telecommunications management exception.’ Mozilla Br. 43 (emphasis added) (citing USTA, 825 F.3d at 705). Yet all we said in USTA was that we were ‘unpersuaded’ that the FCC’s ‘use of the telecommunications management exception was * * * unreasonable.’ USTA, 825 F.3d at 705. The Title II Order, in other words, adopted a permissible reading, though not a required one.”  Mozilla Corp. v. FCC at 23.

[8]           47 U.S.C. § 332, Mobile Services (2018).

[9]           See Mozilla v. FCC at 49.

[10]          Id. at 50. “Similarly in USTA we rejected a claim that 47 U.S.C. § 1422(b)(1)(ii)’s use of the term “public switched network”— in a context pretty clearly meaning only the telephone network—meant that the Commission was required to so limit its definition for purposes of Section 332.  Id. at 52.
[11]          Id. at 58.

[12]          Id. at 76.  Empirical studies are available that measure actual investment outcomes.  See, e.g., Christopher Alex Hooton, Testing the economics of the net neutrality debate, TELECOM POL’Y (Sep., 2019); retrieved from:

[13]          “[T]he record shows that the existing regulations constrain technological advances and deter broadband infrastructure investment by creating disincentives to the deployment of facilities capable of providing innovative broadband Internet access services.” Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, Report and Order and Notice of Proposed Rulemaking, 20 F.C.C. Rcd. 14853, 14865 (2005).

[14]         “These Internet regulations will work another serious harm on consumers. Their broadband speeds will be slower than they would have been without these regulations.
The record is replete with evidence that Title II regulations will slow investment and innovation in broadband networks.” Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, Dissenting Statement of Commissioner Ajit Pai, 30 F.C..C Rcd. 5601, 5927  (2015).

[15]          See Mozilla v. FCC at 10.

[16]          The court did find troubling “the Commission’s failure to grapple with the fact that, for much of the past two decades, broadband providers were subject to some degree of open
Internet restrictions,” arguably ample time to adjust to any regulatory restrictions.  See, Id. at 86.

[17]          “The Commission ignored binding precedent by failing to ground its sweeping
Preemption Directive—which goes far beyond conflict preemption—in a lawful source of statutory authority. That failure is fatal.” Id. at 121.

[18]          Id. at 123.

[19]          Id. at 93 citing 47 U.S.C. §151.

[20]          Id. at 104. “The Commission offered, at best, scattered and unreasoned observations in response to comments on this issue. Because the Commission did not adequately address
how the reclassification of broadband would affect the regulation of pole attachments, we remand for the Commission to do so.” Id. at 104-05.

[21]          In the Telecommunications Act of 1996, Congress codified and expanded the FCC’s universal service mission to cover “an evolving level of telecommunications services that the Commission shall establish periodically * * *, taking into account advances in telecommunications and information technologies and services.” 47 U.S.C. § 254(c)(1).

[22]          “[B]roadband’s eligibility for Lifeline subsidies turns on its common-carrier status. See In re FCC 11-161, 753 F.3d 1015, 1048–1049 (10th Cir. 2014) . . . As a matter of plain statutory text, the 2018 Order’s reclassification of broadband—the decision to strip it of Title II common-carrier status—facially disqualifies broadband from inclusion in the Lifeline Program.” Mozilla v. FCC at 111.

Tuesday, October 1, 2019

Results-driven Decisions that Do Not Pass the Smell Test: The D.C. Circuit Affirms Most of the FCC’s Restoring Internet Freedom Order

            Yet again, I will closely examine an appellate court review of FCC decision making with a variety of evaluative templates including the “smell test.”  Does the court buy into plausible rationales, because they comport with a deregulatory anti-government mind set, or does the court play it straight?  In Mozilla Corp. v. FCC, No. 18-1051 (D.C. Cir. Oct. 1, 2019), the court does a little bit of both.  See$file/18-1051-1808766.pdf.
            It will take me countless hours to parse through everything the court does and does not do.  In a nutshell, the court largely defers to FCC expertise and judgment using the so-called Chevron Doctrine.  This two-pronged judicial review model first considers whether applicable statutory language is ambiguous.  If no, the court must assess whether the FCC complied with clear enough statutory directions.  If yes, the court must consider whether the FCC’s chosen course of action was reasonable under the circumstances.  Because judges lack expertise in statistics, economics, electronic engineering, accounting, corporate management, finance etc. they must rely on the expertise others have, even though these experts may have ulterior motives and financial sponsors that precludes an unbiased assessment.
            The court offers a quite disappointing “punt” on the question whether the FCC lawfully relied on sponsored research and non-stop utterances by FCC Chairman Ajit Pai that network neutral regulation thwarts innovation and retards infrastructure investment.  The Chairman remarkably has isolated a single variable that he reports is the exclusive cause of declining innovation (however measured) and investment by telecommunications carriers.
The court all too willingly defers to the sponsored research that provided support for the Pai campaign.  The court dismisses countervailing research and in so doing it violated common sense.
            Consider this question: Would all the excitement and investment in fifth generation wireless upgrades decline measurably starting today had the court invalidated the Restoring Internet Freedom Order?  Of course not!  Corporations have to deal with perennial regulatory and legal uncertainty.  Additionally, there are far more impactful factors than a regulatory regime.  In the case of 5G wireless carriers HAVE to make substantial investments in both spectrum and plant, irrespective of the current political party majority at the FCC and where the arrow currently points on the continuum from regulation to unregulation.  Can you anticipate a major telecommunications carrier CEO state to Wall Street analysists and shareholders that the company will “sit on the sidelines on 5G” until the FCC gets a judicial “all clear” that “there won’t be any unconstitutional taking of property in the form of mandatory common carrier neutrality.”
            I know most of the economists mentioned by the FCC and the court who “proved” or endorsed the mantra that network neutrality singularly triggered adverse consequences for telecommunications innovation and investment.  They are smart, have a great sense of humor and make great dining and drinking partners.  Notwithstanding these fine characteristics, I see the merit in “agreeing to disagree” on matters where ideology, doctrine and financial sponsorship come into play.  Suddenly these fine friends become dogmatic and doctrinal. With straight faces, they insist that fewer competitors can generate “greater” competition.  They create and enforce economic rules as unimpeachable as laws.  They reject common sense smell tests as irrational, non-empirical and foolish.
            They have won again, because lots of jurists in this day want to see the virtue in unfettered markets and constrained government.
            There’s an irony and perhaps a silver lining in the today’s court decision. The majority decision refuses to uphold the FCC’s reclassification of broadband access as an information service AND the Commission’s attempt to preempt any degree of state regulation.  The FCC cannot have its cake and eat it too. If the FCC deems a service off limits and unregulatable, it cannot turn around and require states to comply with its statutory interpretation mandating non-regulation, particularly where Congress unambiguously retained states’ right of oversight.
            Of course, we are days away from someone coming up with a clever rationale for federal preemption, because interstate and intrastate information services are seamlessly integrated and what reasonable person does not hate California?