A Washington appeals court approved the Federal Communications Commission's "net neutrality" rules, affirming the Obama administration's plan to sweep large parts of the Internet into a 1930s regulatory structure originally designed for the telephone system.
The D.C. Circuit Court of Appeals, in a decision released today, held that the
The decision was a victory for companies like
AT&T immediately said it would appeal the decision, which also affirms rules covering mobile data.
“We have always expected this issue to be decided by the Supreme Court, and we look forward to participating in that appeal,” said David McAtee, AT&T general counsel.
The 2-1 decision drew a sharp dissent from Judge Stephen Williams, who said the FCC used common-carrier regulation, a tool designed to work as a substitute for competition when industries are monopolized, to try and foster competition instead.
By shoving broadband providers into a regulatory realm designed to control AT&T's telephone monopoly, Williams wrote, the court may be limiting the ability of smaller competitors to jump into the market with innovative new products. Under the FCC's reasoning, T-Mobile's Binge On free video streaming service could run afoul of the new rules, as could broadband services that use deep-packet inspection to speed video game content to subscribers at a higher priority than other traffic.
“The Commission says, without analytical support, that the new rules, generally requiring all broadband providers to follow a single business model, are just the ticket for broadband growth and investment," Williams wrote.
He also said the FCC acted inconsistently by granting forbearance from large parts of Title II of the Communications Act, including the fundamental tool of price regulation, which he said was inconsistent with the agency's overall premise that the broadband industry was concentrated enough to require regulation.
Even Williams concurred with a key portion of the decision, that the FCC wasn't legally precluded from reclassifying broadband as a telecommunications service. But he said the agency failed to provide the legally necessary justification for the move, relying on "changed facts" that consisted mostly of consumer research suggesting end users now consider broadband to be a commodity service separate from the apps and content they access with it.
“The FCC went to great lengths to demonstrate how consumers view and purchase broadband services," said John Beahn, counsel in Skadden's Washington office. "That was key to the court.”
This was actually the FCC's third trip to the D.C. Circuit on broadband regulation, an issue that has divided Congress and regulators at least since cable television emerged as a competitor to the once-dominant telephone companies. Congress tried to address the emerging Internet industry with the Telecommunications Act of 1996, which carved out a new a new category of "information services" exempt from the 1934 Communications Act.
In 2010 the court held the FCC failed to cite any statutory authority to regulate broadband providers with proposed new rules. In response, the agency cited Section 706 of the 1996 Act, a catchall provision instructing the FCC to ensure the deployment of "advanced telecommunications capacity to all Americans" by "removing barriers to infrastructure investment and by promoting competition in the telecommunications market."
The court ruled in the 2014 decision Verizon v. FCC that Section 706 gave the FCC authority to enact open-Internet regulations but rejected the anti-blocking and anti-discrimination rules because the FCC hadn’t classified broadband providers as common carriers. The FCC tried again with its 2015 order, reclassifying broadband services as telecommunications subject to common carrier regulation under Title II of the Communications Act of 1934.
The agency justified its action as being necessary to prevent broadband providers, which now often possess a near-monopoly over the final connection to home consumers, from using their power over the "last mile" to block competing video services or charge a premium to content providers for access to customers.
The FCC downplayed comments from AT&T and others that subjecting them to heavy regulation would discourage the very investment in Internet infrastructure Section 706 requires. The two-judge majority agreed, saying the “virtuous cycle” of investment in “other areas of the ecosystem” the FCC promised will flow from its Open Internet rules “provides an ample counterweight” to such concerns.
Challengers face tough odds in getting this case to the Supreme Court. Chief Justice John Roberts has steered the court away from second-guessing major legislation such as the Affordable Care Act, which his vote upheld against a fierce conservative attack. But he was among the justices voting 5-4 to stay the administration's Clean Power Plan in February, temporarily blocking regulations that would remake the nation's power grid and dramatically reduce coal-fired generation.
Unless a Republican president can place a conservative on the court to replace the departed Justice Antonin Scalia, however, such direct assaults on the administrative state are likely doomed in the future.
Assuming AT&T et al fail to convince the D.C. Circuit to rehear the case en banc, they are likely to argue before the Supreme Court that it conflicts with National Cable v. Brand X, the 2005 decision upholding the FCC's power to exempt cable broadband from common-carrier regulation. The D.C. Circuit relied on a finding in Brand X that federal communications law is ambiguous and therefore the FCC is entitled to deference in how it interprets it. But the opinion, by Justice Clarence Thomas, also held that it was reasonable for the agency to conclude that broadband service is inextricably combined with computing services down to the DNS servers that steer packets of data to their proper destination.
Beahn of Skadden declined to speculate on whether the Supreme Court will hear an appeal, although he said "this obviously has all the atmospherics of a question they might want to get involved in.”
“One way the opponents might raise the chances of having their appeal accepted is by highlighting this decision doesn’t comport with Brand X,” he said.
