The Court's Net-Neutrality Ruling Isn't Actually That Bad

Verizon’s core argument was that the FCC doesn’t have legal authority to regulate broadband. The court unequivocally disagreed.
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Following the decision by the United States Court of Appeals in Verizon v. FCC, advocates of so-called network neutrality are out in force, decrying the end of the Internet as we know it. They paint a dystopian picture in which AT&T prevents its subscribers from viewing Netflix movies, Comcast slows YouTube to a crawl, and Verizon holds up Facebook for big payments just to reach its customers. Their outrage ironically mirrors the apocalyptic language those same broadband providers used four years ago, when the FCC was mulling the rules in question. Back then, the industry warned of an FCC power grab that would chill investment and inject meddlesome regulation into every corner of the Internet. 

Strangely, for a decision with supposedly huge business implications for a multi-centibillion-dollar sector at the heart of the Internet economy, the only ones who seemed to yawn were the traders on Wall Street. Stocks of both proponents and opponents of net neutrality hardly budged.  Maybe the traders know something the advocates don’t.

Everyone should take a deep breath. Yes, the court overturned the FCC’s rules prohibiting broadband providers from blocking or discriminating against third-party content and services. No, the court didn’t kill network neutrality. In fact, it gave the FCC a roadmap to reconstitute and even improve on its original decision. 

The biggest piece of good news is this: On the issue the case was supposedly about, the one with the greatest long-term significance, the FCC won. Verizon’s core argument was that the FCC doesn’t have legal authority to regulate broadband. The court’s answer was unequivocal: It does. The FCC made a sufficiently strong case, the judges said, that it could do so to promote investment in advanced communications services under Section 706 of the Communications Act. And, they continued, the FCC was sufficiently convincing that net neutrality served that goal.

We shouldn’t pass over this fact lightly. Ever since the net neutrality debate began a decade ago, there has been a basic question about whether the FCC could impose obligations on broadband services. Verizon saw its legal challenge as a way not just to beat back net neutrality, but to foreclose any FCC regulation of its Internet-based offerings under the First Amendment. The court refused to go there. Instead, it gave the FCC the freedom to act when it concludes steps are necessary to promote broadband.

This is particularly important because the entire telecommunications industry is going through a technological transition. In a few years, virtually all telephones and media platforms will be based on Internet technology. Had the case come out differently, the FCC would essentially have to shut down at that point, outside of wireless spectrum allocation. Even some Democrats were suggesting that the main regulation of broadband should be consumer protection by the Federal Trade Commission, a considerably more limited regime. The court’s decision has put that speculation to rest.

Of course, what the court granted with one hand, it took away with the other. It found that the specific rules the FCC adopted were too similar to the “common carrier” obligations requiring traditional telecommunications carriers to treat all customers equally. The FCC had previously said that broadband was not in that category. So the court struck down the FCC’s net neutrality requirements, with the exception of a transparency mandate.

Organizations, advocates, and academics supporting net neutrality are claiming the only answer now is for the FCC to reclassify broadband as subject to those common carrier rules. I fear that’s fools gold.

Distinguishing the regulated transmission component of broadband from the unregulated Internet services on top is appealing. It would have been the right approach for the FCC in 1999 or 2002, when these issues first came to the fore. Last time I checked, though, it’s 2014. Agencies can’t change positions unless they give a reasoned explanation, generally based on changed circumstances.  In 2010, the FCC thought treating broadband as an information service was the best way to promote investment in advanced communications services. It will have a hard time convincing a future court that something happened afterwards that justified a shift. Even if it does, the subsequent legal process is far from simple or a slam dunk.

And that assumes the FCC would adopt a reclassification order to begin with. Five years ago, with newly minted President Obama riding a wave of popularity and net neutrality a campaign promise closely associated with incoming FCC Chairman Julius Genachowski, the FCC concluded the political and marketplace costs of imposing Title II regulation were too great. Think the climate is more favorable now? 

You may have read some of the macho posturing that current FCC Chairman Tom Wheeler just needs to show that he’s “man enough” to go the Title II route. Would that policy-making were that simple. (Perhaps it is for Chris Christie, but as we’ve seen recently, there are downsides even for him.) Republicans and pro-telco Democrats in Congress will grind the FCC to a standstill, starve its budget, and do everything in their power to inflict permanent harm on the agency. Neither this White House nor the leaders of Silicon Valley have shown they would have the FCC’s back.

If reclassification were the only way the FCC could protect the open Internet from widespread blocking and degradation by broadband operators, maybe the risks would be worth it. Fortunately, it’s not. 

In a recent case, the same court that decided Verizon upheld an FCC requirement that wireless providers offer roaming access to their data networks on “commercially reasonable” terms. That, the court said, wasn’t common carriage, because it left some flexibility for individual negotiations. Does the future of the Internet really hinge on the difference between “unreasonable discrimination” subject to a “reasonable network management” exception, which the FCC imposed in 2010, and a requirement to offer commercially reasonable access, which the Verizon court suggested it would allow?

To answer this, let’s look at the case that brought us here in the first place. In 2007, Comcast was caught slowing down BitTorrent peer-to-peer file-sharing traffic. The company itself later acknowledged its system was overbroad, deceptive, and technically clumsy. In fact, it voluntarily committed to abandoning it even after beating the FCC in court. Under the Verizon standard, the FCC would have little difficulty declaring the Comcast system as not “commercially reasonable.”

There is a second reason why the FCC would win a reprise of the Comcast fight, and it may be even more significant than the first. One of the essential aspects of common carrier rules is that they apply across the board. Case-by-case decisions, called adjudication in administrative law, give companies the freedom to make individualized decisions, with only the abuses challenged. There is a cost: the FCC has to notice or be told of a problem, bring a complaint, hear the evidence, and take action only after the fact. On the other hand, no company wants to go through that process (just ask Comcast). Even across-the-board rules don’t have any bite without FCC enforcement. Again, is the difference really so great?

For the more-targeted FCC approaches I’m describing to work, there has to be a degree of public shaming and pressure on companies that engage in abusive practices. As the Comcast case showed, the kinds of shenanigans network neutrality rules were designed to stop often fall apart in sunlight. It’s fortunate, then, that the largely-ignored third element of the FCC’s Open Internet rules, the one the court specifically upheld, mandates transparency in network management. A well-developed FCC transparency regime could go a long way. Would any broadband provider really want to be pegged as deliberately offering its customers artificially slow Netflix streaming?

And we’re just talking about the kinds of requirements that are hardest to defend under the Verizon decision. It’s important to keep in mind that the point of network neutrality isn’t to ensure that no company ever has a competitive advantage; it’s to allow innovators to thrive and win in the marketplace. And the best way to do that is through a competitive market. Network neutrality was devised in the early 2000s as a “second-best” response after the FCC refused to require physical open access to dominant broadband networks, the approach adopted in most of the world. Even now, the best hope for a dynamic, affordable, and innovative Internet is real broadband competition. 

Most of the greatest barriers to broadband competition are at the local level: State prohibitions adopted at the behest of the incumbent carriers, difficulties with zoning and access to rights of way, and limited willingness to invest in the kinds of municipal open access fiber optic utilities that are wildly successful in cities like Stockholm. The FCC has been hesitant to confront these impediments, perhaps because it was so focused on net neutrality. Yet even Judge Silberman, who dissented in part in the Verizon case because he thought it gave the FCC too much authority, expressly stated the Commission could take such actions.

There are, to be sure, limits on what the FCC can do under the court’s decision. “Two-sided market” schemes, like the Sponsored Data program that AT&T recently implemented for its wireless service, would be easier to defend. However, arrangements in which companies pay for faster or better delivery are a fixture on Internet backbone networks today. They benefit bigger companies like Google that can afford to pay for performance, but that’s hardly the only advantage such companies have over infrastructure-poor upstarts. There is room for abuse in prioritization schemes, but most of it would run afoul of the FCC responses I’ve described.

Admittedly, I’m choosing to see the glass here as half full. Whatever the FCC does, it will have to start over, in a more complicated legal and political environment. As of today there are no mandatory network neutrality rules in place. Then again, that’s not really a new development. It was also the also the case until the very end of 2010. 

The ideals and goals of network neutrality are vitally important. It’s wrong to think that any one decision could secure them, or destroy them. This will be an ongoing battle. The FCC is flawed, but it’s still the best tool we have to promote the openness of the Internet. To quote the Verizon decision, “even a federal agency is entitled to a little pride.”

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Kevin Werbach is an associate professor of legal studies and business ethics at the University of Pennsylvania's Wharton School and founder of the Supernova Group, a technology-consulting firm. He served as counsel for new technology policy at the FCC during the Clinton Administration and co-led the FCC review for the Obama-Biden Transition Project.

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