By Lowell Wilson, Esq.

I first encountered the Internet back in about 1978 while working at a university data center. The Internet was essentially a collection of T1 lines, a few line-of-sight infrared carriers, plenty of MUXs and other sorts of modems, and the fact that it worked at all was kind of miraculous. There were dedicated regional backbone networks already in place at that point, but they were still in a somewhat nascent stage and most of us were more concerned with connecting to the next node in the network so that we could have some level of connectivity. Beyond the backbone, things were pretty ad hoc.

If someone had mentioned the concept of “Net Neutrality” to me back then I would have had a reflexive tendency to think in purely technical terms, and the notion that such a thing needed to be enforced by a body like the FCC would have seemed far-fetched to me. Any concept of Net Neutrality that I could have imagined back then seemed baked into the network – the whole idea was to move packets as quickly as possible along whatever route could be slapped together at any given instant in time. Since any given part of the Internet was so very prone to failure, the idea of erecting barriers was absolutely antithetical to the whole scheme of the thing. Net Neutrality was not a luxury to be ladled out to those willing to pay; if you were going to attach to the Internet, you had to pass packets along your stretch of the network without any notions of favoritism in order to make the whole thing work. After all, no two packets in a data stream were necessarily going to take the same route anyway so, in a practical sense, why worry about network neutrality? If people erected barriers, the Internet’s very design would simply work around them.

That was then. Today, the Internet has been largely privatized and bandwidth to most homes is faster than a lot of the connections that made up the backbone network of mostly mainframe computers back in the late 1970s. As this privatization happened and the Internet has become ever more international in scope, many countries have decided that Internet access should be provided to citizens as a public utility, something that the citizens of those countries have decided to pay for as a government service. In the US we have decided to stick with a privately managed Internet, cobbling together a network for home users that in large part consists of the spare bandwidth capacity of cable television providers. Those cable services actually provide the “last mile” connectivity to the Internet for a huge percentage of the populace and, as such, there is no way that the Internet can simply work around them. There’s an irony in this changed set of circumstances: in the old days when the Internet was relatively small it was impossible to imagine a way for any significant chunk of that network to wall itself off and create a barrier to packet carriage whereas now, not only is the idea possible, Comcast and Verizon have used their very real ability to erect such a barrier to force Netflix to pay to avoid having their packets stopped at the border. To reach a user of Comcast’s network one must get packets sent to the user BY Comcast’s network. In the early days, the large subnets of the Internet were some universities and maybe NASA, and they had nowhere near the number of computers that Comcast serves.

Of course, part of the reason for the American approach was that it was thought by some to be the fairer way to deploy the network; only those who wanted to use the Internet would pay for it. Remember, the Internet was privatized in the early 1980s, a time when a significant portion of the populace was becoming strongly anti-government and anti-tax, and convincing the citizens of the United States that it was a good idea for them to start paying for universal high-speed Internet services via a tax was going to be a hard sell at best. But in addition to that, when the issue really began to bubble up, Michael Powell and some of the other commissioners on the FCC believed that competition among a variety of technologies would render pointless any effort to accomplish net neutrality through regulation. This faith in “intermodal competition” led them to the belief that “Phone companies would battle cable, cable would battle satellite, and wireless and ‘broadband over powerline’ would take on all comers.”[1] Instead, what actually happened was a series of mergers in the various industries which led to less and less competition.[2]

Looking back, the FCC’s faith in intermodal competition might seem a bit ludicrous. After all, we now know that the cable companies simply consolidated to the point where most people are now living in towns where there is only one, or sometimes two, options for cable carriage. And there are no other meaningful means of access to broadband connectivity for the consumer.

But at that time it really did seem as though things might go very differently. Verizon decided to run fiber to houses, satellite companies started to offer some level of broadband service, and so on. In addition, the promise of 4G cell network connectivity suggested that cell phone providers might eventually offer a meaningful counterweight to the growing power of cable companies in the broadband arena. These factors, considered along with the fact that many Silicon Valley companies had shown a remarkable ability to brush aside seemingly impossible barriers to progress in the past made the FCC’s decision seem far less silly at the time.

But over time, competition in broadband just never really took off. In retrospect it isn’t hard to understand why. Laying cable is expensive, satellite lag times cause some real problems with broadband connectivity, and many of the potential competitors to the cable operators were simply able to make more money focusing their resources elsewhere. As for cell phone companies, 4G could only become a competitor in the broadband field if those companies were able to erect cell towers every few feet. Even Verizon eventually announced that they were no longer going to expand their FiOS service, choosing to focus instead on the development of cellular service; they were rewarded by Wall Street for this decision. The electric companies? They were also deregulated during this period. Those companies that didn’t suffer the sort of disastrous experience of Enron focused more on merging their power companies together and pretty much ignored the burgeoning market for broadband altogether; they were power companies who followed the business school mantra of sticking with their core competencies; they saw no reason to focus on building the expertise they would need to become communications companies.

Eventually the FCC realized that deregulation had not accomplished what they had hoped for and so they issued an Internet Policy Order in 2005. Nevertheless, some suspected that net neutrality was still being compromised and in the fall of 2007 some users of Comcast’s broadband service noticed that their access to the BitTorrent protocol seemed to have slowed down. They, with some help from the Electronic Frontier Foundation, eventually proved that the BitTorrent service was indeed being throttled.[3] The FCC ordered Comcast to stop and Comcast, resenting the FCC’s interference in their network management, sued for declaratory relief and won in April 2010.[4]

The Commission had claimed its authority to regulate Comcast was “an exercise of what courts term its ‘ancillary jurisdiction,’ see id. at 13034–41 ¶¶ 14–22, a power that flows from the broad language of Communications Act section 4(i). See 47 U.S.C. § 154(i) (‘The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions.’); see generally American Library Ass’n v. FCC, 406 F.3d 689, 700–03 (D.C. Cir. 2005).”[5] The Court in the Comcast decision essentially argued that the FCC had simply not stated sufficient statutory authority that would allow them to govern the operations of the Internet according to the Order they had set out.

Undeterred after the Comcast decision, the FCC doggedly issued a new set of net neutrality rules, laying out in great detail the statutory authority under which they argued that they had the power to enforce net neutrality. This time Verizon was the company that took issue with the FCC’s attempt and they sued for relief. If you did not read the opening paragraph of Verizon v. Federal Communications Commission you would have assumed that the FCC won that case. The extent to which the Court backs the FCC’s authority is almost breathtaking. Until, that is, one reaches Section III, a full 45 pages into the majority opinion, where the Court states that the FCC, in order to do what it wants to do, and what the Court suggests it reasonably MIGHT do, must first declare cable broadband to be a common carrier rather than an information service. Since the FCC continues to insist on the latter classification, it may not require net neutrality because “The [Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56] subjects telecommunications carriers, but not information-service providers, to Title II common carrier regulation. 47 U.S.C. § 153(53); Brand X, 545 U.S. at 975–76.”[6]

As an overall statement of the authority the Court believes the FCC could rightly claim if cable broadband providers were treated as common carriers, the Court said that “the Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here—that they will preserve and facilitate the ‘virtuous circle’ of innovation that has driven the explosive growth of the Internet—is reasonable and supported by substantial evidence.”[7]

It is worth listing some of the specific powers the Commission claimed for itself in its new Order and which the Court suggests the FCC would have if it were to make that change in classification. They could have imposed:

  1. transparency requirements on fixed and mobile broadband providers under which those providers “must ‘publicly disclose accurate information regarding the network management practices, performance, and commercial terms of [their] broadband Internet access services.’”[8]
  2. “anti-blocking requirements on both types of broadband providers … [prohibiting] fixed broadband providers from ‘block[ing] lawful content, applications, services, or non-harmful devices, subject to reasonable network management.”[9]
  3. “an anti-discrimination requirement on fixed broadband providers only. Under this rule, such providers ‘shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.”[10]

The Commission had claimed this power under section 706 of the Telecommunications Act of 1996, stating that the Act “directs it to encourage the deployment of broadband telecommunications capability. According to the Commission, the rules furthered this statutory mandate by preserving unhindered the ‘virtuous circle of innovation’ that had long driven the growth of the Internet. Internet openness, it reasoned, spurs investment and development by edge providers, which leads to increased end-user demand for broadband access, which leads to increased investment in broadband network infrastructure and technologies, which in turn leads to further innovation and development by edge providers.”[11]

The Court goes on to state that “[t]he question, then, is this: Does the Commission’s current understanding of section 706(a) as a grant of regulatory authority represent a reasonable interpretation of an ambiguous statute? We believe it does.”[12]

The Court then went on to make short work of the remaining issues raised by Verizon. Verizon had, for instance, argued that it made so sense for Congress to give both the FCC and the individual states the authority to regulate and encourage the development of “advanced telecommunications capabilities.”[13] But the Court pointed out that this had happened before and there was therefore no reason to believe that Congress had not intended exactly that sort of joint authority.[14]

Verizon also argued that the power that the FCC was claiming appeared to be almost unlimited, but the Court noted that there were two limiting principles in place: “First, the section must be read in conjunction with other provisions of the Communications Act, including, most importantly, those limiting the Commission’s subject matter jurisdiction to ‘interstate and foreign communication by wire and radio.’ 47 U.S.C. §152(a). Any regulatory action authorized by section 706(a) would thus have to fall within the Commission’s subject matter jurisdiction over such communications—a limitation whose importance this court has recognized in delineating the reach of the Commission’s ancillary jurisdiction.”[15]   “Second, any regulations must be designed to achieve a particular purpose: to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.” 47 U.S.C. § 1302(a). Section 706(a) thus gives the Commission authority to promulgate only those regulations that it establishes will fulfill this specific statutory goal—a burden that, as we trust our searching analysis below will demonstrate, is far from “meaningless.” Dissenting Op. at 7.”[16]

In addition to demonstrating that the Commission had the authority to regulate broadband in the way described above, the Commission had also claimed a different authority under Section 706(b) of the Act: the authority to change the definition of what constitutes broadband. That section allows the Commission to consider whether “advanced telecommunications technologies, including broadband Internet access, were . . . ‘being deployed to all Americans in a reasonable and timely fashion,’ [which is] the prerequisite for any purported invocation of authority to ‘take immediate action to accelerate deployment of such capability’ under section 706(b). 47 U.S.C. § 1302(b).”[17] In July of 2010 the Commission raised the minimum speed for network activity to be classified as “broadband” from 200 kbps to 4 mbps.[18] The rationale behind the change was that the use to which customers were now putting broadband capabilities had changed from downloading video and reading web pages at a pace that would approximate the experience of reading a book in one’s possession to actually streaming video from remote sources without downloading.[19] The Commission claimed that the Act did not lock in a firm definition of broadband, leaving that instead to the Commission, and that the term’s meaning would necessarily change over time based on changing demands.

With this new definition of broadband in mind, the Commission claimed that it needed to step in to force the industry to deploy the newly defined broadband in a “reasonable and timely” fashion. While acknowledging that this change in definition was suspicious, given that the Commission had recently been told it did not have the authority to regulate the industry in the way it had tried prior to the Comcast ruling, the Court ruled that “questionable timing, by itself, gives us no basis to reject an otherwise reasonable finding.”[20]

In addition, the Court agreed with the Commission that evidence exists that their regulation in this area could rationally be expected to encourage the advancement of broadband. After all, the deployment of higher speed broadband had already stimulated the development of streaming video, and the higher bandwidth needed for such streaming had encouraged the deployment of still higher speed broadband.[21]

In the next section of the majority opinion the Court discussed the alleged ability of broadband providers to stifle innovation by either preventing edge providers from selling certain services, such as telephone of cable television, to the broadband provider’s customers or, absent an outright prohibition, then charging edge providers more to have their packets delivered in a reasonably fast fashion to those customers (this is the Netflix situation that has been in the press so much lately – Netflix has now signed agreements with Comcast and Verizon to pass their packets through to those providers’ customers on a “fast lane” to avoid buffering and other inconveniences). And again, the majority sided with the Commission, stating that such interference is far from just a theoretical possibility, but that the broadband providers certainly have the technical ability to shut down services they do not want to let through, it is clear that they have the economic and technical ability to do so.[22]

But, as noted above, the Court ultimately decided that the Commission had overstepped its authority in trying to impose net neutrality. “Given the Commission’s still-binding decision to classify broadband providers not as providers of ‘telecommunications services’ but instead as providers of ‘information services,’ see supra at 9–10, such treatment would run afoul of section 153(51): ‘A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services.’”[23]

So the Court found that, while the rules requiring that Verizon and other broadband providers disclose their network management policies, the rules anti-discrimination and anti-blocking rules were in effect rules of common carriage and, as such, could not stand.

What does all this mean? The dance between the Court and the Commission continues. On May 15, 2014 the Commission released its Notice of Proposed Rulemaking which is essentially a backgrounder on where things stand regarding Net Neutrality, an overview of where the Commission intends to go next, and a request for public comment so that the Commission can take the pulse of the public and make sure that they don’t get too far ahead or behind.

One of the first things the Notice says is that the Court tossed the Commission’s ability to enforce anti-discrimination rules and anti-blocking rules, while keeping intact those requiring public notice of broadband carriers’ network management policies. But, the Commission states, “This Notice begins the process of closing that gap, by proposing to reinstitute the no-blocking rule adopted in 2010 and creating a new rule that would bar commercially unreasonable actions from threatening Internet openness (as well as enhancing the transparency rule that is currently in effect).”[24]

So for now, we await the end of the comment period to see what the FCC really has in mind. The questions on which they have asked for comment suggest that they are considering a very wide range of options, from changing the standard they will use to judge openness (the new standard would only allow broadband providers to take “commercially reasonable” steps to block disfavored traffic on their segment of the Internet) to finally invoking Title II of the Communications Act and applying common carriage principles to broadband providers.

From the perspective of an technology law practitioner, there are several possible ramifications of all of this, and we really don’t have to await the final set of rules to start thinking about them. To do this, let’s consider some of the really basic ways in which our personal use of the Internet has already changed, bearing in mind that this really is not even the camel’s nose getting into the tent, but the very tip of that nose with a whole herd of camels following behind.

Every morning I wake up to the alarm on my iPhone which has been quietly downloading emails and podcasts, double checking the local time, and so on all night long. After checking those emails I strap my iPhone to my arm and go for a run, listening to music and recording the details of the morning run. When I get home I upload all the running information to DailyMile.com and comment on what other runners I know around the world have done while I was sleeping. I then take the iPhone to the bathroom with me where I stream a Swiss jazz station I like to a wireless speaker while I shower. Once I get downstairs I fix breakfast and continue listening to that jazz station, but now I have switched the streaming from my iPhone to my Mac and it’s sending the music to my family room speakers. I look over my calendar to start organizing my day and then read the virtual papers while I eat my breakfast.

After breakfast, if I am working at home that day I start drafting documents, most of which I keep on the cloud so that I can later access them from other devices at my convenience. I of course have all the usual email interruptions, professional, personal and from my Towson University students. And at some point my calendar will remind me that I have an appointment I need to get ready to leave for. Closing my Mac I hop into my car and tap on the calendar entry in my iPhone to get the address of my destination, and then I mount my iPhone to my window where it will be used as my navigator to get me where I am going.

This is all very standard stuff today but just think about how different things were 15 years or so ago. Much of what I have just described would have seemed like fantasyland. And none of this takes into account the higher bandwidth demands I will place on my Internet connection when I get home. I decided as a kid that I would root for the San Francisco Giants baseball team because my cousin was growing up in Palo Alto while I was growing up in Baltimore. So on many evenings I will come home and turn on the MLB app on my Apple TV and watch a Giants game. If I’m more in the mood for a movie, chances are I will watch it on Netflix or HBO Go.

I have Verizon FiOS service at my house, but I have not invested in the higher speed option. And yet all of these things are possible. However, if my son, wife and I were all doing high-demand things on the Internet at the same time, I would probably have to pay for the next tier of Internet connectivity so as to have the bandwidth necessary to handle that demand.

And as I said, this really is pedestrian stuff compared to the demands we will soon be putting on the Internet. Many years ago I worked in a computer center that had a lot of Digital Equipment Corporation computers. DEC was running an ad back then to try to convince us all that distributed computing was going to be all the rage soon and that “the network is now the system.” We could not yet imagine how right they were.

Consider Moore’s Law, the observation made by Gordon Moore of Intel that the number of transistors you could fit on a chip doubled roughly every 18 to 24 months. This “law” has held up remarkably well for decades but it is now starting to run into some limitations imposed by the laws of physics; there tends to be too much “bleed” in circuits once you get them down to a certain size so that the possibility of shrinking them any further is no longer realistic.

However, other than engineers most people didn’t much care how many transistors you could fit on a chip. Instead, most of us liked the power that the computers exhibited and the lower cost.

Today, because of virtualization and cloud computing technologies, we are still seeing costs for computing power diving downwards. And maybe more importantly, the HR costs of maintaining computing infrastructure is starting to drop rather drastically. This is because many companies are opting to store their data in the cloud rather than locally, and they are starting to buy processor cycles and software at a distance as well, meaning that they no longer have to have an $85,000/year network/hardware/software specialist on staff to manage their systems. Right now most of these leased cloud computing systems are a bit less reliable than would be ideal (check the guaranteed up-time clauses in cloud contracts very closely and then do the math to be sure that your clients are aware of what they are getting into if they plan to run mission-critical applications in a virtualized environment), but the costs are getting so attractive that many companies are going to go that route anyway and then, one would assume, companies providing those services will begin to compete on quality of service rather than pure price.

In addition, the “Internet of things” is quickly becoming a reality. In that world we will all have Next thermostats learning more and more about us so that they can properly adjust our climates, we might have heart monitors and other medical equipment running all the time, and as our population ages, more and more people will be cared for in environments where technology will let the facilities do more with fewer people. What makes all this work is constant communication between devices, large and small.

Right now in much of the rest of the world, fiber to the home either has become a reality or is quickly on the way. That means that people in those countries are starting to see effective Internet speeds of up to 1 gigabits per second. My FiOS speed is currently about 25 megabits per second for downloads and significantly slower for uploads. That’s fine for the way I use the Internet now, but it won’t be in the future. Even today I notice lag times with Netflix, and the MLB app’s picture quality is not as good as the broadcast networks.

As was mentioned above, the FCC believes, and the Court said they were reasonable in that belief, that they have a mandate to see to it that advanced broadband technology is deployed rapidly. They have indicated that in order for that to happen, at least partial network neutrality must be a part of the American Internet.

But net neutrality, while a fine goal, may not be their biggest problem. Currently most Americans get their Internet access from a very small set of companies, and given Comcast’s intent to merge with Warner Cable, that number of companies is set to get smaller. Comcast claims that there is no reason the merger should not go through since Comcast and Warner do not compete in any of the markets they serve. The problem is that they are the only service providers in most of those markets.

And the bigger problem with their domination is that they do not appear to have any incentive to deploy fiber to the household.

 

 

[1] Susan Crawford. “Captive Audience,” Yale University Press, iBooks version, ch. 2, p. 98

[2] Ibid.

[3] Crawford, p. 107

[4] Ibid, p. 109

[5] Verizon v. Federal Communications Commission, http://www.cadc.uscourts.gov/internet/opinions.nsf/3AF8B4D938CDEEA685257C6000532062/$file/11-1355-1474943.pdf, p. 11. For those who prefer the official citation, the case can be found at Verizon v. Federal Communications Commission, 740 F.3d 623 (D.C. Cir. 2014). I will be citing to the online version throughout this paper.

[6] Ibid, p. 9 (emphasis added)

[7] Ibid, p. 4.

[8] Ibid, p.13

[9] Ibid

[10] Ibid (emphasis added. Later in the same paragraph the Court pointed out that the Commission had stated, “as a general matter, it is unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard.”

[11] Ibid, p. 15 (citations omitted)

[12] Ibid, p. 22

[13] Ibid, p. 23

[14] Ibid

[15] Ibid, p. 26

[16] Ibid, pp. 26-27

[17] Ibid, p. 27

[18] Ibid, p. 27

[19] Ibid, p. 28

[20] Ibid, p. 31

[21] Ibid, p. 35

[22] Ibid, pp. 37-38

[23] Ibid, p. 45

[24] http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0515/FCC-14-61A1.pdf, p. 3.