Federal Communications Commission chairman Tom Wheeler is wrestling with the best way to protect network neutrality after the courts struck down his predecessor's network neutrality rules in January. Activists have submitted millions of petitions calling on the FCC to take a more aggressive stance in support of network neutrality.
But opponents, including the cable industry and some free-market advocates, say the activists' preferred strategy, known to insiders as "reclassification," is fraught with risk. They warn that reclassification could impose burdensome and harmful regulations on the dynamic internet economy, and that the courts won't give the FCC the flexibility it needs to save broadband providers from the most onerous of these requirements
But this is nonsense, and there's a one-word explanation: forbearance. That's the FCC's power to decide not to enforce telecommunications laws it thinks are counterproductive. If the FCC wants to establish network neutrality rules using reclassification, the courts are likely to give the FCC a lot of deference in deciding how to do it.
Congress gave the FCC two choices for regulating communications services
When it overhauled telecommunications law in 1996, Congress established two legal categories. There was a lightly-regulated "information service" category for new companies such as AOL and Yahoo that provided innovative new digital services. And there was a heavily regulated "telecommunications service" category for the big guys. The FCC was supposed to focus on regulating on big telecom companies while leaving online services alone.
But in the early years of the George W. Bush administration, the cable industry came up with a clever gambit: they bundled together basic internet access with online services such as email and web hosting. And then they asked the FCC to classify this combined product as an "information service" that would be exempt from regulation. Bush's FCC bought this argument, and in 2005, the Supreme Court ruled that this was a permissible interpretation of the law.
That ruling sparked the network neutrality debate that has raged ever since. In 2010, Barack Obama's choice to head the FCC, Julius Genachowski, proposed new regulations to protect network neutrality, while allowing cable and telephone broadband services to stay in that low-regulation "information services" category. Earlier this year, an appeals court ruled that this was a no-no: the FCC can't treat a company like a regulated utility unless it first puts them in the regulatory bucket designed for those kinds of companies.
Now the FCC has a new chairman, Tom Wheeler. And net neutrality activists are pressuring him to reverse the Bush-era decision to treat broadband is a low-regulation "information service." They argue that "reclassifying" broadband as a telecommunications service — a category that allows a lot more regulations — is the only way to put network neutrality regulations on a firm legal footing.
Opponents say switching categories could harm the internet
Network neutrality opponents say it's not possible to have just a little bit of utility regulation: once you put broadband in the high-regulation bucket, it's going to get slammed by a ton of regulations that were designed for old telephone networks and are therefore horribly outdated.
For example, the Telecommunications Act imposes a complex system of price regulations on telecommunications providers. Critics say this cumbersome and bureaucratic rate-setting process is ill-suited for the fast-changing internet economy. They warn that reclassification would cause the FCC — and, more importantly, the internet economy — to get bogged down with red tape.
But forbearance offers a way out
Proponents of reclassification acknowledge that some of the regulations that govern traditional telecommunications services are a poor fit for the internet. But they argue that the FCC can address these concerns with a legal process called forbearance.
Remember, the 1996 Telecommunications Act was enacted by a Republican Congress and signed by a neoliberal President Clinton. These guys were anxious to avoid excessive regulation. So they included a provision allowing the FCC to forbear — that is, not enforce — any regulations that it judged to be contrary to the public interest.
So network neutrality supporters offer what sounds like a simple solution: the FCC can re-classify broadband as a telecommunications service, but then it can use its forbearance power to cancel the most burdensome requirements the law would otherwise impose as a result.
The courts are unlikely to interfere
Some network neutrality opponents have argued this approach won't work. The cable industry, for example, says that the FCC would face a "staggering" administrative burden. Reclassification and forbearance, Big Cable says, would "occupy the resources of the Commission and the industry for years to come."
One of the most thorough critiques of the "reclassification plus forbearance" approach comes from Berin Szoka, president of the libertarian advocacy group Tech Freedom. In a July filing, he argued that "the FCC has made forbearance very difficult, and cannot change its approach without explaining and justifying that change."
But a close look at recent legal decisions suggests that these concerns are overblown. Over the years, the FCC has made a number of decisions to forbear — or not forbear — from enforcing particular sections of telecommunications law, and had those decisions challenged in court. And the courts have almost always deferred to the FCC:
- In 2006, the DC Circuit Appeals Court FCC upheld the FCC's decision not to enforce regulations that would have required incumbent providers such as Verizon and AT&T to share their fiber optic facilities with competitors such as Earthlink. The court held that the FCC had articulated a reasonable basis for choosing not to enforce the regulations.
- The DC Circuit ruled on another line-sharing case in 2009. The FCC had rejected Verizon's request not to enforce line-sharing requirements in six metropolitan areas. The court ruled that the FCC hadn't done a good enough job of explaining why this decision departed from the agency's previous precedents, and sent the case back to the FCC for a more rigorous analysis of the issue. Verizon, perhaps realizing it was unlikely to win, abandoned its forbearance petition.
- The same year, the DC Circuit signed off on an FCC decision not to require incumbents such as Verizon and AT&T to share their "special access" lines — high-capacity connections used to serve large and medium businesses — with competitors. The court held that the FCC's decision to forbear from enforcing the regulations was "reasonable and reasonably explained."
- In 2009, Qwest asked the FCC to forbear from enforcing regulations of its telephone service in the Phoenix, AZ area. The FCC said no, and Qwest sued. In 2012, the 10th Circuit Appeals court upheld the FCC's decision, ruling that the agency had articulated a reasonable basis for enforcing the regulations.
Two things are notable about these cases. First, the courts have been extremely deferential to the agency's judgments about when forbearance is appropriate. In three of the four cases, the courts signed off on the FCC's decisions to forbear — or not forbear — without second-guessing the reasons offered by the agency.
In the fourth, the courts found that the FCC had not done a good enough job of explain why it was turning down a forbearance petition. But in that case, the court didn't say the FCC had gotten the issue wrong — it simply sent the case back to the FCC to offer a more thorough explanation. After some more back-and-forth, the agency eventually got it way.
In all of these decisions, the courts have emphasized that the FCC has broad authority to decide on the best policy. "The FCC possesses significant, albeit not unfettered, authority and discretion to settle on the best regulatory or deregulatory approach to broadband," the DC Circuit wrote in 2009. That reality, the court held, "assumes great importance when parties implore courts to overrule FCC decisions on the topic."
In the rare cses when the courts have rejected the FCC's forbearance decisions, it has been in cases where the FCC was too stingy about granting forbearance requests. Indeed, in a recent telephone interview, Szoka told me he couldn't name a single case when the FCC had tried to forbear and the courts had overruled the agency.
Lawsuits are inevitable, but reclassification could put net neutrality on a firmer footing
Critics correctly point out that reclassification is likely to lead to more lawsuits, which could lead to more years of uncertainty about how the legal framework that governs broadband. The problem is that lawsuits are likely no matter what strategy the FCC chooses.
The reason we're having this debate now is that former FCC Chairman Julius Genachowski tried to enact network neutrality regulations without reclassification in 2010. After four years of litigation, his successor Tom Wheeler is now right back where he started.
The plan Wheeler put forward in May depends on the FCC deciding, on a case by case basis, whether broadband providers are engaging in "commercially unreasonable" business practices. No one is sure what the term means, and interpreting it is likely to require — you guessed it — years of litigation.
Indeed, no matter what the FCC does, someone is likely to sue them. Reclassification isn't a strategy for avoiding lawsuits. But the FCC has an excellent chance at success in court, which would put network neutrality regulations on a sounder legal foundation.