Chairman Wheeler of the Federal Communications Commission has announced that on February 26, the FCC will vote to approve sweeping new Internet regulations popularly termed “Network Neutrality.” For the first time, the FCC will vote to designate broadband and other Internet services as a “telecommunications service.” As such, the Internet will be exposed to billions of dollars in taxes and fees and hundreds of pages of FCC rules, some written decades ago, designed for land-line dial-tone telephone services.
Regulating the Internet the same as dial-tone telephone services is widely recognized as harmful to the Internet and to American economic growth. Many high tech companies reached that conclusion last month. So too have broadband providers.
The palliative the FCC apparently will offer is “forbearance.” With a single stroke, the FCC will both declare that broadband is a telecommunications service and “forbear” from applying a wide range of dial-tone telephone regulations. Who will decide which rules will apply to the Internet and which will not? The FCC, of course. America and the Internet need not worry about the dial-tone telephone regulations, says the FCC; many will not apply to the Internet. The FCC is telling America that it can pick and choose which telecommunications regulations to apply to the Internet.
Broadband providers will challenge the FCC’s authority to label broadband services as telecommunications services. Various consumer groups and businesses with a possible opportunity under an expansive set of federal regulations will challenge the application of forbearance by the FCC.
Anyone interested in the health of the communications industry should be pleased with the concept of forbearance. The statutory authority for the FCC to forbear from regulations is commonly known as “Section 10.” It was written as a deregulatory provision of the Telecommunications Act of 1996. It instructs the FCC “forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service” under specific circumstances.
But forbearance is a rarely-applied deregulatory device at the FCC. The few instances that it has been used have taken years for the FCC to make a determination, and further years of court reviews. The FCC has not granted all forbearance petitions. Any effort by the FCC to forbear from regulations that apply to telecommunications services will certainly be challenged in court, and the court decisions will likely to take years to decide.
If the FCC proceeds with designating broadband and Internet services as “telecommunications services,” it would be one of the largest single expansions of federal regulatory authority ever. The balancing antidote of “forbearance” in turn would be the largest exercise in regulatory “forbearance” ever.
There is just one major problem with the forbearance approach the FCC contemplates.
It likely will never work. Here’s why.
The FCC has applied Section 10 several instances, but not in the circumstance the FCC now proposes. The FCC has never declared a service to be a telecommunications service and at the same time decided to forebear from applying rules. Whether the FCC can do this may be the subject of a court appeal.
In the forbearance cases the FCC has considered, the issues have pertained to individual companies, with respect to a limited number of rules, in a specific geographic market. The FCC has not considered applying forbearance nationwide to an entire service for an entire industry for a wide range of rules. Again, whether the FCC can do this may be the subject of a court appeal.
The forbearance cases the FCC has considered are based heavily on quantitative market evidence collected by the FCC, particularly with respect to competitive conditions in relevant geographic and service markets. The FCC last May sought information on “the extent to which forbearance from certain provisions of the Act or our rules would be justified in order to strike the right balance between minimizing the regulatory burden on providers and ensuring that the public interest is served.”
The FCC did not, however, seek specific information to do the competitive analysis for any specific rule in any specific geographic area for any set of providers. The FCC likely believes that it has given sufficient public notice and collected sufficient information. Whether the FCC publicly noticed an information request, much less actually collected relevant market information, is likely to be an area for a court appeal.
FCC decisions on forbearance reflect substantial staff resources over a period of several months. The staff must determine whether the FCC has met the statutory requirements to forbear from a small number of rules as applied to one company in one metropolitan area. By all accounts, the FCC did not seriously instruct the staff to write a forbearance order until November at the earliest.
The staff now has the daunting task to write up not only the largest expansion of regulation in FCC history (the designation of broadband and Internet as a telecommunications service) but also to write up the largest forbearance order in history. All of this will have been in roughly less than three months from mid-November to early February. Those challenging the FCC on forbearance will have the advantage of attacking an FCC order that was written in a short period of time.
Under Section 10, the Commission cannot forbear from Section 251(c) unless it determines that “those requirements have been fully implemented.” Section 251(c) is an important section of the Communications Act. Because Internet services have never been subject to regulation, it seems impossible for the FCC to determine that ”requirements have been fully implemented” with respect to Internet services. Any effort to do so would be challenged in court.
Section 251(c) applies only to “incumbent local exchange carriers,” such as the wireline operations of AT&T, CenturyLink, and Verizon, and not to other communications providers. Stated differently, any forbearance by the FCC will likely lead to different levels of regulation among communications providers, with far more regulation for broadband services provided by landline telephone companies.
Section 251(c) has six subsections, described below, for which the FCC has written dozens of rules. The six subsections of 251(c) include (1) duty to negotiate under state proceedings under Section 252; (2) interconnection at any “technically feasible point;” (3) unbundled access to network elements, again with reference to Section 252; (4) resale obligations; (5) notice of changes in “transmission and routing of services;” and (6) collocation requirements.
These requirements reduced investment in wireline networks and spawned more than a decade of litigation, some of which went to the Supreme Court. Moreover, these requirements led to the development of an entire new industry, based on offering services under 251(c) through resale and unbundling requirements. No doubt, after the FCC’s network neutrality order, a new industry will develop to resale broadband services offered by landline telephone companies under federal regulatory conditions. None of this will encourage additional investment by these companies.
Telecommunications carriers are subject to billions of dollars of taxes and fees from which Internet service providers are currently exempt. The FCC has no precedent for using forbearance authority to exempt some telecommunications services from taxes and fees while allowing other telecommunications services to pay them. Don’t expect any effort to use forbearance in this area to go unchallenged.
Of course, none of the legal frailties of forbearance will matter if the courts find unlawful the designation of broadband and Internet services as the equivalent of dial-tone telephone services. One cannot ignore the likelihood that an indulgent court somewhere will defer to the FCC expanding the definition of telecommunications service. For even an indulgent court to defer to the FCC on unprecedented and undocumented authority to forbear willy-nilly is a less likely outcome.
The nightmare scenario for the Internet, the American economy, and the American consumer is that the FCC designates the Internet as a telecommunications service but federal law does not allow the FCC fully to apply forbearance. That nightmare is not a remote possibility but an all-too-possible outcome. Neither Congress nor a future Commission can immediately undo the damage of a harmful FCC order on network neutrality. The FCC should reflect carefully on that nightmare before proceeding.