United States Telecom Ass'n v. Federal Communications Commission
423 U.S. App. D.C. 183, 64 Communications Reg. (P&F) 1663, 825 F.3d 674 (2016)
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Rule of Law:
Under the Communications Act, the FCC has statutory authority, subject to Chevron deference, to reclassify broadband internet access service as a telecommunications service (Title II) and mobile broadband as a commercial mobile service (Title III), allowing it to impose common carrier regulations like net neutrality rules and to exercise forbearance from certain statutory provisions, provided its decisions are reasoned and do not violate the First Amendment.
Facts:
- Internet end users connect to the internet through broadband providers, who then interconnect with backbone networks and edge providers (e.g., Netflix, Google, Amazon).
- Proponents of internet openness feared that broadband providers might block or degrade end-users' access to certain edge providers to favor their own content or collect fees.
- In 2007, Comcast customers accused the company of interfering with their ability to access certain applications.
- By 2015, the mobile broadband marketplace had evolved significantly, with hundreds of millions of consumers using smartphones and tablets to access the internet ubiquitously.
- Consumers today primarily use broadband to access third-party content (e.g., Facebook, Netflix, YouTube) and often avoid using broadband providers' own add-on services, demonstrating a focus on transmission.
- Broadband providers market their services primarily based on transmission speed and reliability, linking higher speeds with enhanced access to the internet at large.
Procedural Posture:
- In 1980, the FCC's Computer II Order distinguished "basic services" (transmission) from "enhanced services" (computer processing), subjecting basic services to common carrier regulation under Title II of the Communications Act.
- In 1998, the FCC's Advanced Services Order classified the transmission component of DSL service as a telecommunications service, while the internet access delivered via phone lines was classified as a separate information service.
- In 2002, the FCC's Cable Broadband Order classified cable modem service as solely an information service, finding the transmission a functionally integrated component of a "single, integrated information service."
- In 2005, the Supreme Court, in National Cable & Telecommunications Ass'n v. Brand X Internet Services, upheld the FCC's classification of cable modem service as an information service, deferring to the agency's interpretation under Chevron step two, finding the term "offering" ambiguous.
- Following Brand X, the FCC classified other broadband services, including DSL and mobile broadband, as integrated offerings of information services.
- In 2008, the FCC ordered Comcast to make disclosures regarding its network management practices after customers accused it of interference, relying on its "ancillary jurisdiction."
- In 2010, the D.C. Circuit in Comcast Corp. v. FCC vacated the FCC's order against Comcast, finding that the FCC had failed to identify any statutory authority for its order.
- Later in 2010, the FCC issued the 2010 Open Internet Order, promulgating transparency, anti-blocking, and anti-discrimination rules for broadband providers, primarily relying on section 706 of the Telecommunications Act.
- In 2014, the D.C. Circuit in Verizon v. FCC upheld the FCC's authority under section 706 to enact open internet rules and the transparency rule, but vacated the anti-blocking and anti-discrimination provisions because they imposed common carrier obligations on a service (broadband) that the FCC had classified as an information service, which is exempt from such regulations.
- A few months after the Verizon decision, the FCC issued a Notice of Proposed Rulemaking (NPRM) to "find the best approach to protecting and promoting Internet openness."
- After receiving nearly four million comments, the FCC promulgated the 2015 Open Internet Order (the Order at issue), which was subsequently challenged by several groups of petitioners, including US Telecom Association, Full Service Network, and Alamo Broadband Inc.
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Issue:
Does the Federal Communications Commission possess statutory authority to reclassify fixed and mobile broadband internet access services as telecommunications services and commercial mobile services, and were its decisions to promulgate open internet rules (including bans on blocking, throttling, and paid prioritization) and to forbear from applying many Title II provisions arbitrary and capricious or violative of the First Amendment?
Opinions:
Majority - Tatel and Srinivasan, Circuit Judges
Yes, the Federal Communications Commission (FCC) had statutory authority to reclassify fixed and mobile broadband internet access services as telecommunications services and commercial mobile services, and its decisions to implement open internet rules and forbear from certain Title II provisions were reasonable and did not violate the First Amendment. The court applied the Chevron two-step framework, noting that the Supreme Court's Brand X decision established ambiguity in the term "offering" as applied to broadband, thus deferring to the FCC's interpretation at Chevron step two. The FCC reasonably concluded, based on consumer perception, that broadband service is a standalone offering of telecommunications. Consumers primarily use broadband to access third-party content, not the add-on services offered by broadband providers, and perceive broadband as a conduit for transmission. Information services like DNS and caching, which facilitate transmission, fall within the "telecommunications management exception" and do not turn broadband into an information service. The reclassification of mobile broadband as a "commercial mobile service" was also upheld as reasonable, given the evolution of the mobile market, its ubiquity, and the FCC's revised definition of the "public switched network" to include IP addresses (in addition to telephone numbers). Mobile broadband, through VoIP applications, gives users the capability to communicate with all points on this expanded network, thereby qualifying as an "interconnected service." The FCC provided a "good reason" for changing its classification policy from previous orders: the necessity of imposing per se common carrier obligations (like anti-blocking, anti-throrottling, and anti-paid-prioritization rules) which were deemed unlawful in Verizon when broadband was classified as an information service. The FCC's predictive judgments about investment and the "virtuous cycle" of innovation were entitled to deference and found reasonable. The court also rejected arguments that the FCC failed to account for reliance interests, noting the indirect effect of regulatory status on investment and the historically unsettled nature of broadband classification. The open internet rules, including the ban on paid prioritization, were upheld as permissible exercises of the FCC's authority under Title II and Section 706 of the Telecommunications Act. The court reaffirmed its Verizon holding that Section 706 grants independent rulemaking authority. The rules, by imposing nondiscrimination and equal access obligations, align with traditional common carriage regulation, which has not raised First Amendment concerns. Broadband providers, when offering neutral access to the internet, act as "mere conduits" and do not exercise editorial discretion in a manner that implicates First Amendment protections. The General Conduct Rule was found not unconstitutionally vague, especially given the FCC's detailed factors for application and the availability of an advisory opinion procedure.
Concurring in part and dissenting in part - Williams, Senior Circuit Judge
No, the Federal Communications Commission's (FCC) Order reclassifying broadband was arbitrary and capricious, and its rules cannot be sustained. While acknowledging that the FCC could have statutory authority to reclassify broadband, the dissent argues that the FCC failed to provide reasoned decision-making as required by Fox Television and State Farm. The dissent first contends that the FCC's assessment of broadband providers' reliance on the prior (Title I) classification disregarded the record. It found the FCC's dismissal of reliance interests as "indirect" or based on "many other factors" to be an "irrelevance" and its claim that reliance was unreasonable to be a misreading of history. The dissent points to billions of dollars invested under the prior regime as evidence of significant reliance. Second, the dissent finds the FCC's claims of "changed facts" (e.g., consumer use of third-party content, emphasis on speed) to be "weak at best" and not genuinely new, arguing that these aspects have long characterized broadband. Third, the FCC's new policy reasoning is criticized for failing to include a finding or even a serious consideration of market power, which has historically been pivotal in FCC common carrier classification decisions. The dissent highlights data suggesting competition in broadband markets and questions the FCC's 25 Mbps speed standard as arbitrary. The dissent further argues that the FCC's regulatory scheme rests on statutory sections (Sections 201(b) and 706) that do not justify the rules adopted. Specifically, the ban on paid prioritization under Section 201(b) is deemed unsupported because the FCC failed to offer a reasonable interpretation that would preclude all reasonable rate distinctions based on service quality or cost. The dissent states the FCC's claim that paid prioritization poses a "threat" to the "virtuous cycle" theory is false, lacking evidence and ignoring economic critiques and alternatives like minimum quality standards or antitrust enforcement. Regarding Section 706, the dissent reiterates that the statute's purpose is to "reduce regulation" and "promote competition," making the imposition of common carrier duties antithetical to its goals, especially without a finding of market power. The dissent concludes that the broad interpretation of Section 706 adopted by the majority was dicta in Verizon and should not control. Finally, the dissent argues that the FCC's extensive forbearance from Title II provisions is inconsistent with its reclassification decision. By simultaneously asserting limited competition to justify reclassification but implicitly sufficient competition to justify forbearance (without a market power analysis), the FCC engaged in "strategic ambiguity" and "hopeless self-contradiction." This "unreasoned patchwork" renders the combined reclassification-forbearance decision arbitrary and capricious, ultimately shunting broadband onto a regulatory track suited for natural monopolies despite a lack of evidence for such conditions.
Analysis:
This case significantly solidified the FCC's authority to regulate broadband internet access under a common carrier framework, marking a pivotal moment for net neutrality. The D.C. Circuit's robust deference to the FCC's interpretation of ambiguous statutory terms under Chevron step two, particularly regarding consumer perception, underscores the broad discretion agencies hold in adapting regulations to evolving technological landscapes. The upholding of the 'virtuous cycle' theory as a reasonable basis for regulatory action provides a strong foundation for future agency efforts to protect internet openness. Moreover, the decision to view broadband providers as 'mere conduits' without First Amendment editorial discretion has far-reaching implications for how internet service providers are legally characterized and regulated, potentially setting a precedent for similar platform-like services.
