May 2007 - Legal File

The Return of the Net-Neutrality Debate

By Jeffrey D. Knowles and Andrew E. Bigart

“Net neutrality,” the hot-button issue that helped kill efforts at major telecommunications reform last year, is once again in the news. Earlier this year, several senators re-introduced legislation that would mandate net neutrality for broadband service providers and key House Telecommunications Subcommittee leaders have announced plans to address this issue, as well. On March 22, the Federal Communications Commission (FCC) threw its hat into the ring by opening an inquiry into the behavior of participants in the broadband services market. The inquiry follows up on the FCC’s 2005 Internet Policy Statement in which it announced four principles to “encourage broadband deployment and to preserve and promote the open and interconnected nature of the public Internet.” Specifically, the inquiry requests comment on whether the FCC should incorporate a new principle of nondiscrimination into its Policy Statement. Although it is far from certain that Congress will pass net-neutrality legislation, the FCC’s inquiry raises the stakes and provides interested parties-such as retailers, broadband service providers, content providers and web users-a real opportunity to influence the Commission’s future policies.

Despite receiving extensive media attention, net neutrality remains an amorphous concept that escapes simple definition. Under net neutrality, broadband service providers, such as cable and telephone companies, would be indifferent to the content that passes through their networks. Historically, Internet services in the U.S. have been provided under a framework of flat-rate pricing and unrestricted access to the Internet. However, this model has increased congestion and placed immense strains on the Internet’s underlying physical infrastructure.

During the past few years, however, broadband service providers have begun actively managing Internet traffic flow in an attempt to reduce the congestion brought on by the Internet’s explosive growth and the recent introduction of bandwidth consuming services such as streaming video. Not surprisingly, as broadband service providers contemplate investing billions in new infrastructure to alleviate congestion, they have become increasingly concerned about recouping their costs. Many Internet service providers have begun offering consumers bandwidth tiers in which consumers’ price varies with the amount of bandwidth they are provided.

Even more controversial are proposals to allow Internet content providers, whether commercial or personal, to pay different prices for different tiers of transmission speed, requiring a website such as YouTube to pay a higher price than other content providers in order to ensure that its streaming videos receive faster transmission.

Opponents of net-neutrality regulation, such as broadband service providers, argue that the marketplace is working and that not only has there been no evidence of discrimination warranting government intervention, but also that it would be economically foolish for them to engage in such discrimination given competition. Additionally, opponents argue that net-neutrality regulation would undercut the ability of broadband service providers to recoup their investment in new facilities, thereby hampering broadband deployment.

On the other side, advocates of net neutrality fear that Internet service providers will begin actively managing the Internet to their own financial benefit. For example, advocates protecting Internet freedom by ensuring that “the public can view the smallest blog just as easily as the largest corporate website by preventing Internet companies like AT&T from rigging the playing field for only the highest-paying sites.”

Similarly, electronic retailers fear that Internet service providers will begin to block access to non-affiliated websites or prevent users from accessing competing technologies like VoIP Internet phone services. Proponents of net neutrality believe that the only solution is for the government to mandate non-discriminatory access for all persons.

For parties interested in submitting comments, a review of the FCC’s past actions provides considerable insight into the Commission’s view of the net-neutrality debate. According to the the FCC’s 2005 Internet Policy statement, consumers are entitled to the following broadband access rights:

  • Access to the lawful Internet content of their choice;
  • The right to run applications and use services of their choice;
  • The right to connect their choice of non-harmful, legal devices to the network; and
  • The right to competition among network providers, application and service providers, and content providers.

Although the Internet Policy statement endorsed several net-neutrality principles, the FCC declined to impose any binding requirements on broadband providers. Instead, the Commission affirmed its “duty to preserve and promote the vibrant and open character of the Internet as the telecommunications marketplace enters the broadband age,” while simultaneously stating that it would continue to encourage innovation and competition in broadband content and applications.

On the same day, the FCC also issued an order classifying broadband as an information service and established a “minimal regulatory environment” for such services, thus freeing broadband providers from common carrier restrictions. However, in both the policy statement and the order, the FCC reserved the right to impose additional regulatory obligations on broadband service providers under its Title I ancillary jurisdiction to regulate interstate and foreign communications. The Commission stated that it “has jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled services are operated in a neutral manner.”

The FCC has not shied away from its ability to enforce neutrality by carriers. In 2005, the Commission’s Enforcement Bureau entered into a Consent Decree with Madison River Communications, LLC, a telecommunications company that intentionally blocked its consumers’ access to VoIP services. Madison River made a “voluntary” payment of $15,000 and agreed not to prevent its customers from accessing VoIP services.

This issue also has played a prominent role in recent FCC telecommunications merger reviews. Most notably, in January, AT&T caved to pressure from two of the FCC’s Democratic commissioners by agreeing to observe net-neutrality principles as part of the Commission’s approval of the AT&T/BellSouth merger. Specifically, AT&T agreed to provide a “neutral network and neutral routing” of Internet traffic for a period of two years after the merger. Noticeably, FCC Chairman Kevin Martin disagreed with the commissioners’ actions and expressed disappointment that AT&T capitulated to the pressure. According to Martin, the “conditions are simply not warranted by current market conditions and may deter facilities investment.” Further, Martin made clear that AT&T’s concession did not represent the FCC’s views and would not influence its future decisions, policies, actions or rules.

Although the FCC has consistently supported the general concept of net neutrality, it is unlikely that the Commission will mandate net neutrality without a specific congressional directive. Instead, the Commission will most likely continue to employ a “light regulatory touch” and rely on a combination of non-binding policy statements and the threat of investigations under its Title I ancillary jurisdiction to oversee the broadband market.

Given the FCC’s success in the Madison River Consent Decree and the chairman’s pro-market views, it would not be surprising if the Commission declined to explicitly incorporate nondiscrimination into its Policy Statement and, instead, relied on ad hoc actions similar to those in Madison River if future incidents arise.

Regardless of the FCC’s stance in the upcoming Policy Statement, the decision to open an inquiry into the broadband market indicates that the Commission is continuing to take a serious interest in the net-neutrality issue. The inquiry will provide interested parties on both sides of the net-neutrality debate with a real opportunity to frame the issue, voice their opinions and influence future Commission actions.

Jeffrey Knowles manages Venable LLP’s Government Division and heads the firm’s Advertising and Marketing Practice Group. He also is a member of Venable’s Executive Committee. He can be reached at (202) 344-4860. Andrew E. Bigart is an attorney with Venable. He can be reached at (202) 344- 4323.


No Comments

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a comment