The Mobile-Sierra Doctrine: An Unlikely Friend for Opponents of Zero-Rating.

• Author: Schnell, McKenzie

Table of Contents I. Introduction 331 II. Background on Net Neutrality and Zero-Rating 333 A. FCC Regulatory Powers as It Pertains to Zero-Rating 333 B. Net Neutrality: An Internet Structure That Treats All Information Equally 334 C. Zero-Rating: A Catch-22 for Consumers 336 1. Zero-Rating Actors 336 2. Zero-Rating Site-Selection Models 337 3. Zero-Rating Sponsorship Models 337 4. Arguments Surrounding the Zero-Rating Debate 338 D. Comparing Zero-Rating Under Republican and Democratic Leadership 340 1. Obama Administration: Pro Regulation and Anti Discriminatory Practices 340 2. Trump Administration: Seemingly Anti Regulation of Zero-Rating 342 III. The Mobile-Sierra Doctrine 343 A. Background on the Mobile-Sierra Doctrine 343 B. Parties That Have Standing Under the Mobile-Sierra Doctrine 345 1. Standing for Purchasers under the Mobile-Sierra Doctrine 345 2. Standing for Non-Contracting Parties under the Mobile- Sierra Doctrine 346 IV. A Lawsuit Is the Best Mechanism for Curbing Discriminatory Zero-Rating Practices in the Current Political Landscape 347 A. Lawsuit Brought by Customers Under the Mobile-Sierra Doctrine 347 B. Lawsuit Bought by Unaffiliated Edge Providers Under the Mobile-Sierra Doctrine 348 C. Lawsuit Brought by Non-Contracting Parties Under the Mobile- Sierra Doctrine 349 V. Conclusion: The Mobile-Sierra Doctrine: An Unlikely Friend for Opponents of Zero-Rating 349 I. INTRODUCTION

Like the politics of the presidents who appointed them, the Federal Communications Commission (FCC)'s zero-rating policies under former Chairman Tom Wheeler and current Chairman Ajit Pai are in marked contrast. Under Chairman Wheeler, zero-rating was regulated on a case-by-case basis, but Chairman Pai has yet to regulate the practice at all. (1) Zero-rating is an increasingly common pricing strategy where Internet service providers (ISPs) provide consumers with access to content, applications, and services without that access accruing towards their broadband or mobile data caps. (2) While popular with consumers, zero-rating is controversial because of its potentially discriminatory implications for edge providers and consumers: edge providers that cannot pay for zero-rating are less competitive, making their product less frequently used, which subsequently impedes users' choice. (3) Edge providers are considered to be "[a]ny individual or entity that provides any content, application, or service over the Internet." (4) Edge providers, like Google and Facebook, use the consumer's ISP to deliver content. (5) The FCC has never banned zero-rating outright because not all zero-rating practices are considered discriminatory and some, depending on their structures, can further competition and consumer choice. (6)

In 2016, under the directive of former Chairman Wheeler, the FCC's Wireless Telecommunications Bureau (WTB) issued a report concluding that AT&T's Sponsored Data and Verizon's FreeBee Data 360 zero-rating practices were potentially discriminatory because they appeared to favor downstream affiliates over unaffiliated edge providers. (7) Despite these findings, Commissioner Pai quickly ceased all investigations into AT&T and Verizon's zero-rating practices upon taking office. (8) In a statement seemingly justifying his position, Pai stated, "[t]hese free-data plans have proven to be popular among consumers, particularly low-income Americans, and have enhanced competition in the wireless marketplace." (9) The FCC's current position on zero-rating should be troublesome to the American public because as it stands, the discriminatory practices associated with zero-rating will persist and likely expand. (10) This paper argues that a bold, but possible, solution for curtailing zero-rating during this administration is a lawsuit arguing that, pursuant to the Mobile-Sierra Doctrine, zero-rated contracts like those between AT&T, Verizon, and their affiliated providers are harmful to the public interest. A lawsuit of this nature will force the FCC to at least regulate discriminatory zero-rating practices.

This paper examines how to address discriminatory zero-rating practices under the Commission's new Republican leadership in five stages. First, it provides a background framing the topic of zero-rating and contextualizes the zero-rating debate within broader net neutrality discussions. Second, it delineates the actors involved in zero-rating arrangements, the various zero-rating structures, the arguments for and against zero-rating, and the broader politics surrounding the debate. Third, it introduces the 2016 Policy Review of Mobile Broadband Operators' Sponsored Data Offerings for Zero-Rated Content and Services associated with former Chairman Wheeler.

Fourth, it introduces and describes the Mobile-Sierra Doctrine--a doctrine that arose from two Supreme Court decisions and stands for the proposition that bilateral contract rates cannot be unilaterally changed. (11) Under the Mobile-Sierra Doctrine, courts, in extraordinary circumstances or when such rates are contrary to the public interest, can order the requisite commission to change rates that they find are not "just and reasonable." (12)

Lastly, it analyzes the current zero-rating landscape and concludes by proposing that a lawsuit applying the Mobile-Sierra Doctrine is the best mechanism for curbing discriminatory zero-rating practices during Chairman Pai's tenure.

2. BACKGROUND ON NET NEUTRALITY AND ZERO-RATING

   1. FCC Regulatory Powers as It Pertains to Zero-Rating

      The Communications Act of 1934 created the FCC and authorized it to regulate wire and radio communications, both interstate and foreign. (13) The Communications Act of 1934 was amended by the 1996 Telecommunications Act which Congress intended to spur competition within the telecommunications market by removing unnecessary barriers to entry. (14) The most notable change, for the purpose of this paper, in the 1996 Act was the reclassification of broadband cable services, otherwise known as ISPs, from a telecommunication service to an information service. (15) These two classifications are distinguishable in that telecommunication services offer "telecommunications for a fee directly to the public... regardless of the facilities used" (16) while information services provide "a capability for [processing]... information via telecommunications." (17) This change is significant because telecommunications services are subject to stricter regulatory controls pursuant to Title II of the 1934 Communications Act compared to information services under Title I of the 1934 Act. (18)

      In the early 2000s, the FCC's decision to regulate ISPs as information services began to take center-stage starting with National Cable and Telecommunications Ass'n v. Brand X Internet Services. (19) Brand X argued that regulating ISPs under Title I would lead to a slippery slope where any communications provider could circumvent common carrier regulations by bundling information services with telecommunications. (20) Ultimately, the Supreme Court ruled against Brand X, using Chevron deference, (21) with the majority finding that the statutory definitions between the two classifications were ambiguous and therefore, the FCC's statutory construction was reasonable and permissible. (22)

   2. Net Neutrality: An Internet Structure That Treats All Information Equally

      The subject of net neutrality is the crux of the zero-rating controversy because the rules that govern net neutrality will subsequently impact the regulation of zero-rating. (23) Net neutrality is

      An Internet structure that does not favor one application over another... whereby each node connected to the Internet passes data bound for some other destination on a 'first-come, first-served' basis, without prioritizing, degrading, or blocking a transmission based on the kind of information contained.... (24) In other words, under net neutrality, all information transferred over the Internet should be equally prioritized and accessible to consumers. This information structure was in place when the Internet came into existence. (25) As the Internet began to expand, the companies providing Internet services began to consolidate and realize their power to prioritize and degrade certain content. (26) Following the Brand X decision in 2005, diverging political opinions began to further emerge about this traffic-management system that has been in place since the Internet's conception. (27)

      Proponents of net neutrality contend that without this Internet safeguard, ISPs will act as gatekeepers and favor the transmission of certain content at the expense of other content. (28) For example, because Comcast and NBC are affiliated, Comcast would be incentivized to promote NBC's content over ABC's to its customers, which would lead to a slower load time for ABC. (29) Conversely, opponents assert that the principles of the free-market are capable of neutralizing discriminatory implications arising from an Internet structure without net neutrality. (30) Opponents also contend that FCC regulation only hinders innovation as well as business opportunities for content providers. (31)

      The FCC's position on net-neutrality was illustrated by a 2005 policy statement adopting four principles ensuring that "broadband networks are widely deployed, open, affordable, and accessible to all consumers." (32) Despite this policy statement, the FCC did not adopt any formal rules regarding net neutrality. (33) However, when evidence from 2007 showed that Comcast was interfering with its customers' peer-to-peer file sharing traffic, the FCC issued an order in 2008 which deemed Comcast's behavior, and the like, unlawful unless "it further[s] a critically important interest and [is] narrowly or carefully tailored to serve that interest." (34) In 2010, the D.C. Circuit vacated the 2008 order finding that Title I did not contain the authority to proscribe the conditions set forth upon Comcast. (35)

      The FCC...