The story of the FCC's net neutrality decision and why it won't stand up in court.

• Jurisdiction: United States
• Date: 01 April 2015
• Author: Pai, Ajit

TABLE OF CONTENTS I. DEFECTS IN PROCESS A. Reclassification B. An Unanticipated Reversal C. Three Examples D. Improper Procedure II. DEFECTS IN SUBSTANCE A. Reclassification (Title II) 1. The Stevens Report 2. Recent Developments 3. Broadband Internet Access Transmission Services 4. Heightened Scrutiny B. The Mobile Broadband Hurdle (Section 332) 1. Redefining the Public Switched Network 2. Redefining Functional Equivalence 3. Statutory Contradiction C. The Telecommunications Act (Section 706) III. CONCLUSION We live in the Internet age. We speak, we post, we rally, we learn, we listen, we watch, we buy, we sell, we meet-in short, we live-online. The Internet has transformed billions of lives here and around the world. It has aided the cause of freedom, lifted people out of poverty, democratized entrepreneurship, and much more.

How did this come to be? In the United States, the answer is twofold. First, the private sector took risks. Over the past two decades, companies invested well over $1 trillion in connecting Americans to the Internet. Confident of limited regulation, they laid fiber, upgraded cable systems, launched satellites, built towers, and deployed spectrum in order to provide broadband Internet access from Alaska to Arizona, Maine to Mississippi.

Second, government stayed out of the way. Starting almost twenty years ago, a bipartisan consensus favored an open Internet. A Democratic President and Republican Congress enshrined in the Telecommunications Act of 1996 the principle that the Internet should be a "vibrant and competitive free market ... unfettered by Federal or State regulation." (1) And dating back to the Clinton Administration, every FCC Chairman-Republican and Democrat-let the Internet grow free from utility-style regulation. The results of Internet freedom, both for consumers and online entrepreneurs, speak for themselves. (2) Indeed, given how quickly and deeply the online economy in this country has progressed, I believe the Internet is the greatest free-market innovation in history.

Unfortunately, the FCC recently replaced that freedom with government control. On February 26, 2015, a narrow majority of the FCC abandoned those policies. It reclassified broadband Internet access service as a Title II telecommunications service. It seized unilateral authority to regulate Internet conduct, to direct where Internet service providers put their investments, and to determine what service plans will be available to the American public. This was a radical departure from the bipartisan, market-oriented policies that served us so well for the last two decades.

The fate of net neutrality regulation will ultimately be decided in the courts. Litigants have already sought judicial review of these new rules. (3) In this Article, I'll discuss why I believe procedural defects and substantive flaws will prevent the FCC's decision from standing up in court.

And if I'm wrong-if this Order manages to survive judicial review-American consumers will be worse off. For these will be the consequences: higher broadband prices, slower speeds, less broadband deployment, less innovation, and fewer options for American consumers. Indeed, we already have seen evidence that the investment and innovation that fomented the digital revolution has slowed as a result of the agency's power grab. (4)

1. DEFECTS IN PROCESS

   First-process. I don't believe the FCC complied with the requirements of the Administrative Procedure Act in adopting Internet regulations. (5) In particular, the public did not know what rules the Order adopted beforehand because the FCC never proposed them.

   1. Reclassification

      Recall that last year's Notice of Proposed Rulemaking came on the heels of the D.C. Circuit's Verizon decision, which "struck down the 'anti-blocking' and 'anti-discrimination' rules," holding that "the Commission had imposed per se common carriage requirements on providers of Internet access services." (6) The purpose of the Notice was to "respond directly to that remand and propose to adopt enforceable rules of the road, consistent with the court's opinion, to protect and promote the open Internet." (7) Or, as Chairman Wheeler put it: "In response [to the Verizon decision], I promptly stated that we would reinstate rules that achieve the goals of the 2010 Order using the Section 706-based roadmap laid out by the court. That is what we are proposing today." (8)

      And it was. Every single proposal and every single tentative conclusion in the Notice was tailored to avoid reclassification and to comply with the limits the Verizon court put on the Commission's authority under section 706 of the Telecommunications Act. (9)

      For example, the Notice proposed to define "blocking" as failing "to provide an edge provider with a minimum level of access that is sufficiently robust, fast, and dynamic for effective use by end users and edge providers." (10) It did so "to make clear that the no-blocking rule would allow individualized bargaining above a minimum level of access," which was "the revised rationale the court suggested would be permissible rather than per se common carriage." (11) The Notice then devoted an entire section to "establishing the minimum level of access under the no-blocking rule," (12) because "the [Verizon] court suggested [such a rule] would be permissible rather than per se common carriage" (13) and would be "[c]onsistent with the court's ruling." (14)

      The Notice was even more forthright that its proposed rule barring commercially unreasonable practices was tied to the limits of the Verizon decision. Under that rule, the Commission would, "consistent with the court's decision, ... permit broadband providers to engage in individualized practices"--indeed, the "encouragement of individualized negotiation" was one of its "essential elements." (15) The Notice tentatively concluded that such a rule was appropriate because the "court underscored the validity of the 'commercially reasonable' legal standard" (16) and "explained that such an approach distinguished the data roaming rules at issue in Cellco from common carrier obligations." (17) Or as the Notice put it: "The core purpose of the legal standard that we wish to adopt ... is to effectively employ the authority that the Verizon court held was within the Commission's power under section 706." (18) Or as the title of that subpart put it even more bluntly: The goal of the FCC was "codifying an enforceable rule to protect the open Internet that is not common carriage per se." (19)

      If this weren't enough, the FCC "propose[d] that the Commission exercise its authority under section 706, consistent with the D.C. Circuit's opinion in Verizon v. FCC, to adopt our proposed rules" (20) and then cited section 706 of the Telecommunications Act-but not a single provision of Title II-in the Notice's ordering clauses. (21) And it affirmatively proposed to remove several legal provisions from the "authority" section of our Part 8 "Open Internet" rules-including all references to Title II-and leave section 706 of the Telecommunications Act as the prime authority for the proposed rules. (22)

      In all, the Notice cited or quoted the Verizon decision fifty-two separate times, (23) proposed two pages of rules that would be consistent with that decision and within the Commission's section 706 authority, (24) and reiterated in tentative conclusion after tentative conclusion that the FCC should tread no further than the limits the Verizon court set on the FCC's authority under section 706.

      Contrast that with the FCC's decision. The entire Order is premised on the reclassification of broadband Internet access service as a Title II, telecommunications service. Accordingly, none of these rules follow the section 706-based roadmap laid out by the Verizon court, and none of them purport to do so. (25) As a result, instead of a minimum-level-of-access rule (that would follow the roadmap), the Order adopts the flat no-blocking rule that the Verizon court overturned. (26) Instead of the rule against commercially unreasonable practices, which was intended to encourage "individualized negotiation," the Order adopts a flat ban on individual negotiations through a no-paid-prioritization rule. (27) And rather than limiting the new rules to those proposed in the Notice, the Order also adopts a never-before-proposed no-throttling rule (28) and a wholly new nounreasonable-interference-or-unreasonable-disadvantage standard for Internet conduct. (29)

      Given this new legal justification, it's no wonder that the FCC now feels compelled to cite nine new sources of legal authority for adopting the Order, (30) invoking sections 201 and 202 of Title II along with sections 3, 10, 301, 332, 403, 501, and 503 of the Communications Act. (31) Nor is it surprising that the final rules purport to rely on twenty sections of the Communications Act that were not included in the original proposal, including several sections not discussed even once in the Notice. (32)

      In sum, the Notice proposed "the terms ... of the proposed rule" and a "reference to the legal authority under which the rule is proposed." (33) But the Order adopts something completely different. That's not what the Administrative Procedure Act envisions.

   2. An Unanticipated Reversal

      None of this is to say that the Commission had to adopt the exact same rules under the precise rationale proposed in the Notice. Of course, the adopted rules may be the "logical outgrowth" of the original proposal. (34) But the Order's decision to reclassify, to forbear, and to adopt rules grounded in Title II is a reversal of the proposals and tentative conclusions in the Notice, not a natural evolution.

      The standard is whether all interested parties "should have anticipated" the final rule. (35) The question "is one of fair notice" (36): whether "persons are sufficiently alerted to likely alternatives so that they know whether their interests are at stake." (37) In other...