Unintentional antitrust: the FCC's only (and better) way forward with net neutrality after the mess of Verizon v. FCC.

AuthorSpeta, James B.

Table of Contents I. Introduction Ii. Net Neutrality Rejects Antitrust Iii. The D.C. Circuit Rejects Common Carrier Nondiscrimination Iv. Rejecting the idea of Nondiscrimination Without Common Carriage V. Why the FCC Must Now Be an Antitruster--and Why That's Not a Bad Thing Vi. Coda: Where I Reject This Whole Business I. Introduction

The principal, alternative vision to network neutrality rules has always been antitrust. Opponents of the Federal Communications Commission's use of Communications Act regulatory authority (if any it had) to create nondiscrimination rules have long argued that competition law is both an adequate and a superior way to address any concerns over ISP actions against content and applications providers. On the other hand, network neutrality advocates have argued that antitrust is neither doctrinally nor institutionally adequate for the task. In adopting its Open Internet Rules, (1) the FCC expressly rejected antitrust as well.

The recent decision of the U.S. Court of Appeals for the D.C. Circuit in Verizon v. FCC (2) somewhat ironically puts the FCC in the position of turning to antitrust. After the court granted a partial win to the FCC, recognizing its authority to regulate Internet carriers even if they do not provide "telecommunications services," the court also held that such regulation must stop short of "common carrier" regulation. (3) The FCC's quest, therefore, is how to address nondiscrimination without going so far as to impose common carriage. Indeed, although the court's opinion does not expressly state that conclusion, I believe that, short of reclassifying broadband services as telecommunications services, the FCC's only path forward is to adopt antitrust-like rules. It is the only way to make sense of the court's holding that the FCC has "some" authority under section 706. (4) Moreover, I believe that such an approach is preferable to any of the other alternatives the FCC might consider. Doctrinally, a competition law-based rule would better fit with the D.C. Circuit's explanation of the FCC's section 706 authority and would fall short of the forbidden zone of common carrier rules. As a policy matter, the FCC could address the core concern of net neutrality arguments: that ISPs would alter content or distribution markets by discriminating among content providers. And this approach would be better than reclassification, a scenario that would require the FCC to begin a lengthy process of calibrating numerous, outdated regulatory rules. The FCC in fact does seem to be moving in the path of a competition-law like standard, although as we go to press, its final path has not been decided.

If the foregoing reasoning is right, and the FCC has the authority to address discrimination by ISPs but the FCC's rules must mimic antitrust principles, then the remaining question is whether the FCC should bother with this path. The FCC could decide to leave such a scheme to the Department of Justice ("DOJ") or the Federal Trade Commission ("FTC"). After all, those agencies have long-standing, principal expertise in competition law. FCC action would likely be duplicative and perhaps not as competent as an approach led by the antitrust agencies. I think this challenge is wrong. The FCC likely has relevant technical and industry expertise that the antitrust agencies may not possess. More importantly, as an administrative agency, the FCC is empowered to make rules based on predictive judgments. (5) Though I am no defender of some of the FCC's more fanciful theories of the past, I do think, given the likelihood that broadband access markets will remain significantly concentrated, that a specialized agency should have the authority to impose certain behavioral requirements on the basis of predicted competitive effects.

Although all of this may be an acceptable policy result, Verizon also reveals the very serious dysfunction that plagues telecommunications policy. Flowing from the Supreme Court's willingness to permit FCC regulation of cable systems at a time when the Communications Act said nothing about them, the courts have long accommodated Congress' absence from communications policy. Even if Congress cannot or will not act, the Telecommunications Act of 1996 should have pointed toward common carrier regulation plus forbearance, not toward the building of a new edifice of uncertain regulatory powers.

  1. Net Neutrality Rejects Antitrust

    The fault line between net neutrality rules and antitrust is well-established. Net neutrality rules focus on nondiscrimination--that is, they make the act of discriminatory treatment illegal, absent any particularized showing that specific acts of discrimination have caused particular harms. (6) By contrast, an antitrust rule condemns discrimination only in instances in which discrimination has a particular effect: the likely foreclosure of competition. (7)

    The FCC's Open Internet Order quite explicitly stated that an antitrust rule would not serve the Commission's purposes: "We also reject the argument that only 'anticompetitive' discrimination yielding 'substantial consumer harm' should be prohibited by our rules." (8) The Commission explained that its purpose of maintaining an open Internet ecosystem "cannot be achieved by preventing only those practices that are demonstrably anticompetitive or harmful to consumers." (9) Applications and content providers needed assurance that "broadband providers [w]ould not pick winners and losers on the Internet--even for reasons that may be independent of providers' competitive interests or that may not immediately or demonstrably cause substantial consumer harm." (10)

    To be sure, a particular rule can occupy the space between the substantive poles of nondiscrimination and antitrust. The Open Internet Rules forbade only "unreasonable discrimination," (11) as do the common carrier provisions of the Communications Act. (12) Indeed, as discussed below, the Communications Act hardly forbade all discrimination. (13) Common carriers were permitted to offer different services to different customers; indeed, sometimes carriers were required to discriminate to advance other goals (such as universal service). The more that the "unreasonableness" of any discrimination is based on notions of competitive markets, the more such a rule resembles antitrust as a conceptual matter.

    If a nondiscrimination rule were based on antitrust thinking, then its principal difference from antitrust enforcement would be institutional, a point to which I will return below. For now, however, note that institutional differences were also one of the FCC's grounds for rejecting antitrust as the best mode. When the FCC expressed its concern that an antitrust rule would not control behaviors that "may not immediately or demonstrably cause substantial consumer harm," (14) it meant that it wanted more ex ante assurance than a more antitrust-like rule--one that relied on ex post determinations--might provide.

  2. The D.C. Circuit Rejects Common Carrier Nondiscrimination

    The D.C. Circuit's decision in Verizon v. FCC puts the Commission on a Goldilocks-like quest to find broadband regulation that is "just right." The D.C. Circuit ruled that section 706 gave the FCC significant authority to regulate broadband markets, just so long as the FCC stopped short of requiring common carrier rules. (15) In its Order, the FCC had rejected two narrower interpretations of section 706. First, it rejected its earlier view that section 706 was merely hortatory, that the FCC should use whatever authority it otherwise had to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans." (16) Second, it rejected the view that section 706 was limited to the narrow list of regulatory tools set forth in the end of the section, including "price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment." (17) Instead, the FCC said that section 706 authorized it to take any measure that could increase infrastructure investment (by forbidding anything that might serve as a barrier to investment). (18) Given the recent breadth of the Supreme Court's Chevron cases, (19) the D.C. Circuit was more or less compelled to approve. (20)

    But while the court recognized the FCC's regulatory authority over ISPs, it also said that the FCC could not--so long as it classifies ISPs as information service providers--subject them to common carrier regulation. (21) The court leaned heavily on Midwest Video II, (22) a 1979 opinion in which the Supreme Court held that FCC cable access rules improperly imposed common carriage regulation on cable television companies. (23)

  3. REJECTING THE IDEA OF NONDISCRIMINATION WITHOUT COMMON CARRIAGE

    The core of the D.C. Circuit's decision was that the FCC's actions under section 706 could not impose "common carrier" regulation; the important extension was its holding that the Open Internet Order's nondiscrimination and no-blocking rules constituted such forbidden common carrier regulation. In the face of such a decision, one standard administrative law move would be to ask whether the FCC could take another bite at the apple--that is, could the FCC attempt to explain further why the nondiscrimination rules it had adopted were not actually common carrier regulation, but rather something else short of it? The D.C. Circuit left this sort of path open in the Comcast case. Although the court rejected the FCC's attempt to regulate Comcast, it invited the FCC to better explain its authority for regulating broadband. (24)

    In this case, although the history of common carrier regulation could support an argument that the FCC's nondiscrimination rules stopped short of "common carrier" regulation, the D.C. Circuit's decision appears to effectively foreclose that argument. The...

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