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FCC Adopts Broadband Classification Notice of Inquiry

June 24 , 2010
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The Federal Communications Commission (“FCC”) has adopted a Notice of Inquiry (“NOI”) in an effort to determine the adequacy of the FCC’s legal framework for regulating broadband Internet service. The NOI was adopted in the wake of the D.C. Circuit’s decision in Comcast Corp. v. FCC, which held that the FCC could not rely on its so-called “ancillary” authority under Title I of the Communications Act to regulate network management practices of broadband Internet services providers (“ISPs”). The NOI proceeds from the assumption that some form of FCC involvement in the regulation of broadband is necessary to ensure a properly functioning marketplace. Importantly, the FCC takes the position that the notice and comment procedures that it is using in the NOI are not required by the Administrative Procedure Act. This statement suggests that the FCC may be prepared to issue a declaratory ruling on the legal classification of broadband after the NOI comment period rather than proceeding with a rulemaking.

The FCC seeks comment on three potential options for a legal framework applicable to facilities-based broadband ISPs. Importantly, the FCC clarified that the proceeding is not proposing regulation with respect to information services such as: e-mail hosting, web-based content and applications, voicemail, interactive menu services, video conferencing, cloud computing, or any other offering aside from Internet connectivity offered by broadband ISPs. With respect to such ISPs, the NOI outlines three regulatory approaches:

Continued classification of broadband Internet connectivity as an “information service” with regulation under Title I.

This approach has been utilized by the FCC in the past to regulate broadband, but has been cast into doubt by the decision in Comcast. In light of the Comcast decision, the NOI asks for comment on whether the FCC could use ancillary authority to implement broadband universal service reform, protect privacy, ensure broadband access to individuals with disabilities, protect public safety and homeland security and address “harmful” practices by broadband ISPs. The FCC also asks whether there might be alternative approaches to oversight that would not involve reclassification of broadband Internet service under Title II.

Reclassification of broadband Internet connectivity as a “telecommunications service” with regulation under Title II.

This approach would place regulation of broadband Internet connectivity under Title II of the Communications Act, which has existed for regulation of common carriers since the Act’s passage in 1934. The NOI seeks comment on what component of broadband ISP service might be defined as the telecommunications service –the “bare minimum characteristics of an Internet connectivity service” or other parts of the “functionality, elements, or endpoints of Internet connectivity service.” The NOI also seeks comment on the consequences flowing from full application of Title II to broadband Internet service, asking whether the costs of applying all of Title II’s requirements would outweigh the potential benefits.

The “Third Way” – reclassification of broadband Internet connectivity as a “telecommunications service” with regulation under Title II, but FCC forbearance from much of Title II.

This final approach, dubbed the “Third Way” by Chairman Genachowski, would generally subject broadband Internet connectivity to Title II classification, but have the FCC use its authority under Section 10 of the Communications Act to “forbear” from applying all but certain key provisions of Title II. More specifically, the Commission would forbear from enforcing all sections of Title II except 201, 202, 208 and 254, and possibly 222 and 255. According to the NOI, the Third Way enables the FCC to maintain the deregulatory status quo with respect to broadband.

The NOI states that if the FCC were to adopt the Third Way, it would not want to disrupt the status quo for incumbent local exchange carriers or other common carriers offering broadband Internet service that are subject to full Title II regulation. Therefore, the FCC seeks comment on how to not engage in forbearance with respect to these entities. The FCC also seeks comment on whether the FCC should engage in forbearance on a nationwide basis, rather than a regional basis.

Much of the NOI’s discussion and request for comment regarding the Third Way surrounds the question of what sections of Title II the FCC should forbear from enforcing against broadband ISPs. The FCC notes that the FCC has never exercised its authority to forbear from enforcing sections 201, 202 and 208. Sections 201 (requiring common carriers to furnish service at just and reasonable terms and rates) and 202 (generally prohibiting common carriers from unjust or unreasonable discrimination), the FCC suggests, “could provide the Commission direct statutory authority to protect consumers and promote fair competition,” while section 208 (providing for complaint procedures against common carrier conduct) would provide the procedural rules necessary for the FCC to regulate.

The NOI also suggests that section 254, regarding universal service, should continue to apply. In that vein, the FCC asks for comment on how contributions to the Universal Service Fund by broadband ISPs would work – for instance, whether implementation of universal service for broadband ISPs should be delayed until the FCC adopts broadband specific rules. For those parties proposing forbearance from section 254, the FCC asks for alternative proposals to ensure universal availability of broadband Internet connectivity.

In addition to sections 201, 202, 208 and 254, the NOI suggests that the FCC intends to enforce section 222, which requires telecommunication service providers to protect customers’ confidential information and proprietary information from other providers, and section 255, which requires telecommunications service providers to make their services available to individuals with disabilities. The FCC asks whether it is appropriate to apply these two sections to broadband ISPs.

Beyond sections 201, 202, 208, 222, 254 and 255, the NOI asks whether the FCC should exclude other sections of Title II from forbearance for either policy reasons or to ensure the effective enforcement of the above sections. The FCC also inquires whether there are provisions of Title II that the FCC must enforce, because it lacks authority to forbear. Further, the NOI asks whether any sections for which the FCC forbears enforcement will require additional interpretation by the FCC to ensure that forbearance is done properly.

Beyond discussion of the above three regulatory approaches, the NOI asks for comment on additional matters, including:
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The effective date the FCC should adopt for a classification decision of broadband Internet service;

The legal framework – such as the three outlined above or others – that the FCC should use to support its policy goals for wireless broadband, and whether that framework should be the same as that adopted for wired services;

The impact that the legal framework chosen for regulation of facilities-based broadband ISPs would have on non-facilities based ISPs, Internet backbone services, content delivery networks and other Internet services that will continue to be classified as information services;

The limits of state and local authority to impose requirements on broadband ISPs under each of the three legal approaches; and

Other actions the FCC should take outside the proceeding to achieve its policy goals with respect to broadband.

The NOI was passed by a highly divided 3-2 Commission, with both Democratic Commissioners joining Chairman Genachowski in support of the NOI and both Republican Commissioners dissenting. The Chairman’s statement expressed his continued support for the “Third Way” approach, which he initially proposed. In a statement that may foreshadow the FCC’s eventual action, the Chairman stated that an approach where the full Title II was applied to broadband would be “unacceptable.” Commissioner Copps supported aggressive action to immediately reclassify broadband as a Title II service, “accompanied by limited, targeted forbearance from certain provisions.” Commissioner Clyburn expressed general support for the Third Way approach.

Commissioner McDowell strongly opposed reclassification of broadband service under Title II and opposed adoption of the NOI due to the regulatory uncertainty it has created in the broadband marketplace. He urged a government-private sector compromise approach that would have the FCC work with “non-governmental Internet governance groups and consumer protection and antitrust agencies” to “spotlight allegations of anti-competitive conduct.” Finally, Commissioner Baker expressed belief that the FCC could continue to classify broadband service as an “information service” and use its direct and ancillary authority to address universal service reform, disability access and other consensus policy goals. Baker also expressed concern that adoption of the NOI would have a negative impact on the financial markets and worried that the Chairman’s support of the “Third Way’ meant that the outcome of the proceeding had been prejudged.

Comments in response to the NOI will be due July 15, 2010 and Reply Comments will be due August 12, 2010.

We would be pleased to respond to any questions regarding these matters.