On May 16, 2014, the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (NPRM)¹ proposing revised “Open Internet” (or “net neutrality”) rules, in response to the January 2014 D.C. Circuit decision that largely vacated its earlier rules issued in 2010. The new proposed rules follow the roadmap laid out by the D.C. Circuit, in that they propose to: (1) bolster the existing “transparency rule,” which survived judicial review; (2) reinstate the prior no-blocking rule; and (3) replace the prior nondiscrimination rule with a more flexible “commercially reasonable” standard borrowed from the Commission’s data roaming order.² Particularly significant is the FCC’s proposal to impose much more comprehensive disclosure obligations on broadband Internet access providers under the transparency rule. Perhaps more significant, however, is that the agency signaled its willingness to consider classifying broadband Internet providers as regulated Title II “common carriers,” as opposed to the unregulated “information services providers” that such entities are treated as today.

Background
The FCC has been struggling for nearly a decade to develop legally enforceable net neutrality rules; it first laid out its Internet “policy statement” during the summer of 2005. The agency’s challenge has been to find a legal rationale for regulating entities—broadband Internet service providers—that it has classified as unregulated “information service providers,” a category exempt from “common carrier” regulation under Title II of the Communications Act.

The FCC’s most recent effort was the 2010 “Open Internet” rules, which required basic disclosures regarding network performance and generally banned landline broadband providers from blocking any lawful websites or other Internet resources and from unreasonably discriminating among such websites/content providers. Wireless providers were exempt from the nondiscrimination obligation. These are the rules that were largely vacated in Verizon v. FCC. For a detailed discussion of that ruling, see our advisory. Briefly, the court agreed with the FCC that, under Section 706 of the Telecommunications Act of 1996 (47 U.S.C. § 1301), the agency had both legal authority and an adequate factual record to impose its rules, but found that the no-blocking and nondiscrimination rules amounted to common carrier regulation, which the agency could not impose while still classifying broadband providers as information service providers. The court did not object to the disclosure/transparency requirements in the 2010 rules.

The New Proposed Rules
The agency has drawn on different aspects of the court’s ruling to try to craft rules that will survive review.

Enhanced Disclosure/Transparency Obligations
The new proposed rules include much more detailed disclosure requirements than the 2010 version, proposing that separate disclosures may be required for end users, content providers (or “edge providers”), and the Commission itself. In addition, the contemplated disclosures include very specific reporting requirements, including information about “blocking, throttling, and pay-for-priority arrangements, or the parameters of default or ‘best effort’ service as distinct from any priority service.” The Commission also strongly signaled its intent to give teeth to the transparency rule—noting that it would consider imposing monetary penalties for failure to adequately disclose any relevant information. If adopted, then, these broader and more detailed disclosure obligations could become difficult for broadband providers.

Commercial Reasonableness
In an effort to cure the defect in its earlier nondiscrimination rule (a rule that, according to the D.C. Circuit, impermissibly imposed common carriage obligations on an information service), the FCC has proposed to borrow the “commercially reasonable” standard that withstood judicial review in the data roaming case. Under the proposed rule, broadband providers are prohibited from engaging in “commercially unreasonable” practices (as opposed to “unreasonable discrimination”). What constitutes such a practice would be determined on a case-by-case basis, relying on a “totality of the circumstances” test. Again, that approach mirrors the FCC’s rules for wireless data roaming, which (like the Open Internet rules) were challenged on the ground that they imposed common carrier regulation on an unregulated information service (mobile data). The D.C. Circuit upheld those rules (in Cellco Partnership v. FCC³) on the ground that the “commercially reasonable” standard provides wireless providers sufficient flexibility to negotiate deals on individualized terms and therefore took the rules out of the realm of common carriage. Given this, the FCC hopes that the D.C. Circuit will similarly accept its proposed standard for landline broadband Internet service. 

There are, however, some potentially important differences between the data roaming situation and this one. Notably, data roaming involves individual negotiations between similar entities (wireless data providers), while, in the broadband context, the issues involve deals with millions of retail customers and at least potentially millions of “edge” providers (websites, etc.) as well. In this regard, the NPRM asks about matters such as data usage caps and the degree to which consumers have been confused regarding the prices that they would be charged. These consumer-facing issues—whether formally addressed under a “commercial reasonableness” standard or otherwise—are quite distinct from the kinds of issues that would arise in provider-to-provider discussions about data roaming. In addition, the agency has strongly suggested that the same types of behavior that it would have considered “unreasonable discrimination” under the old rules (e.g., blocking or degrading access to websites offering services that compete with a service of the broadband provider or one of its affiliates) would also be deemed “commercially unreasonable” under the new rules. (At the same time, the agency proposes, as under the old rules, to accept that broadband providers may offer “specialized services” that receive better/distinctive treatment as compared to generic Internet traffic.) Given this, the courts might view the new approach as an effort to keep “common carrier” regulation in place at least in substance, if not in name. One arguably significant difference between the two standards, however, is that the proposed “commercial reasonableness” standard may allow certain types of pay-for-priority deals between broadband providers and websites (for example, Google paying a broadband provider for faster carriage of its traffic within the “last mile” between the broadband provider’s network and its end-user customer). At the same time, the FCC proposes that an exclusive arrangement between a broadband provider that gives its affiliate prioritized access will be presumed to be commercially unreasonable.

“No Blocking” Rule Reinstated
Notwithstanding its earlier (unsuccessful) effort to avoid common carrier regulation under the 2010 iteration of its net neutrality rules, the FCC has proposed to reinstate its rule against blocking lawful websites or other Internet resources, albeit under a new rationale (and one that makes clear the no-blocking rule is distinct from the “commercial reasonableness” rule). The Commission also proposes to combine the revived no-blocking rule with a “minimum level of service” requirement for any lawful website an end user seeks to access, and invites comment on what standard should govern (for example, a “best efforts” standard, a specific quantitative standard, or an evolving “reasonable person” standard). 

Wireless May Still “Discriminate”
The agency left in place its earlier distinction between landline broadband networks and wireless data networks. In the old version, wireless data networks were not subject to the nondiscrimination rule; in the proposed new version, wireless remains exempt from the “commercial reasonableness” rule. The Commission, however, seeks comment on whether that exemption should remain in place, considering wireless providers’ increased deployment of LTE and the increased use of Wi-Fi by such providers in providing their data services.

Evasion/Circumvention
The old rules defined “broadband Internet access service” to include any service that a provider might offer that could be used to “evade” the requirements of the rules. This was intended to prevent providers from offering something that differed slightly from the formal definition of broadband, and which therefore might be outside the scope of the rules, to avoid the restrictions the rules imposed. The FCC kept that provision in place. Moreover—while it stated that the new rules did not reach peering, transit or content delivery network (CDN) arrangements—the agency also sought comment on whether a broadband provider could effectively evade the restrictions of the rules by means of those arrangements. This opens the door to the agency extending regulation to network-to-network interconnection issues that it has previously treated as outside the scope of its rules.

Title II Still on the Table
Perhaps the most significant aspect of the proposed rules is not so much their substance as the fact that, in the NPRM, the FCC expressly stated that it was willing to reconsider its classification of broadband providers as unregulated “information service providers” and instead treat them as regulated “common carriers” under Title II. Essentially, the agency stated that it wants to impose the same (or even stronger) obligations and restrictions it has been talking about since 2005, and—while it would prefer to leave broadband providers formally unregulated—if the only way that it can accomplish those objectives is by classifying broadband Internet providers as “common carriers,” it is prepared to at least consider doing so.

Comments on the proposed rules are due July 15, 2014, with replies due Sept. 10, 2014.