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Summary of FCC's Net Neutrality Order

R. Michael Senkowski, Bennett L. Ross, Thomas J. Navin, Helgi Walker, William S. Consovoy and Brendan T. Carr
December 27, 2010

On December 23, 2010, the Federal Communications Commission (FCC) released its order imposing net neutrality rules on providers of broadband Internet access service (Order).  Chairman Julius Genachowski voted for the Order, while Commissioner Michael J. Copps concurred and Commissioner Mignon Clyburn approved in part and concurred in part.  Commissioners Robert M. McDowell and Meredith Attwell Baker dissented. 

Scope of Net Neutrality Rules.   The FCC's rules apply to "broadband Internet access service," which is defined as a "mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service."  (¶ 44).  The term extends to "services provided over any technology platform, including but not limited to wire, terrestrial wireless (including fixed and mobile wireless services using licensed or unlicensed spectrum), and satellite."  (¶ 44).  The new rules apply to services that are "marketed and sold on a standardized basis for residential customers, small businesses, and other end-user customers such as schools and libraries" as well as service "purchased with the support of the E-rate program that may be customized or individually negotiated."  (¶ 45). 

The Order identifies particular offerings that do not or "likely" do not fall within the definition of broadband Internet access service, including: (1) enterprise service offerings; (2) service offering connectivity to one or a small number of Internet endpoints for a particular device, such as connectivity bundled with e-readers, heart monitors, or energy consumption sensors, "to the extent the service relates to the functionality of the device"; (3) virtual private network services; (4) content delivery network services; (5) multichannel video programming services; (6) hosting or data storage services; and (7) "Internet backbone services (if those services are separate from broadband Internet access service)."   (¶¶ 46-47).

Also subject to the FCC's net neutrality rules is any service the Commission finds is "a functional equivalent" of broadband Internet access service or "is used to evade the protections" of the rules.  (¶ 46).  According to the FCC, "[a] key factor in determining whether a service is used to evade the scope of the rules is whether the service is used as a substitute for broadband Internet access service."  (¶ 47).

The Order also clarifies that net neutrality rules do not apply to: (1) "edge provider activities, such as the provision of content or applications over the Internet"; (2) dial-up Internet access service; or (3)"premise operators," which are defined as "coffee shops, bookstores, airlines, and other entities when they acquire Internet service from a broadband provider to enable their patrons to access the Internet from their establishments."  (¶¶ 50-52).  Although "premise operators" are not subject to the net neutrality rules, the protections afforded by the rules apply to the broadband Internet access service provided to premise operators.  (¶ 52). 

Need for Net Neutrality Rules.  In discussing the need for net neutrality rules, which the FCC describes as "prophylactic" in nature, the Commission finds that broadband providers have the incentive and ability to limit Internet openness.  According to the FCC, such incentives include interfering "with the operation of third-party Internet-based services that compete with the providers' revenue-generating telephony and/or pay-televisions services," increasing revenues by charging edge providers "for access or prioritized access to end users," and degrading or declining "to increase the quality of service they provide to non-prioritized traffic."  (¶¶ 20-34).  Furthermore, according to the FCC, the "dangers to Internet openness are not speculative or merely theoretical."  (¶ 35).  The Order points to the 2005 Madison River consent decree, its 2008 Comcast order, as well as other "allegations of blocking, slowing, or degrading P2P traffic."  (¶ 36). 

The Order concludes that the benefits of adopting net neutrality rules outweigh the costs of such rules.  (¶¶ 38-42).  Among other things, the Order concludes that the costs "are likely small" and "should be modest" because the FCC's net neutrality rules "are generally consistent with, and should not require significant changes to, broadband providers' current practices" (¶ 43) and "do not substantially change th[e] highly successful status quo."  (¶ 39). 

The FCC rejects the argument by those who "contend that open Internet rules are likely to reduce investment in broadband deployment" because "[t]here is no evidence that prior open Internet obligations have discouraged investment."  (¶ 40).  To the contrary, the FCC concludes that its "rules will increase incentives to invest in broadband infrastructure."  (¶ 40).  While some argued that the FCC's rules would increase the price of broadband for end users by preventing broadband providers from charging edge providers for enhanced or prioritized service, the FCC finds this argument unpersuasive, concluding that "no broadband provider has stated in this proceeding that it actually would use any revenue from edge provider charges to offset subscriber charges."  (¶ 28).

Fixed Broadband Net Neutrality Rules.  The Order applies the following net neutrality rules to providers of "fixed broadband Internet access service," which the Order defines "as a broadband Internet access service that serves end users primarily at fixed endpoints using stationary equipment, such as the modem that connects an end user's home router, computer, or other Internet access device to the network.  This term encompasses fixed wireless broadband services (including services using unlicensed spectrum) and fixed satellite broadband services."  (¶ 49).

  1. Transparency:  Broadband Internet access service providers are required to "publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings."  (¶ 54).  The information must be "timely and prominently disclosed in plain language" and must be made available to (1) current and prospective end users; (2) edge providers; (3) the Commission; and (4) "third parties who wish to monitor network management practices for potential violations of open Internet principles."  (¶ 56).

    The FCC "expect[s] that effective disclosures will likely include some or all of the following types of information": (1) "network practices," including congestion management, application-specific behavior, device attachment rules, and security practices; (2) "performance characteristics," including service descriptions and the impact of specialized services; and (3) "commercial terms," including pricing, privacy policies, and redress options "for resolving end-user and edge provider complaints and questions."  (¶ 56).  However, the Order explained that the transparency rule "does not require public disclosure of competitively sensitive information or information that would compromise network security or undermine the efficacy of reasonable network management practice."  (¶ 54).

    Although the rule identifies the types of information the FCC expects to be disclosed, "this list is not necessarily exhaustive, nor is it a safe harbor" because, according to the FCC, "there may be additional information" a broadband service provider may be required to disclose "to comply with the rule in light of relevant circumstances."  (¶ 56).  The FCC declined to "adopt a specific format for disclosures" in order "to allow flexibility in implementation of the transparency rule." (¶ 58).  However, "broadband providers must, at a minimum, prominently display or provide links to disclosures on a publicly available, easily accessible website . . . and must disclose relevant information at the point of sale."  (¶ 57).

  2. No Blocking: Fixed broadband Internet access service providers "shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management."  (¶ 63)

    The Order defines the phrase "content, applications, services" as "all traffic transmitted to or from end users of a broadband Internet access service, including traffic that may not fit cleanly into any of these categories," but the rule "protects only transmissions of lawful content, and does not prevent or restrict a broadband provider from refusing to transmit unlawful material such as child pornography."  (¶ 64).

    The "no-blocking rule bars broadband providers from impairing or degrading particular content, applications, services, or non-harmful devices so as to render them effectively unusable (subject to reasonable network management)."  (¶ 66).

    According to the FCC, this rule bars a provider of fixed broadband from charging "edge providers simply for delivering traffic to or carrying traffic from the broadband provider's end-user customers," (¶ 67),  as opposed to charging for prioritization services, which is theoretically permissible, as discussed below. 

  3. No Unreasonable Discrimination: Fixed broadband Internet access service providers "shall not unreasonably discriminate in transmitting lawful network traffic over a consumer's broadband Internet access service.  Reasonable network management shall not constitute unreasonable discrimination."  (¶ 68).

    While the Order declined to adopt a "strict," per se ban on discrimination, it also "reject[ed] the argument that only 'anticompetitive' discrimination yielding 'substantial consumer harm' should be prohibited" by the FCC's rules.  (¶ 77-78).  The Commission concluded that there are some forms of differential treatment of traffic that are beneficial and some that are harmful.  As a result, the FCC determined that an unreasonable discrimination rule was the best approach.

    Relationship With Transparency. The Order suggests that the level of differential treatment allowed under this rule may depend on the level of transparency offered by the provider:  "Differential treatment of traffic is more likely to be reasonable the more transparent to the end user that treatment is."  (¶ 70).

    End-User Control.  According to the Order, "end-user choice and control" are factors "in evaluating the reasonableness of discrimination."  (¶ 71).  In particular, "enabling end users to choose among different broadband offerings based on such factors as assured data rates and reliability, or to select quality-of-service enhancements on their own connections for traffic of their choosing, would be unlikely to violate the no unreasonable discrimination rule, provided the broadband provider's offerings were fully disclosed and were not harmful to competition or end users."  (¶ 71).

    Usage-Based Pricing & Tiered Service.  The FCC rejects the suggestion that broadband providers should be prohibited "from offering their subscribers different tiers of service or from charging their subscribers based on bandwidth consumed."  (¶ 72).  Rather, according to the Commission, its rules do "not prevent broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more."  (¶ 72).

    Use-Agnostic Discrimination.  The FCC determines that "[d]ifferential treatment of traffic that does not discriminate among specific uses of the network or classes of uses is likely reasonable." (¶ 73).  "For example, during periods of congestion a broadband provider could provide more bandwidth to subscribers that have used the network less over some preceding period of time than to heavier users."  (¶ 73).  The FCC also referred to this permissible practice as "application-agnostic discrimination."  (¶ 73).

    Standard Practices.  Another factor in evaluating the reasonableness of discrimination is "[t]he conformity or lack of conformity of a practice with best practices and technical standards adopted by open, broadly representative, and independent Internet engineering, governance initiatives, or standards-setting organizations . . . ."  (¶ 74).

Mobile Broadband Net Neutrality Rules.  The FCC determines that it should take "measured steps" when it comes to mobile broadband Internet access service because "[m]obile broadband is an earlier-stage platform than fixed broadband, and it is rapidly evolving."  (¶ 94).  The Order defines "mobile broadband Internet access service" as "a broadband Internet access service that serves end users primarily using mobile stations.  Mobile broadband Internet access includes services that use smartphones as the primary endpoints for connection to the Internet."  (¶ 49).

Because of the differences between fixed and mobile broadband cited by the Commission, it declined to apply the unreasonable discrimination rule discussed above to mobile broadband.  At the same time, the FCC made clear that its decision not to apply the unreasonable discrimination rule to mobile broadband should not be interpreted to suggest that it will allow mobile providers to engage in the type of discrimination that its rules prohibit a fixed provider from engaging in.  (¶ 104).  The rules that the FCC will apply to providers of mobile broadband Internet access service are as follows: 

  1. Transparency:  The same transparency rule that applies to fixed broadband providers will apply to mobile providers.  (¶ 98).   Although the Order does not "require mobile broadband providers to allow third-party devices or all third-party applications on their networks," it "nonetheless require[s] mobile broadband providers to disclose their third-party device and application certification procedures, if any; to clearly explain their criteria for any restrictions on use of their network; and to expeditiously inform device and application providers of any decisions to deny access to the network or of a failure to approve their particular devices or applications."  (¶ 98).

  2. No Blocking:  Mobile broadband Internet access service providers "shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider's voice or video telephony services, subject to reasonable network management."  (¶ 99).  The Order defines "a 'provider's voice or video telephony services' to include a voice or video telephony service provided by any entity in which the provider has an attributable interest."  (¶ 99).

    The Order explains that the "prohibition on blocking applications that compete with a broadband provider's voice or video telephony services does not apply to a broadband provider's operation of application stores or their functional equivalent."  (¶ 102).  According to the FCC, it declines "to limit mobile broadband providers' flexibility to curate their app stores similar to app store operators that are not subject to these rules."  (¶ 102).

Reasonable Network Management.  The Order provides that its rules against blocking and unreasonable discrimination are subject to reasonable network management.  (¶ 39).  The Order provides that a "network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service."  (¶ 82).  The Order further provides that legitimate network management purposes include, but are not limited to: (1) ensuring network security and integrity by, for example, restricting traffic that is harmful to the network; (2) addressing traffic that is unwanted by end users by, for example, providing services or capabilities consistent with a user's choices regarding parental controls or security capabilities; and (3) reducing or mitigating the effects of congestion on the network by, for example, "temporarily limit[ing] the bandwidth available to individual end users in that neighborhood who are using a substantially disproportionate amount of bandwidth."  (¶¶ 88-92).

The Order recognizes that reasonable network management practices may differ "across access platforms such as cable, DSL, satellite, and fixed wireless."  (¶ 82).  The Order further provides that reasonable network management practices will be determined "on a case-by-case basis, as complaints about broadband providers' actual practices arise."  (¶ 83).

Paid Prioritization.  The FCC defines paid prioritization as a commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider.  (¶ 76).  The FCC's rule prohibiting unreasonable discrimination, which only applies to fixed providers of broadband Internet access, does not impose a per se prohibition on paid prioritization.  Nonetheless, because paid prioritization arrangements raise "significant cause for concern," according to the Commission, it is unlikely that paid prioritization arrangements will satisfy its "no unreasonable discrimination" standard.  (¶ 76).  Paid priority arrangements will be evaluated through the FCC's complaint process, which is discussed below.  (¶ 76).

Specialized Services.  The Order recognizes that broadband providers offer services that share capacity with broadband Internet access service over providers' last-mile facilities, and that providers may develop and offer other such services in the future.  The FCC explains that these "specialized services," such as facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide consumer benefits.  (¶ 112).  However, while consumers may benefit from specialized services, the Commission notes that they also present an opportunity for broadband providers to exert greater control over consumers' Internet experience.  Rather than taking action at this time, the FCC will observe market developments to verify that specialized services promote investment, innovation, competition, and consumer benefits, without undermining or threatening the open Internet.  (¶ 113).

Other Laws and Considerations.  The FCC's rules do not "expand or contract broadband providers' rights or obligations with respect to other laws or safety and security considerations, including the needs of emergency communications and law enforcement, public safety, and national security authorities."  (¶ 107).  Likewise, the rules do not prohibit "reasonable efforts by a provider of broadband Internet access service to address copyright infringement or other unlawful activity."  (¶ 107).

Enforcement Mechanisms.  The Order encourages parties to resolve disputes through "direct negotiation" and explains that the FCC "anticipates" that many net neutrality disputes "will be resolvable by the parties without Commission involvement."  (¶ 151).  But "the Commission will provide backstop mechanisms to address such disputes."  (¶ 151).  These enforcement mechanisms, which are available to both consumers and other entities, include:

  1. Informal Complaints:  The Order explains that "end users, edge providers and others" can submit informal complaints to the FCC through the Commission's website, without having to pay a filing fee.  (¶ 153).  The Order does not define what entities would fall within the category of "others." 

  2. Formal Complaints:   The Order also provides that "anyone" can submit a formal complaint to the FCC, but they must first notify the defendant in writing of their intention.  (¶ 154).  The Order adopts a set of procedures based on Part 76 of the FCC's rules.  (¶ 155).  "[C]omplainants in open Internet proceedings will ultimately bear the burden of proof to demonstrate by a preponderance of the evidence that an alleged violation of the rules has occurred."  (¶ 157).  But the Order also provides that a complainant need only establish a prima facie case before the broadband provider will have to demonstrate the reasonableness of the challenged practice.  (¶ 157).  The Order further provides that the Commission may "adjust the burden of proof" "as appropriate."  (¶ 157).  The Order also explains that the FCC will "allow requests for expedited treatment of open Internet complaints under the Enforcement Bureau's Accelerated Docket procedures."  (¶ 158).

  3. FCC Initiated Actions:  "[I]n addition to ruling on complaints," the Order explains that "the Commission has the authority to initiate enforcement actions on its own motion," "including the issuance of forfeitures."  (¶ 160).

Advisory Committee and Ongoing Monitoring.  The Order explains that the FCC "intend[s] to create an Open Internet Advisory Committee" "[t]o assist the Commission in monitoring the state of Internet openness and the effects of our rules."  (¶ 162).  According to the Order, the "Committee will report to the Commission and make recommendations it deems appropriate concerning our open Internet framework" including issues relating to (1) mobile broadband, and (2) specialized services.  (¶ 162).  The Committee "will be comprised of a balanced group including consumer advocates; Internet engineering experts; content, application, and service providers; network equipment and end-user-device manufacturers and suppliers; investors; broadband service providers; and other parties the Commission may deem appropriate."  (¶ 162).

Legal Authority. As authority for adopting its net neutrality rules, the FCC relies on Section 706 of the Telecommunications Act of 1996, which, according to the Commission, directs it to take actions to encourage the deployment of "advanced telecommunications capability."  The Commission concluded that Section 706(a) provides it with "a specific delegation of legislative authority to promote deployment of advanced services, including by means of the open Internet rules adopted" in the Order.  The Commission rejected its previous construction of this provision "[t]o the extent that [it] can be construed" as determining that Section 706(a) does not provide the agency with substantive authority.  The Commission also concludes that "Section 706(b) of the 1996 Act provides additional authority to takes actions such as enforcing open Internet principles."  (¶¶ 117-123). 

The FCC also determined that it possesses authority to issue these net neutrality rules to further its statutory responsibilities to promote competition to traditional voice services under Section 201(b) of the Communications Act of 1934, to safeguard interconnection between telephone consumers and VoIP users under Section 251(a)(1) of the Act, to ensure the orderly development of local television broadcasting principally under Section 303 of the Act, to promote video competition under Sections 616 and 628 of the Act, and to impose conditions on the use of spectrum under Title III of the Act.  (¶¶ 124-135).  The Commission also rejects arguments that its net neutrality rules violate the First Amendment and amount to an unconstitutional taking under the Fifth Amendment.  (¶¶ 139-150).

Two Year Review.  The Order explains that "[i]n light of the pace of change of technologies and the market for broadband Internet access service, and to evaluate the efficacy of the framework adopted today for preserving Internet openness, the Commission will review all of the rules in this Order no later than two years from their effective date, and will adjust its open Internet framework as appropriate."  (¶ 163).

Effective Date.  The Order explains that some of its rules, including in particular the rules addressing transparency, are subject to the Paperwork Reduction Act, which requires the Office of Management and Budget to review and approve the information collection requirements contained in those rules.  The rules adopted in the Order are effective "60 days after the date of Federal Register notice announcing the decision of the Office of Management and Budget regarding approval of the information collection requirements."  (¶ 161).

For more information, please contact R. Michael Senkowski at 202.719.7249 or msenkowski@wileyrein.comBennett L. Ross at 202.719.7524 or bross@wileyrein.com and Thomas J. Navin at 202.719.7487 or tnavin@wileyrein.com.



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