On June 14, a 2-1 majority of the DC Circuit Court of Appeals gave absolute and unqualified approval to the most expansive and intrusive swath of broadband Internet regulations ever conceived by the Federal Communications Commission. US Telecom v. FCC is a big win for government power to mold the Internet's future.
At issue in US Telecom v FCC is what the agency calls its Open Internet Order. At the core of the Open Internet Order is the FCC's reclassification of broadband Internet access services from a lightly regulated Title I "information service" to a more intrusively regulated Title II "telecommunications service."
By upholding the FCC's Open Internet Order in its entirety, the DC Circuit is really upholding almost open-ended power by the FCC to regulate broadband Internet services. This includes rate regulation of broadband services, regulation of when and how broadband networks exchange traffic, and "general conduct" regulation of network management decisions by broadband providers. The Court's decision upholding of Title II reclassification also paves the way for the FCC to subject consumers of broadband services to universal service surcharges – in effect, Internet taxes.
The FCC never made any finding of broadband market failure – a point the Court's majority was unconcerned with but which dissenting Senior Judge Stephen Williams was rightly troubled by. So consumers won't experience any benefits from the Internet regulations that were just upheld. Rather, the FCC's public utility-style regulation of broadband networks threatens innovation and financial investment that are critical drivers of Internet growth. Evidence of decreased investment has already surfaced in the time since the FCC adopted the Open Internet Order. Unless the Court's decision is reversed or the FCC's regulatory policy is overturned, further diminishment of innovation and investment will reduce consumer choices for new broadband services and offerings.
Among critics of Internet regulation it was expected that some or perhaps several aspects of the FCC's Open Internet Order would be upheld in Court. Indeed, the Court's upholding of Title II reclassification of wireline broadband services is less than surprising – although unthinkable from a public policy standpoint. But what is surprising is the manner in which the Court's majority accepted so completely and without slightest reservation the agency's rationalizations for the entirety of the Open Internet Order. Even the most legally and factually problematic aspects of the Open Internet Order – including Title II reclassification of mobile broadband services, FCC authority over network interconnection, and the vague "general conduct" standard for network management – received easy judicial endorsement. Among other things, the DC Circuit's majority failed to hold the FCC to Supreme Court precedents that required the agency to identify new facts or supply a reasonable explanation for its abrupt change of policy.
The lengthy decision in US Telecom v. FCC touched on a host of legal issues under the Communications Act, the Administrative Procedures Act, the Due Process Clause, the First Amendment, and more. Unpacking those issues would require lengthy analysis of each. Suffice here to briefly consider the DC Circuit's heavy reliance on judicial deference doctrines in upholding the Open Internet Order.
Judicial deference to the policy decision-making and legal interpretations of agencies is surely a hallmark of modern administrative law. Just as sure, the deference given to the FCC's legal, factual, and economic assertions by the D.C. Circuit in US Telecom v. FCC is super-abundant. But the DC Circuit's deference to the FCC is also over-extended.
In Fox v FCC (2009), the Supreme Court held that when an agency changes its policy it must “show that there are good reasons for the new policy." Fox also held the agency must provide "a more detailed justification" when "its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account." In his partial dissent, Judge Williams is surely correct that the facts flagged by the FCC – namely, broadband user access to third party edge content and broadband provider emphasis on speed and reliability of data transmission – are not new facts. Rather, those facts were well known when the Supreme Court upheld the FCC's Title I classification of broadband services in in NCTA v. Brand X Internet Services (2005). More than that, broadband provider services involving information functions are in many respects more integrated with transmission functions now than they were ten years ago. And, surely, the hundreds of billions of dollars invested in broadband networks since the Supreme Court's 2005 decision in Brand X evidence heavy reliance interests in Title I classification.
Further, as Judge Williams cogently explained, the FCC's initial Title I classification decision, upheld in Brand X, depended on the FCC's findings that the market was competitive. Therefore, while the Communications Act doesn't require a competition analysis, the lack of any such analysis in the Open Internet Order is indicative the lack of reasoned explanation for the FCC's sudden change in policy.
As a side note, it's curious the Court omitted consideration of the FCC's sudden and dramatic change in course from its Notice of Proposed Rulemaking for the Open Internet Order. That unexpected change from the Notice's proposed Title I and Section 706 approach coincided with President Obama's unusual YouTube announcement calling for the FCC to reclassify broadband as a Title II service. The timing of the FCC's sudden turnabout was even questioned by the Court during oral arguments. The institutional independence of the FCC – for which it receives judicial deference – is certainly called into question by the agency's process in devising the Open Internet Order.
The dynamic Internet ecosystem that we enjoy today emerged from a lightly regulated environment. The Open Internet Order marked the start of a highly regulated future for the Internet. Regrettably, US Telecom v. FCC gives the FCC judicial sanction to regulate competitive broadband services in a similar manner to how it regulated the 20th Century monopoly telephone services. The FCC's regulations threaten innovation, financial investment, and consumer choice in next-generation broadband Internet services. And as indicated, in the very near future the FCC may insert USF surcharges on the monthly bills of broadband consumers.
There is nothing left to lose by appealing the decision in US Telecom v. FCC to the D.C. Circuit en banc or to the U.S. Supreme Court. The decision heightens the urgency in Congress passing a new Communications Act that can restore a lightly regulated environment and also allow targeted regulatory remedies in proven instances of market failure.
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Seth L. Cooper is a Senior Fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.