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June 14, 2016
  U.S. Telecom. Association v. FCC
Case Name: U.S. Telecom. Association v. FCC

Headline: Headline: Split D.C. Circuit panel Upholds FCC's Net Neutrality Rules

Area of Law: Telecommunications Act

Issue(s) Presented: Whether the FCC's 2015 Open Internet Order, which reclassifies fixed and mobile broadband service as telecommunication service subject to common carrier regulation and requires providers to treat all internet traffic the same regardless of source, is consistent with the Telecommunications Act of 1996, the Administrative Procedure Act, the Due Process Clause, and the First Amendment.

Brief Summary: The Telecommunications Act of 1996 distinguishes between telecommunications services, which are subject to common carrier regulation, and information services, which are not. The Act also creates a hybrid category of information services that facilitate use of telecommunications services ("the telecommunications management exception"). This third category, like telecommunications services, is subject to common carrier regulation.

In 1998, the FCC classified the transmission component of DSL service - the phone lines - as telecommunication service but held that the internet access component was an information service. In 2002, in its Cable Broadband Order, the FCC classified broadband service provided over cable lines as solely an information service, treating it as a single integrated service rather than the sum of two discrete parts. The Supreme Court upheld this order in 2005 on Chevron grounds after finding the statutory definition of "telecommunications service" to be ambiguous. National Cable & Telecommunications Ass'n v. Brand X Internet Services, 545 U.S. 967, 986 (2005). Following Brand X, the FCC classified other types of broadband service, including DSL and mobile broadband, as an information service without a standalone telecommunications service component. As of 2005, therefore, neither DSL nor cable was subject to common carrier regulation.

The FCC nonetheless insisted that it would "seek to preserve principles of internet openness." In 2007, after Comcast voluntarily agreed to more open access in response to consumer complaints, the FCC ordered Comcast to make a series of disclosures documenting its progress. The D.C. Circuit subsequently vacated this order on the grounds that the FCC had not identified statutory authority for doing so given its classification of broadband as "information service."

In 2010, following the D.C. Circuit's decision, the FCC initiated notice and comment rulemaking on the question of whether it ought to reclassify broadband service as "telecommunications service" within the meaning of the Telecommunications Act. Instead of reclassifying broadband service, however, the FCC merely issued the 2010 Open Internet Order, which promulgated a transparency rule, requiring disclosure of network management and performance characteristics, an anti-blocking rule, barring providers from blocking lawful content, and an anti-discrimination rule, barring providers from unreasonably discriminating in the transmission of network traffic. The transparency rule applied to fixed and mobile broadband, but the anti-blocking and anti-discrimination rules applied only to fixed broadband. Upon challenge, the D.C. Circuit upheld the FCC's authority to promulgate open internet rules under Section 706 of the Telecommunications Act but vacated the anti-blocking and anti-discrimination rules because they subjected fixed broadband providers to per se common carrier treatment.

The FCC responded with the 2015 Open Internet Order at issue in the instant challenge. The Order reclassifies fixed and mobile broadband service as "telecommunications services." The FCC exempted broadband carriers from mandatory unbundling requirements that were triggered by the telecommunications service classification. Finally, the FCC promulgated five net neutrality rules, applied to both fixed and mobile broadband service. The first three, termed "bright-line rules," ban blocking, throttling, and paid prioritization. The fourth, termed a "general conduct rule," prohibits providers from unreasonably interfering with end users' ability to select the service or internet content of their choice. Finally, the fifth rule built upon the transparency rule upheld previously by the D.C. Circuit. Petitioners, several groups of service providers, edge providers, users, organizations, and investors challenged the Order. The D.C. Circuit denied the various petitions, thus upholding the Order.

The court first determined that reclassifying fixed and mobile broadband service as telecommunications service was permissible under the Telecommunications Act. Employing the familiar Chevron construct, the court began by concluding that the Act did not unambiguously require - either in its plain language, context, or legislative history - that broadband service be classified either as "information service" or as "telecommunications service." Turning to step two, the court found reasonable the FCC's conclusion that users rely on broadband service primarily to access information from other providers, like YouTube and Netflix, which they select, rather than independent content like email offered by broadband service providers. The court accepted the FCC's conclusion that DNS and caching services were adjuncts to telecommunications service that primarily facilitate use of the network.

Turning to the argument that the FCC failed adequately to explain its decision to reclassify broadband service and thus acted arbitrarily and capriciously, the D.C. Circuit found that the FCC had provided sufficient explanation for the reclassification and had properly taken into account appropriate factors, like the possibility that its decision might affect investment in broadband. The panel majority rejected the argument that the FCC's Order failed to make findings regarding market power or to consider competitive conditions, finding no such requirement in the statute. The court also rejected the argument that the FCC had to satisfy a "heightened" standard when it changed its classification, concluding that the FCC had provided reasoned explanation underlying its conclusion that a change was necessary from the prior policy. Finally, the court concluded that the FCC had adequately considered possible reliance interests and found reasonable the FCC's conclusion that factors other than the classification were the most important drivers of broadband investment.

The court next turned to challenges to the Commission's regulation of interconnection arrangements - agreements between broadband providers and other networks to ensure end user access to content. In its Order, the FCC had found regulation of these arrangements necessary to keep providers from disadvantaging content providers and concluded that this regulation was indispensable to and derivative of its regulation of service to end users. After concluding that the FCC had satisfied the requirements of notice and comment rulemaking, the D.C. Circuit upheld the FCC's regulation of interconnection arrangements as reasonable.

Turning to challenges specific to mobile broadband service, the court noted that under the Act, mobile services are subdivided into "commercial mobile services" and "private mobile services," only the former of which are subject to common carrier regulation. In 2007, the FCC had classified mobile broadband, then a nascent service, as "private." The court observed that mobile broadband is a "service" offered "for profit" to "a substantial portion of the public." The court found the changed landscape, with three-quarters of the age 13+ population in America now using smartphones, justified the FCC's conclusion that mobile broadband represented an "interconnected service" that enabled users to connect to the public switched network within the meaning of the statute and found no statutory impediment to the reclassification. Finally, the court rejected the argument that the FCC had insufficiently explained the change, observing that the FCC had engaged in reasoned decision-making and had considered all relevant criteria.

The court next rejected various procedural and substantive challenges to the FCC's decision to forebear from enforcing unbundling requirements on broadband providers. The Communications Act bars the FCC from applying regulatory requirements to a regulated entity when it is not necessary to ensure that the entity's practices are just and nondiscriminatory, when it is not necessary for the protection of consumers, and when it is consistent with the public interest. The court concluded that the FCC had acted neither arbitrarily nor capriciously and had demonstrated rational connections between facts found and choices made.

Next, the court rejected challenges to the promulgated rules on due process/vagueness grounds. Noting that petitioners brought a facial challenge, the court concluded that the rule would pass muster unless it is impermissibly vague in all its applications. The court found that the challenged general conduct rule, which operates only prospectively and imposes no criminal sanctions, provides adequate notice of proscribed conduct. The court noted, in this regard, that the advisory opinion procedure whereby companies could seek out the FCC's opinion on whether a given course of conduct would violate the rule cured it of any conceivable lingering vagueness concern.

Finally, the court found no First Amendment infirmity in the Order. One petitioner had argued that the open access rules would force it to transmit content with which it disagreed in violation of the First Amendment. Because the FCC can legally reclassify broadband service as telecommunications service, which entitles it to treatment as a common carrier, broadband service is subject to nondiscrimination and equal access rules that pass First Amendment muster. The court noted that conveying internet content did not involve any editorial discretion and that broadband providers, like telephone companies, were neutral, indiscriminate platforms for the conveyance of information.

Judge Williams concurred in part and dissented in part and would have vacated the Order.

For the full text of the opinion, please see https://www.cadc.uscourts.gov/...le/15-1063-1619173.pdf.

Panel: Tatel, Srinivasan, Williams

Argument Date: December 4, 2015

Date of Issued Opinion: June 14, 2016

Docket Number: 15-1063

Decided: Affirmed

Counsel (if known):

Author of Opinion: Tatel and Srinivasan

Concurring in part: Williams

Case Alert Author: Elizabeth Beske

Case Alert Circuit Supervisor: Elizabeth Beske, Ripple Weistling

    Posted By: Ripple Weistling @ 06/14/2016 02:03 PM     DC Circuit  

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