United States Telecom Ass'n v. Federal Communications Commission ( 2016 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 4, 2015 Decided June 14, 2016
No. 15-1063
UNITED STATES TELECOM ASSOCIATION, ET AL.,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
INDEPENDENT TELEPHONE & TELECOMMUNICATIONS
ALLIANCE, ET AL.,
INTERVENORS
Consolidated with 15-1078, 15-1086, 15-1090, 15-1091,
15-1092, 15-1095, 15-1099, 15-1117, 15-1128, 15-1151,
15-1164
On Petitions for Review of an Order of
the Federal Communications Commission
Peter D. Keisler argued the cause for petitioners United
States Telecom Association, et al. With him on the joint
briefs were Michael K. Kellogg, Scott H. Angstreich, Miguel
A. Estrada, Theodore B. Olson, Jonathan C. Bond, Stephen E.
2
Coran, S. Jenell Trigg, Jeffrey A. Lamken, David H. Solomon,
Russell P. Hanser, Rick C. Chessen, Neal M. Goldberg,
Michael S. Schooler, Matthew A. Brill, Matthew T.
Murchison, Jonathan Y. Ellis, Helgi C. Walker, Michael R.
Huston, Kathleen M. Sullivan, James P. Young, C. Frederick
Beckner III, David L. Lawson, Gary L. Phillips, and
Christopher M. Heimann. Dennis Corbett and Kellam M.
Conover entered appearances.
Brett A. Shumate argued the cause for petitioners Alamo
Broadband Inc. and Daniel Berninger. With him on the briefs
were Andrew G. McBride, Eve Klindera Reed, Richard E.
Wiley, and Bennett L. Ross.
Earl W. Comstock argued the cause for petitioners Full
Service Network, et al. With him on the briefs were Robert J.
Gastner and Michael A. Graziano.
Bryan N. Tramont and Craig E. Gilmore were on the
briefs for amicus curiae Mobile Future in support of
petitioners CTIA-The Wireless Association and AT&T Inc.
Bryan N. Tramont was on the brief for amicus curiae
Telecommunications Industry Association in support of
petitioners. Russell P. Hanser entered an appearance.
William S. Consovoy, Thomas R. McCarthy, and J.
Michael Connolly were on the brief for amicus curiae Center
for Boundless Innovation in support of petitioners United
States Telecom Association, National Cable &
Telecommunications Association, CTIA-The Wireless
Association, American Cable Association, Wireless Internet
Service Providers Association, AT&T Inc., CenturyLink,
Alamo Broadband Inc., and Daniel Berninger.
3
Thomas R. McCarthy, William S. Consovoy, and J.
Michael Connolly were on the brief for amici curiae Members
of Congress in support of petitioners United States Telecom
Association, National Cable & Telecommunications
Association, CTIA-The Wireless Association, American
Cable Association, Wireless Internet Service Providers
Association, AT&T Inc., Centurylink, Alamo Broadband Inc.,
and Daniel Berninger.
R. Benjamin Sperry was on the brief for amici curiae
International Center for Law & Economics and
Administrative Law Scholars in support of petitioners United
States Telecom Association, National Cable &
Telecommunications Association, CTIA-The Wireless
Association, American Cable Association, Wireless Internet
Service Providers Association, AT&T Inc., Centurylink,
Alamo Broadband Inc., and Daniel Berninger.
David A. Balto was on the brief for amicus curiae
Richard Bennett in support of petitioners United States
Telecom Association, National Cable & Telecommunications
Association, CTIA-The Wireless Association, AT&T Inc.,
American Cable Association, Centurylink, Wireless Internet
Service Providers Association, Alamo Broadband Inc., and
Daniel Berninger.
David A. Balto was on the brief for amici curiae
Georgetown Center for Business and Public Policy and
Thirteen Prominent Economists and Scholars in support of
petitioners United States Telecom Association, National
Cable & Telecommunications Association, CTIA-The
Wireless Association, AT&T Inc., American Cable
Association, Centurylink, Wireless Internet Service Providers
Association, Alamo Broadband Inc., and Daniel Berninger.
4
John P. Elwood, Kate Comerford Todd, and Steven P.
Lehotsky were on the brief for amici curiae The National
Association of Manufacturers, et al. in support of petitioners.
Christopher S. Yoo was on the brief for amicus curiae
Christopher S. Yoo in support of petitioners.
Cory L. Andrews was on the brief for amici curiae
Former FCC Commissioner Harold Furchtgott-Roth and
Washington Legal Foundation in support of petitioners.
Richard A. Samp entered an appearance.
Hans Bader, Sam Kazman, and Russell D. Lukas were on
the brief for amicus curiae Competitive Enterprise Institute in
support of petitioners.
Kim M. Keenan and David Honig were on the brief for
amicus curiae Multicultural Media, Telecom and Internet
Council in support of petitioners.
Lawrence J. Spiwak was on the brief for amicus curiae
Phoenix Center for Advanced Legal and Economic Public
Policy Studies in support of petitioners.
William J. Kirsch was on the briefs for amicus curiae
William J. Kirsch in support of petitioners.
C. Boyden Gray, Adam J. White, and Adam R.F.
Gustafson were on the briefs for intervenors TechFreedom, et
al. in support of United States Telecom Association, National
Cable & Telecommunications Association, CTIA-The
Wireless Association, American Cable Association, Wireless
Internet Service Providers Association, AT&T Inc.,
CenturyLink, Alamo Broadband Inc., and Daniel Berninger.
Bradley A. Benbrook entered an appearance.
5
Jonathan B. Sallet, General Counsel, Federal
Communications Commission, and Jacob M. Lewis,
Associate General Counsel, argued the causes for
respondents. With them on the brief were William J. Baer,
Assistant Attorney General, U.S. Department of Justice,
David I. Gelfand, Deputy Assistant Attorney General, Kristen
C. Limarzi, Robert J. Wiggers, Nickolai G. Levin, Attorneys,
David M. Gossett, Deputy General Counsel, Federal
Communications Commission, James M. Carr, Matthew J.
Dunne, and Scott M. Noveck, Counsel. Richard K. Welch,
Counsel, Federal Communications Commission, entered an
appearance.
Kevin Russell and Pantelis Michalopoulos argued the
cause for intervenors, Cogent Communications, Inc., et al. in
support of respondents. With them on the joint brief were
Markham C. Erickson, Stephanie A. Roy, Andrew W. Guhr,
Robert M. Cooper, Scott E. Gant, Hershel A. Wancjer,
Christopher J. Wright, Scott Blake Harris, Russell M. Blau,
Joshua M. Bobeck, Sarah J. Morris, Kevin S. Bankston, Seth
D. Greenstein, Robert S. Schwartz, Marvin Ammori, Michael
A. Cheah, Deepak Gupta, Erik Stallman, Matthew F. Wood,
James Bradford Ramsay, Jennifer Murphy, Harold Jay Feld,
David Bergmann, and Colleen L. Boothby. Hamish Hume and
Patrick J. Whittle entered appearances.
Michael K. Kellogg, Scott H. Angstreich, Miguel A.
Estrada, Theodore B. Olson, Jonathan C. Bond, Stephen E.
Coran, S. Jenell Trigg, Jeffrey A. Lamken, Matthew A. Brill,
Matthew T. Murchison, Jonathan Y. Ellis, Helgi C. Walker,
and Michael R. Huston were on the joint brief for intervenors
AT&T Inc., et al. in support of respondents in case no. 15-
1151.
6
Christopher Jon Sprigman was on the brief for amici
curiae Members of Congress in support of respondents.
Gregory A. Beck was on the brief for First Amendment
Scholars as amici curiae in support of respondents.
Michael J. Burstein was on the brief for Professors of
Administrative Law as amici curiae in support of
respondents.
Andrew Jay Schwartzman was on the brief for amicus
curiae Tim Wu in support of respondents.
Andrew Jay Schwartzman was on the brief for amicus
curiae Open Internet Civil Rights Coalition in support of
respondents.
Joseph C. Gratz and Alexandra H. Moss were on the
brief for amici curiae Automattic Inc., et al. in support of
respondents.
Markham C. Erickson and Andrew W. Guhr were on the
brief for amicus curiae Internet Association in support of
respondents.
J. Carl Cecere and David T. Goldberg were on the brief
for amici curiae Reed Hundt, et al. in support of respondents.
Anthony P. Schoenberg and Deepak Gupta were on the
brief for amici curiae Engine Advocacy, et al. in support of
respondents.
Anthony R. Segall was on the brief for amici curiae
Writers Guild of America, et al. in support of respondents.
7
Allen Hammond was on the brief for amici curiae The
Broadband Institute of California and The Media Alliance in
support of respondents.
Corynne McSherry and Arthur B. Spitzer were on the
brief for amici curiae Electronic Frontier Foundation, et al. in
support of respondents.
Eric G. Null was on the brief for amicus curiae
Consumer Union of the U.S., Inc. in support of respondents.
Alexandra Sternburg and Henry Goldberg were on the
brief for amici curiae Computer & Communications Industry
and Mozilla in support of respondents.
Krista L. Cox was on the brief for amici curiae American
Library Association, et al. in support of respondents.
Phillip R. Malone and Jeffrey T. Pearlman were on the
brief for amici curiae Sascha Meinrath, Zephyr Teachout and
45,707 Users of the Internet in support of respondents.
Before: TATEL and SRINIVASAN, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judges TATEL and
SRINIVASAN.
Opinion concurring in part and dissenting in part filed by
Senior Circuit Judge WILLIAMS.
TATEL and SRINIVASAN, Circuit Judges: For the third
time in seven years, we confront an effort by the Federal
Communications Commission to compel internet openness—
commonly known as net neutrality—the principle that
broadband providers must treat all internet traffic the same
8
regardless of source. In our first decision, Comcast Corp. v.
FCC, 600 F.3d 642 (D.C. Cir. 2010), we held that the
Commission had failed to cite any statutory authority that
would justify its order compelling a broadband provider to
adhere to certain open internet practices. In response, relying
on section 706 of the Telecommunications Act of 1996, the
Commission issued an order imposing transparency, anti-
blocking, and anti-discrimination requirements on broadband
providers. In our second opinion, Verizon v. FCC, 740 F.3d
623 (D.C. Cir. 2014), we held that section 706 gives the
Commission authority to enact open internet rules. We
nonetheless vacated the anti-blocking and anti-discrimination
provisions because the Commission had chosen to classify
broadband service as an information service under the
Communications Act of 1934, which expressly prohibits the
Commission from applying common carrier regulations to
such services. The Commission then promulgated the order at
issue in this case—the 2015 Open Internet Order—in which it
reclassified broadband service as a telecommunications
service, subject to common carrier regulation under Title II of
the Communications Act. The Commission also exercised its
statutory authority to forbear from applying many of Title II’s
provisions to broadband service and promulgated five rules to
promote internet openness. Three separate groups of
petitioners, consisting primarily of broadband providers and
their associations, challenge the Order, arguing that the
Commission lacks statutory authority to reclassify broadband
as a telecommunications service, that even if the Commission
has such authority its decision was arbitrary and capricious,
that the Commission impermissibly classified mobile
broadband as a commercial mobile service, that the
Commission impermissibly forbore from certain provisions of
Title II, and that some of the rules violate the First
Amendment. For the reasons set forth in this opinion, we
deny the petitions for review.
9
I.
Called “one of the most significant technological
advancements of the 20th century,” Senate Committee on
Commerce, Science and Transportation, Report on Online
Personal Privacy Act, Sen. Rep. No. 107-240, at 7 (2002), the
internet has four major participants: end users, broadband
providers, backbone networks, and edge providers. Most end
users connect to the internet through a broadband provider,
which delivers high-speed internet access using technologies
such as cable modem service, digital subscriber line (DSL)
service, and fiber optics. See In re Protecting and Promoting
the Open Internet (“2015 Open Internet Order” or “the
Order”), 30 FCC Rcd. 5601, 5682–83 ¶ 188, 5751 ¶ 346.
Broadband providers interconnect with backbone networks—
“long-haul fiber-optic links and high-speed routers capable of
transmitting vast amounts of data.” Verizon, 740 F.3d at 628
(citing In re Verizon Communications Inc. and MCI, Inc.
Applications for Approval of Transfer of Control, 20 FCC
Rcd. 18,433, 18,493 ¶ 110 (2005)). Edge providers, like
Netflix, Google, and Amazon, “provide content, services, and
applications over the Internet.” Id. at 629 (citing In re
Preserving the Open Internet (“2010 Open Internet Order”),
25 FCC Rcd. 17,905, 17,910 ¶ 13 (2010)). To bring this all
together, when an end user wishes to check last night’s
baseball scores on ESPN.com, his computer sends a signal to
his broadband provider, which in turn transmits it across the
backbone to ESPN’s broadband provider, which transmits the
signal to ESPN’s computer. Having received the signal,
ESPN’s computer breaks the scores into packets of
information which travel back across ESPN’s broadband
provider network to the backbone and then across the end
user’s broadband provider network to the end user, who will
then know that the Nats won 5 to 3. In recent years, some
edge providers, such as Netflix and Google, have begun
connecting directly to broadband providers’ networks, thus
10
avoiding the need to interconnect with the backbone, 2015
Open Internet Order, 30 FCC Rcd. at 5610 ¶ 30, and some
broadband providers, such as Comcast and AT&T, have
begun developing their own backbone networks, id. at 5688
¶ 198.
Proponents of internet openness “worry about the
relationship between broadband providers and edge
providers.” Verizon, 740 F.3d at 629. “They fear that
broadband providers might prevent their end-user subscribers
from accessing certain edge providers altogether, or might
degrade the quality of their end-user subscribers’ access to
certain edge providers, either as a means of favoring their
own competing content or services or to enable them to
collect fees from certain edge providers.” Id. Thus, for
example, “a broadband provider like Comcast might limit its
end-user subscribers’ ability to access the New York Times
website if it wanted to spike traffic to its own news website,
or it might degrade the quality of the connection to a search
website like Bing if a competitor like Google paid for
prioritized access.” Id.
Understanding the issues raised by the Commission’s
current attempt to achieve internet openness requires
familiarity with its past efforts to do so, as well as with the
history of broadband regulation more generally.
A.
Much of the structure of the current regulatory scheme
derives from rules the Commission established in its 1980
Computer II Order. The Computer II rules distinguished
between “basic services” and “enhanced services.” Basic
services, such as telephone service, offered “pure
transmission capability over a communications path that is
virtually transparent in terms of its interaction with customer
11
supplied information.” In re Amendment of Section 64.702
of the Commission’s Rules and Regulations (“Computer II”),
77 F.C.C. 2d 384, 420 ¶ 96 (1980). Enhanced services
consisted of “any offering over the telecommunications
network which is more than a basic transmission service,” for
example, one in which “computer processing applications are
used to act on the content, code, protocol, and other aspects of
the subscriber’s information,” such as voicemail. Id. at 420
¶ 97. The rules subjected basic services, but not enhanced
services, to common carrier treatment under Title II of the
Communications Act. Id. at 387 ¶¶ 5–7. Among other things,
Title II requires that carriers “furnish . . . communication
service upon reasonable request,” 47 U.S.C. § 201(a), engage
in no “unjust or unreasonable discrimination in charges,
practices, classifications, regulations, facilities, or services,”
id. § 202(a), and charge “just and reasonable” rates, id.
§ 201(b).
The Computer II rules also recognized a third category of
services, “adjunct-to-basic” services: enhanced services, such
as “speed dialing, call forwarding, [and] computer-provided
directory assistance,” that facilitated use of a basic service.
See In re Implementation of the Non-Accounting Safeguards
(“Non-Accounting Safeguards Order”), 11 FCC Rcd. 21,905,
21,958 ¶ 107 n.245 (1996). Although adjunct-to-basic
services fell within the definition of enhanced services, the
Commission nonetheless treated them as basic because of
their role in facilitating basic services. See Computer II, 77
F.C.C. 2d at 421 ¶ 98 (explaining that the Commission would
not treat as an enhanced service those services used to
“facilitate [consumers’] use of traditional telephone
services”).
Fifteen years later, Congress, borrowing heavily from the
Computer II framework, enacted the Telecommunications Act
12
of 1996, which amended the Communications Act. The
Telecommunications Act subjects a “telecommunications
service,” the successor to basic service, to common carrier
regulation under Title II. 47 U.S.C. § 153(51) (“A
telecommunications carrier shall be treated as a common
carrier under [the Communications Act] only to the extent
that it is engaged in providing telecommunications
services.”). By contrast, an “information service,” the
successor to an enhanced service, is not subject to Title II.
The Telecommunications Act defines a “telecommunications
service” as “the offering of telecommunications for a fee
directly to the public, or to such classes of users as to be
effectively available directly to the public, regardless of the
facilities used.” Id. § 153(53). It defines telecommunications
as “the transmission, between or among points specified by
the user, of information of the user’s choosing without change
in the form or content of the information as sent and
received.” Id. § 153(50). An information service is an
“offering of a capability for generating, acquiring, storing,
transforming, processing, retrieving, utilizing, or making
available information via telecommunications.” Id.
§ 153(24). The appropriate regulatory treatment therefore
turns on what services a provider offers to the public: if it
offers telecommunications, that service is subject to Title II
regulation.
Tracking the Commission’s approach to adjunct-to-basic
services, Congress also effectively created a third category for
information services that facilitate use of a
telecommunications service. The “telecommunications
management exception” exempts from information service
treatment—and thus treats as a telecommunications service—
“any use [of an information service] for the management,
control, or operation of a telecommunications system or the
management of a telecommunications service.” Id.
13
The Commission first applied this statutory framework to
broadband in 1998 when it classified a portion of DSL
service—broadband internet service furnished over telephone
lines—as a telecommunications service. See In re
Deployment of Wireline Services Offering Advanced
Telecommunications Capability (“Advanced Services
Order”), 13 FCC Rcd. 24,012, 24,014 ¶ 3, 24,029–30 ¶¶ 35–
36 (1998). According to the Commission, the transmission
component of DSL—the phone lines that carried the
information—was a telecommunications service. Id. at
24,029–30 ¶¶ 35–36. The Commission classified the internet
access delivered via the phone lines, however, as a separate
offering of an information service. Id. at 24,030 ¶ 36. DSL
providers that supplied the phone lines and the internet access
therefore offered both a telecommunications service and an
information service.
Four years later, the Commission took a different
approach when it classified cable modem service—broadband
service provided over cable lines—as solely an information
service. In re Inquiry Concerning High-Speed Access to the
Internet over Cable and Other Facilities (“Cable Broadband
Order”), 17 FCC Rcd. 4798, 4823 ¶¶ 39–40 (2002). In its
2002 Cable Broadband Order, the Commission acknowledged
that when providing the information service component of
broadband—which, according to the Commission, consisted
of several distinct applications, including email and online
newsgroups, id. at 4822–23 ¶ 38—cable broadband providers
transmit information and thus use telecommunications. In the
Commission’s view, however, the transmission functioned as
a component of a “single, integrated information service,”
rather than as a standalone offering. Id. at 4823 ¶ 38. The
Commission therefore classified them together as an
information service. Id. at 4822–23 ¶¶ 38–40.
14
The Supreme Court upheld the Commission’s
classification of cable modem service in National Cable &
Telecommunications Ass’n v. Brand X Internet Services, 545
U.S. 967, 986 (2005). Applying the principles of statutory
interpretation established in Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984), the
Court explained that the key statutory term “offering” in the
definition of “telecommunications service” is ambiguous.
Brand X, 545 U.S. at 989. What a company offers, the Court
reasoned, can refer to either the “single, finished product” or
the product’s individual components. Id. at 991. According
to the Court, resolving that question in the context of
broadband service requires the Commission to determine
whether the information service and the telecommunications
components “are functionally integrated . . . or functionally
separate.” Id. That question “turns not on the language of
[the Communications Act], but on the factual particulars of
how Internet technology works and how it is provided,
questions Chevron leaves to the Commission to resolve in the
first instance.” Id. Examining the classification at Chevron’s
second step—reasonableness—the Court deferred to the
Commission’s finding that “the high-speed transmission used
to provide [the information service] is a functionally
integrated component of that service,” id. at 998, and upheld
the order, id. at 1003. Three Justices dissented, arguing that
cable broadband providers offered telecommunications in the
form of the “physical connection” between their computers
and end users’ computers. See id. at 1009 (Scalia, J.,
dissenting).
Following Brand X, the Commission classified other
types of broadband service, such as DSL and mobile
broadband service, as integrated offerings of information
services without a standalone offering of telecommunications.
See, e.g., In re Appropriate Regulatory Treatment for
15
Broadband Access to the Internet over Wireless Networks
(“2007 Wireless Order”), 22 FCC Rcd. 5901, 5901–02 ¶ 1
(2007) (mobile broadband); In re Appropriate Framework for
Broadband Access to the Internet over Wireline Facilities
(“2005 Wireline Broadband Order”), 20 FCC Rcd. 14,853,
14,863–64 ¶ 14 (2005) (DSL).
B.
Although the Commission’s classification decisions
spared broadband providers from Title II common carrier
obligations, the Commission made clear that it would
nonetheless seek to preserve principles of internet openness.
In the 2005 Wireline Broadband Order, which classified DSL
as an integrated information service, the Commission
announced that should it “see evidence that providers of
telecommunications for Internet access or IP-enabled services
are violating these principles,” it would “not hesitate to take
action to address that conduct.” 2005 Wireline Broadband
Order, 20 FCC Rcd. at 14,904 ¶ 96. Simultaneously, the
Commission issued a policy statement signaling its intention
to “preserve and promote the open and interconnected nature
of the public Internet.” In re Appropriate Framework for
Broadband Access to the Internet over Wireline Facilities, 20
FCC Rcd. 14,986, 14,988 ¶ 4 (2005).
In 2007, the Commission found reason to act when
Comcast customers accused the company of interfering with
their ability to access certain applications. Comcast, 600 F.3d
at 644. Because Comcast voluntarily adopted new practices
to address the customers’ concerns, the Commission “simply
ordered [Comcast] to make a set of disclosures describing the
details of its new approach and the company’s progress
toward implementing it.” Id. at 645. As authority for that
order, the Commission cited its section 4(i) “ancillary
jurisdiction.” 47 U.S.C. § 154(i) (“The Commission may
16
perform any and all acts, make such rules and regulations, and
issue such orders, not inconsistent with this chapter, as may
be necessary in the execution of its functions.”); In re Formal
Complaint of Free Press and Public Knowledge Against
Comcast Corp. for Secretly Degrading Peer-to-Peer
Applications, 23 FCC Rcd. 13,028, 13,034–41 ¶¶ 14–22
(2008). In Comcast, we vacated that order because the
Commission had failed to identify any grant of statutory
authority to which the order was reasonably ancillary. 600
F.3d at 644.
C.
Following Comcast, the Commission issued a notice of
inquiry, seeking comment on whether it should reclassify
broadband as a telecommunications service. See In re
Framework for Broadband Internet Service, 25 FCC Rcd.
7866, 7867 ¶ 2 (2010). Rather than reclassify broadband,
however, the Commission adopted the 2010 Open Internet
Order. See 25 FCC Rcd. 17,905. In that order, the
Commission promulgated three rules: (1) a transparency rule,
which required broadband providers to “disclose the network
management practices, performance characteristics, and terms
and conditions of their broadband services”; (2) an anti-
blocking rule, which prohibited broadband providers from
“block[ing] lawful content, applications, services, or non-
harmful devices”; and (3) an anti-discrimination rule, which
established that broadband providers “may not unreasonably
discriminate in transmitting lawful network traffic.” Id. at
17,906 ¶ 1. The transparency rule applied to both “fixed”
broadband, the service a consumer uses on her laptop when
she is at home, and “mobile” broadband, the service a
consumer uses on her iPhone when she is riding the bus to
work. Id. The anti-blocking rule applied in full only to fixed
broadband, but the order prohibited mobile broadband
providers from “block[ing] lawful websites, or block[ing]
17
applications that compete with their voice or video telephony
services.” Id. The anti-discrimination rule applied only to
fixed broadband. Id. According to the Commission, mobile
broadband warranted different treatment because, among
other things, “the mobile ecosystem is experiencing very
rapid innovation and change,” id. at 17,956 ¶ 94, and “most
consumers have more choices for mobile broadband than for
fixed,” id. at 17,957 ¶ 95. In support of its rules, the
Commission relied primarily on section 706 of the
Telecommunications Act, which requires that the
Commission “encourage the deployment on a reasonable and
timely basis of advanced telecommunications capability to all
Americans,” 47 U.S.C. § 1302(a). 25 FCC Rcd. at 17,968–72
¶¶ 117–23.
In Verizon, we upheld the Commission’s conclusion that
section 706 provides it authority to promulgate open internet
rules. According to the Commission, such rules encourage
broadband deployment because they “preserve and facilitate
the ‘virtuous circle’ of innovation that has driven the
explosive growth of the Internet.” Verizon, 740 F.3d at 628.
Under the Commission’s “virtuous circle” theory, “Internet
openness . . . spurs investment and development by edge
providers, which leads to increased end-user demand for
broadband access, which leads to increased investment in
broadband network infrastructure and technologies, which in
turns leads to further innovation and development by edge
providers.” Id. at 634. Reviewing the record, we concluded
that the Commission’s “finding that Internet openness
fosters . . . edge-provider innovation . . . was . . . reasonable
and grounded in substantial evidence” and that the
Commission had “more than adequately supported and
explained its conclusion that edge-provider innovation leads
to the expansion and improvement of broadband
infrastructure.” Id. at 644.
18
We also determined that the Commission had
“adequately supported and explained its conclusion that,
absent rules such as those set forth in the [2010 Open Internet
Order], broadband providers represent[ed] a threat to Internet
openness and could act in ways that would ultimately inhibit
the speed and extent of future broadband deployment.” Id. at
645. For example, the Commission noted that “broadband
providers like AT & T and Time Warner have acknowledged
that online video aggregators such as Netflix and Hulu
compete directly with their own core video subscription
service,” id. (internal quotation marks omitted), and that, even
absent direct competition, “[b]roadband providers . . . have
powerful incentives to accept fees from edge providers, either
in return for excluding their competitors or for granting them
prioritized access to end users,” id. at 645–46. Importantly,
moreover, the Commission found that “broadband providers
have the technical . . . ability to impose such restrictions,”
noting that there was “little dispute that broadband providers
have the technological ability to distinguish between and
discriminate against certain types of Internet traffic.” Id. at
646. The Commission also “convincingly detailed how
broadband providers’ [gatekeeper] position in the market
gives them the economic power to restrict edge-provider
traffic and charge for the services they furnish edge
providers.” Id. Although the providers’ gatekeeper position
would have brought them little benefit if end users could have
easily switched providers, “we [saw] no basis for questioning
the Commission’s conclusion that end users [were] unlikely to
react in this fashion.” Id. The Commission
“detailed . . . thoroughly . . . the costs of switching,” and
found that “many end users may have no option to switch, or
at least face very limited options.” Id. at 647.
Finally, we explained that although some record evidence
supported Verizon’s insistence that the order would have a
19
detrimental effect on broadband deployment, other record
evidence suggested the opposite. Id. at 649. The case was
thus one where “‘the available data do[] not settle a regulatory
issue and the agency must then exercise its judgment in
moving from the facts and probabilities on the record to a
policy conclusion.’” Id. (alteration in original) (quoting
Motor Vehicle Manufacturers Ass’n v. State Farm Mutual
Automobile Insurance Co., 463 U.S. 29, 52 (1983)). The
Commission, we concluded, had “offered ‘a rational
connection between the facts found and the choice made.’”
Id. (quoting State Farm, 463 U.S. at 52).
We nonetheless vacated the anti-blocking and anti-
discrimination rules because they unlawfully subjected
broadband providers to per se common carrier treatment. Id.
at 655, 658–59. As we explained, the Communications Act
provides that “[a] telecommunications carrier shall be treated
as a common carrier . . . only to the extent that it is engaged in
providing telecommunications services.” Id. at 650 (quoting
47 U.S.C. § 153(51)). The Commission, however, had
classified broadband not as a telecommunications service, but
rather as an information service, exempt from common carrier
regulation. Id. Because the anti-blocking and anti-
discrimination rules required broadband providers to offer
service indiscriminately—the common law test for a per se
common carrier obligation—they ran afoul of the
Communications Act. See id. at 651–52, 655, 658–59. We
upheld the transparency rule, however, because it imposed no
per se common carrier obligations on broadband providers.
Id. at 659.
D.
A few months after our decision in Verizon, the
Commission issued a notice of proposed rulemaking to “find
the best approach to protecting and promoting Internet
20
openness.” In re Protecting and Promoting the Open Internet
(“NPRM”), 29 FCC Rcd. 5561, 5563 ¶ 4 (2014). After
receiving nearly four million comments, the Commission
promulgated the order at issue in this case, the 2015 Open
Internet Order. 30 FCC Rcd. at 5624 ¶ 74.
The Order consists of three components. First, the
Commission reclassified both fixed and mobile “broadband
Internet access service” as telecommunications services. Id.at 5743–44 ¶ 331. For purposes of the Order, the
Commission defined “broadband Internet access service” 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.” Id. at 5745–46 ¶ 336 (footnote omitted). Because
the Commission concluded that the telecommunications
service offered to end users necessarily includes the
arrangements that broadband providers make with other
networks to exchange traffic—commonly referred to as
“interconnection arrangements”—the Commission
determined that Title II would apply to those arrangements as
well. Id. at 5686 ¶ 195. The Commission also reclassified
mobile broadband service, which it had previously deemed a
“private mobile service,” exempt from common carrier
regulation, as a “commercial mobile service,” subject to such
regulation. Id. at 5778 ¶ 388.
In the Order’s second component, the Commission
carried out its statutory mandate to forbear “from applying
any regulation or any provision” of the Communications Act
if it determines that the provision is unnecessary to ensure just
and reasonable service or protect consumers and determines
that forbearance is “consistent with the public interest.” 47
21
U.S.C. § 160(a). Specifically, the Commission forbore from
applying certain Title II provisions to broadband service,
including section 251’s mandatory unbundling requirements.
2015 Open Internet Order, 30 FCC Rcd. at 5804–05 ¶ 434,
5849–51 ¶ 513.
In the third portion of the Order, the Commission
promulgated five open internet rules, which it applied to both
fixed and mobile broadband service. The first three of the
Commission’s rules, which it called “bright-line rules,” ban
blocking, throttling, and paid prioritization. Id. at 5647 ¶ 110.
The anti-blocking and anti-throttling rules prohibit broadband
providers from blocking “lawful content, applications,
services, or non-harmful devices” or throttling—degrading or
impairing—access to the same. Id. at 5648 ¶ 112, 5651 ¶ 119.
The anti-paid-prioritization rule bars broadband providers
from “favor[ing] some traffic over other traffic . . . either (a)
in exchange for consideration (monetary or otherwise) from a
third party, or (b) to benefit an affiliated entity.” Id. at 5653
¶ 125. The fourth rule, known as the “General Conduct
Rule,” prohibits broadband providers from “unreasonably
interfer[ing] with or unreasonably disadvantag[ing] (i) end
users’ ability to select, access, and use broadband Internet
access service or the lawful Internet content, applications,
services, or devices of their choice, or (ii) edge providers’
ability to make lawful content, applications, services, or
devices available to end users.” Id. at 5660 ¶ 136. The
Commission set forth a nonexhaustive list of factors to guide
its application of the General Conduct Rule, which we discuss
at greater length below. See id. at 5661–64 ¶¶ 138–45.
Finally, the Commission adopted an enhanced transparency
rule, which builds upon the transparency rule that it
promulgated in its 2010 Open Internet Order and that we
sustained in Verizon. Id. at 5669–82 ¶¶ 154–85.
22
Several groups of petitioners now challenge the Order:
US Telecom Association, an association of service providers,
along with several other providers and associations; Full
Service Network, a service provider, joined by other such
providers; and Alamo Broadband Inc., a service provider,
joined by an edge provider, Daniel Berninger. TechFreedom,
a think tank devoted to technology issues, along with a
service provider and several individual investors and
entrepreneurs, has intervened on the side of petitioners US
Telecom and Alamo. Cogent, a service provider, joined by
several edge providers, users, and organizations, has
intervened on the side of the Commission.
In part II, we address petitioners’ arguments that the
Commission has no statutory authority to reclassify
broadband as a telecommunications service and that, even if it
possesses such authority, it acted arbitrarily and capriciously.
In part III, we address challenges to the Commission’s
regulation of interconnection arrangements under Title II. In
part IV, we consider arguments that the Commission lacks
statutory authority to classify mobile broadband service as a
“commercial mobile service” and that, in any event, its
decision to do so was arbitrary and capricious. In part V, we
assess the contention that the Commission impermissibly
forbore from certain provisions of Title II. In part VI, we
consider challenges to the open internet rules. And finally, in
part VII, we evaluate the claim that some of the open internet
rules run afoul of the First Amendment.
Before addressing these issues, we think it important to
emphasize two fundamental principles governing our
responsibility as a reviewing court. First, our “role in
reviewing agency regulations . . . is a limited one.” Ass’n of
American Railroads v. Interstate Commerce Commission, 978
F.2d 737, 740 (D.C. Cir. 1992). Our job is to ensure that an
23
agency has acted “within the limits of [Congress’s]
delegation” of authority, Chevron, 467 U.S. at 865, and that
its action is not “arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law,” 5 U.S.C. §
706(2)(A). Critically, we do not “inquire as to whether the
agency’s decision is wise as a policy matter; indeed, we are
forbidden from substituting our judgment for that of the
agency.” Ass’n of American Railroads, 978 F.2d at 740(alteration and internal quotation marks omitted). Nor do we
inquire whether “some or many economists would disapprove
of the [agency’s] approach” because “we do not sit as a panel
of referees on a professional economics journal, but as a panel
of generalist judges obliged to defer to a reasonable judgment
by an agency acting pursuant to congressionally delegated
authority.” City of Los Angeles v. U.S. Department of
Transportation, 165 F.3d 972, 978 (D.C. Cir. 1999). Second,
we “sit to resolve only legal questions presented and argued
by the parties.” In re Cheney, 334 F.3d 1096, 1108 (D.C. Cir.
2003), vacated and remanded on other grounds sub nom.
Cheney v. U.S. District Court for the District of Columbia,
542 U.S. 367 (2004); see also, e.g., United Parcel Service,
Inc. v. Mitchell, 451 U.S. 56, 61 n.2 (1981) (“We decline to
consider this argument since it was not raised by either of the
parties here or below.”). “It is not our duty” to consider
“novel arguments a [party] could have made but did not.”
United States v. Laureys, 653 F.3d 27, 32 (D.C. Cir. 2011).
“The premise of our adversarial system is that appellate courts
do not sit as self-directed boards of legal inquiry and research,
but essentially as arbiters of legal questions presented and
argued by the parties before them.” Carducci v. Regan, 714
F.2d 171, 177 (D.C. Cir. 1983). Departing from this rule
would “deprive us in substantial measure of that assistance of
counsel which the system assumes—a deficiency that we can
perhaps supply by other means, but not without altering the
character of our institution.” Id. With these two critical
24
principles in mind, we turn to the first issue in this case—the
Commission’s reclassification of broadband as a
“telecommunications service.”
II.
In the Open Internet Order, the Commission determined
that broadband service satisfies the statutory definition of a
telecommunications service: “the offering of
telecommunications for a fee directly to the public.” 47
U.S.C. § 153(53). In accordance with Brand X, the
Commission arrived at this conclusion by examining
consumer perception of what broadband providers offer.
2015 Open Internet Order, 30 FCC Rcd. at 5750 ¶ 342. In
Brand X, the Supreme Court held that it was “consistent with
the statute’s terms” for the Commission to take into account
“the end user’s perspective” in classifying a service as
“information” or “telecommunications.” 545 U.S. at 993.
Specifically, the Court held that the Commission had
reasonably concluded that a provider supplies a
telecommunications service when it makes a “‘stand-alone’
offering of telecommunications, i.e., an offered service that,
from the user’s perspective, transmits messages unadulterated
by computer processing.” Id. at 989. In the Order, the
Commission concluded that consumers perceive broadband
service both as a standalone offering and as providing
telecommunications. See 2015 Open Internet Order, 30 FCC
Rcd. at 5765 ¶ 365. These conclusions about consumer
perception find extensive support in the record and together
justify the Commission’s decision to reclassify broadband as a
telecommunications service.
With respect to its first conclusion—that consumers
perceive broadband as a standalone offering—the
Commission explained that broadband providers offer two
separate types of services: “a broadband Internet access
25
service,” id. at 5750 ¶ 341, which provides “the ability to
transmit data to and from Internet endpoints,” id. at 5755
¶ 350; and “‘add-on’ applications, content, and services that
are generally information services,” id. at 5750 ¶ 341, such as
email and cloud-based storage programs, id. at 5773 ¶ 376. It
found that from the consumer’s perspective, “broadband
Internet access service is today sufficiently independent of
these information services that it is a separate offering.” Id. at
5757–58 ¶ 356.
In support of its conclusion, the Commission pointed to
record evidence demonstrating that consumers use broadband
principally to access third-party content, not email and other
add-on applications. “As more American households have
gained access to broadband Internet access service,” the
Commission explained, “the market for Internet-based
services provided by parties other than broadband Internet
access providers has flourished.” Id. at 5753 ¶ 347. Indeed,
from 2003 to 2015, the number of websites increased from
“approximately 36 million” to “an estimated 900 million.” Id.By one estimate, two edge providers, Netflix and YouTube,
“account for 50 percent of peak Internet download traffic in
North America.” Id. at 5754 ¶ 349.
That consumers focus on transmission to the exclusion of
add-on applications is hardly controversial. Even the most
limited examination of contemporary broadband usage reveals
that consumers rely on the service primarily to access third-
party content. The “typical consumer” purchases broadband
to use “third-party apps such as Facebook, Netflix, YouTube,
Twitter, or MLB.tv, or . . . to access any of thousands of
websites.” Computer & Communications Industry
Association Amicus Br. 7. As one amicus succinctly
explains, consumers today “pay telecommunications
providers for access to the Internet, and access is exactly what
26
they get. For content, they turn to [the] creative efforts . . . of
others.” Automattic Amicus Br. 1.
Indeed, given the tremendous impact third-party internet
content has had on our society, it would be hard to deny its
dominance in the broadband experience. Over the past two
decades, this content has transformed nearly every aspect of
our lives, from profound actions like choosing a leader,
building a career, and falling in love to more quotidian ones
like hailing a cab and watching a movie. The same assuredly
cannot be said for broadband providers’ own add-on
applications.
The Commission found, moreover, that broadband
consumers not only focus on the offering of transmission but
often avoid using the broadband providers’ add-on services
altogether, choosing instead “to use their high-speed Internet
connections to take advantage of competing services offered
by third parties.” 2015 Open Internet Order, 30 FCC Rcd. at
5753 ¶ 347. For instance, two third-party email services,
Gmail and Yahoo! Mail, were “among the ten Internet sites
most frequently visited during the week of January 17, 2015,
with approximately 400 million and 350 million visits
respectively.” Id. at 5753 ¶ 348. Some “even advise
consumers specifically not to use a broadband provider-based
email address[] because a consumer cannot take that email
address with them if he or she switches providers.” Id.Amici Members of Congress in Support of Respondents
provide many more examples of third-party content that
consumers use in lieu of broadband provider content,
examples that will be abundantly familiar to most internet
users. “[M]any consumers,” they note, “have spurned the
applications . . . offered by their broadband Internet access
service provider, in favor of services and applications offered
27
by third parties, such as . . . news and related content on
nytimes.com or washingtonpost.com or Google News; home
pages on Microsoft’s MSN or Yahoo!’s ‘my.yahoo’; video
content on Netflix or YouTube or Hulu; streaming music on
Spotify or Pandora or Apple Music; and on-line shopping on
Amazon.com or Target.com, as well as many others in each
category.” Members of Congress for Resp’ts Amicus Br. 22.
In support of its second conclusion—that from the user’s
point of view, the standalone offering of broadband service
provides telecommunications—the Commission explained
that “[u]sers rely on broadband Internet access service to
transmit ‘information of the user’s choosing,’ ‘between or
among points specified by the user,’” without changing the
form or content of that information. 2015 Open Internet
Order, 30 FCC Rcd. at 5761 ¶ 361 (quoting 47 U.S.C.
§ 153(50)); see also id. at 5762–63 ¶ 362. The Commission
grounded that determination in record evidence that
“broadband Internet access service is marketed today
primarily as a conduit for the transmission of data across the
Internet.” Id. at 5757 ¶ 354. Specifically, broadband
providers focus their advertising on the speed of transmission.
For example, the Commission quoted a Comcast ad offering
“the consistently fast speeds you need, even during peak
hours”; an RCN ad promising the ability “to upload and
download in a flash”; and a Verizon ad claiming that
“[w]hatever your life demands, there’s a Verizon FiOS plan
with the perfect upload/download speed for you.” Id. at 5755
¶ 351 (alteration in original) (internal quotation marks
omitted). The Commission further observed that “fixed
broadband providers use transmission speeds to classify tiers
of service offerings and to distinguish their offerings from
those of competitors.” Id.28
Those advertisements, moreover, “link higher
transmission speeds and service reliability with enhanced
access to the Internet at large—to any ‘points’ a user may
wish to reach.” Id. at 5756 ¶ 352. For example, RCN brags
that its service is “ideal for watching Netflix,” and Verizon
touts its service as “work[ing] well for uploading and sharing
videos on YouTube.” Id. Based on the providers’ emphasis
on how useful their services are for accessing third-party
content, the Commission found that end users view broadband
service as a mechanism to transmit data of their own choosing
to their desired destination—i.e., as a telecommunications
service.
In concluding that broadband qualifies as a
telecommunications service, the Commission explained that
although broadband often relies on certain information
services to transmit content to end users, these services “do
not turn broadband Internet access service into a functionally
integrated information service” because “they fall within the
telecommunications system management exception.” Id. at
5765 ¶ 365. The Commission focused on two such services.
The first, DNS, routes end users who input the name of a
website to its numerical IP address, allowing users to reach
the website without having to remember its multidigit
address. Id. at 5766 ¶ 366. The second, caching, refers to the
process of storing copies of web content at network locations
closer to users so that they can access it more quickly. Id. at
5770 ¶ 372. The Commission found that DNS and caching fit
within the statute’s telecommunications management
exception because both services are “simply used to facilitate
the transmission of information so that users can access other
services.” Id.Petitioners assert numerous challenges to the
Commission’s decision to reclassify broadband. Finding that
29
none has merit, we uphold the classification. Significantly,
although our colleague believes that the Commission acted
arbitrarily and capriciously when it reclassified broadband, he
agrees that the Commission has statutory authority to classify
broadband as a telecommunications service. Concurring &
Dissenting Op. at 10.
A.
Before addressing petitioners’ substantive challenges to
the Commission’s reclassification of broadband service, we
must consider two procedural arguments, both offered by US
Telecom.
First, US Telecom asserts that the Commission violated
section 553 of the Administrative Procedure Act, which
requires that an NPRM “include . . . either the terms or
substance of the proposed rule or a description of the subjects
and issues involved.” 5 U.S.C. § 553(b)(3). According to US
Telecom, the Commission violated this requirement because
the NPRM proposed relying on section 706, not Title II; never
explained that the Commission would justify reclassification
based on consumer perception; and failed to signal that it
would rely on the telecommunications management
exception.
Under the APA, an NPRM must “provide sufficient
factual detail and rationale for the rule to permit interested
parties to comment meaningfully.” Honeywell International,
Inc. v. EPA, 372 F.3d 441, 445 (D.C. Cir. 2004) (internal
quotation marks omitted). The final rule, however, “need not
be the one proposed in the NPRM.” Agape Church, Inc. v.
FCC, 738 F.3d 397, 411 (D.C. Cir. 2013). Instead, it “need
only be a ‘logical outgrowth’ of its notice.” Covad
Communications Co. v. FCC, 450 F.3d 528, 548 (D.C. Cir.
2006). An NPRM satisfies the logical outgrowth test if it
30
“expressly ask[s] for comments on a particular issue or
otherwise ma[kes] clear that the agency [is] contemplating a
particular change.” CSX Transportation, Inc. v. Surface
Transportation Board, 584 F.3d 1076, 1081 (D.C. Cir. 2009).
The Commission’s NPRM satisfied this standard.
Although the NPRM did say that the Commission was
considering relying on section 706, it also “expressly asked
for comments” on whether the Commission should reclassify
broadband: “[w]e seek comment on whether the Commission
should rely on its authority under Title II of the
Communications Act, including . . . whether we should revisit
the Commission’s classification of broadband Internet access
service as an information service . . . .” NPRM, 29 FCC Rcd.
at 5612 ¶ 148 (footnote omitted).
US Telecom’s second complaint—that the NPRM failed
to provide a meaningful opportunity to comment on the
Commission’s reliance on consumer perception—is equally
without merit. In Brand X, the Supreme Court explained that
classification under the Communications Act turns on “what
the consumer perceives to be the . . . finished product.” 545
U.S. at 990. Given this, and given that the NPRM expressly
stated that the Commission was considering reclassifying
broadband as a telecommunications service, interested parties
could “comment meaningfully” on the possibility that the
Commission would follow Brand X and look to consumer
perception.
Brand X also provides the answer to US Telecom’s
complaint about the telecommunications management
exception. In Brand X, the Court made clear that to reclassify
broadband as a telecommunications service, the Commission
would need to conclude that the telecommunications
component of broadband was “functionally separate” from the
31
information services component. Id. at 991. Moreover, the
dissent expressly noted that the Commission could reach this
conclusion in part by determining that certain information
services fit within the telecommunications management
exception. “[The] exception,” the dissent explained, “would
seem to apply to [DNS and caching]. DNS, in particular, is
scarcely more than routing information . . . .” Id. at 1012–13
(Scalia, J., dissenting). As they could with consumer
perception, therefore, interested parties could “comment
meaningfully” on the Commission’s use of the
telecommunications management exception.
US Telecom next argues that the Commission violated
the Regulatory Flexibility Act by failing to conduct an
adequate Final Regulatory Flexibility Analysis regarding the
effects of reclassification on small businesses. See 5 U.S.C.
§ 604(a). We lack jurisdiction to entertain this argument.
Under the Communications Act, for a party to challenge an
order based “on questions of fact or law upon which the
Commission . . . has been afforded no opportunity to pass,” a
party must “petition for reconsideration.” 47 U.S.C. § 405(a).
Because the Commission included its Final Regulatory
Flexibility Analysis in the Order, US Telecom had to file a
petition for reconsideration if it wished to object to the
analysis. US Telecom failed to do so.
B.
This brings us to petitioners’ substantive challenges to
reclassification. Specifically, they argue that the Commission
lacks statutory authority to reclassify broadband as a
telecommunications service. They also argue that, even if it
has such authority, the Commission failed to adequately
explain why it reclassified broadband from an information
service to a telecommunications service. Finally, they
contend that the Commission had to determine that broadband
32
providers were common carriers under this court’s NARUC
test in order to reclassify.
1.
In addressing petitioners’ first argument, we follow the
Supreme Court’s decision in Brand X and apply Chevron’s
two-step analysis. Brand X, 545 U.S. at 981 (“[W]e apply the
Chevron framework to the Commission’s interpretation of the
Communications Act.”). At Chevron step one, we ask
“whether Congress has directly spoken to the precise question
at issue.” Chevron, 467 U.S. at 842. Where “the intent of
Congress is clear, that is the end of the matter; for [we], as
well as the agency, must give effect to the unambiguously
expressed intent of Congress.” Id. at 842–43. But if “the
statute is silent or ambiguous with respect to the specific
issue,” we proceed to Chevron step two, where “the question
for the court is whether the agency’s answer is based on a
permissible construction of the statute.” Id. at 843.
As part of its challenge to the Commission’s
reclassification, US Telecom argues that broadband is
unambiguously an information service, which would bar the
Commission from classifying it as a telecommunications
service. The Commission maintains, however, that Brand X
established that the Communications Act is ambiguous with
respect to the proper classification of broadband. As the
Commission points out, the Court explained that whether a
carrier provides a “telecommunications service” depends on
whether it makes an “offering” of telecommunications.
Brand X, 545 U.S. at 989; see also 47 U.S.C. § 153(53) (“The
term ‘telecommunications service’ means the offering of
telecommunications for a fee directly to the public . . . .”
(emphasis added)). The term “offering,” the Court held, is
ambiguous. Brand X, 545 U.S. at 989.
33
Seeking to escape Brand X, US Telecom argues that the
Court held only that the Commission could classify as a
telecommunications service the “last mile” of transmission,
which US Telecom defines as the span between the end user’s
computer and the broadband provider’s computer. Here,
however, the Commission classified “the entire broadband
service from the end user all the way to edge providers” as a
telecommunications service. US Telecom Pet’rs’ Br. 44.
According to US Telecom, “[t]he ambiguity addressed in
Brand X thus has no bearing here because the Order goes
beyond the scope of whatever ambiguity [the statute]
contains.” Id. (second alteration in original) (internal
quotation marks omitted).
We have no need to resolve this dispute because, even if
the Brand X decision was only about the last mile, the Court
focused on the nature of the functions broadband providers
offered to end users, not the length of the transmission
pathway, in holding that the “offering” was ambiguous. As
discussed earlier, the Commission adopted that approach in
the Order in concluding that the term was ambiguous as to the
classification question presented here: whether the “offering”
of broadband internet access service can be considered a
telecommunications service. In doing so, the Commission
acted in accordance with the Court’s instruction in Brand X
that the proper classification of broadband turns “on the
factual particulars of how Internet technology works and how
it is provided, questions Chevron leaves to the Commission to
resolve in the first instance.” 545 U.S. at 991.
US Telecom makes several arguments in support of its
contrary position that broadband is unambiguously an
information service. None persuades us. First, US Telecom
contends that the statute’s text makes clear that broadband
service “qualifies under each of the eight, independent parts
34
of the [information service] definition,” US Telecom Pet’rs’
Br. 30—namely, that it “offer[s] . . . a capability for
generating, acquiring, storing, transforming, processing,
retrieving, utilizing, or making available information via
telecommunications,” 47 U.S.C. § 153(24). Accordingly, US
Telecom argues, broadband service “cannot fall within the
mutually exclusive category of telecommunications service.”
US Telecom Pet’rs’ Br. 30 (internal quotation marks and
footnote omitted). But this argument ignores that under the
statute’s definition of “information service,” such services are
provided “via telecommunications.” 47 U.S.C. § 153(24).
This, then, brings us back to the basic question: do broadband
providers make a standalone offering of telecommunications?
US Telecom’s argument fails to provide an unambiguous
answer to that question.
US Telecom next claims that 47 U.S.C. § 230, enacted as
part of the Communications Decency Act of 1996, a portion
of the Telecommunications Act, “confirms that Congress
understood Internet access to be an information service.” US
Telecom Pet’rs’ Br. 33. Section 230(b) states that “[i]t is the
policy of the United States . . . to promote the continued
development of the Internet and other interactive computer
services and other interactive media.” 47 U.S.C. § 230(b)(1).
In turn, section 230(f) defines an “interactive computer
service” “[a]s used in this section” as “any information
service, system, or access software provider that provides or
enables computer access by multiple users to a computer
server, including specifically a service or system that provides
access to the Internet.” Id. § 230(f)(2). According to US
Telecom, this definition of “interactive computer service”
makes clear that an information service “includes an Internet
access service.” US Telecom Pet’rs’ Br. 33. As the
Commission pointed out in the Order, however, it is “unlikely
that Congress would attempt to settle the regulatory status of
35
broadband Internet access services in such an oblique and
indirect manner, especially given the opportunity to do so
when it adopted the Telecommunications Act of 1996.” 30
FCC Rcd. at 5777 ¶ 386; see Whitman v. American Trucking
Ass’ns, 531 U.S. 457, 468 (2001) (“Congress . . . does not
alter the fundamental details of a regulatory scheme in vague
terms or ancillary provisions—it does not, one might say, hide
elephants in mouseholes.”).
Finally, US Telecom argues that “[t]he statutory context
and history confirm the plain meaning of the statutory text.”
US Telecom Pet’rs’ Br. 33. According to US Telecom, while
the Computer II regime was in effect, the Commission
classified “gateway services allowing access to information
stored by third parties” as enhanced services, and Congress
incorporated that classification into the Communications Act
when it enacted the Telecommunications Act’s
information/telecommunications service dichotomy. Id. at
33–35. “Those ‘gateways,’” US Telecom insists, “involved
the same ‘functions and services associated with Internet
access.’” Id. at 34 (quoting In re Federal-State Joint Board on
Universal Service, 13 FCC Rcd. 11,501 ¶ 75 (1998)). This
argument suffers from a significant flaw: nothing in the
Telecommunications Act suggests that Congress intended to
freeze in place the Commission’s existing classifications of
various services. Indeed, such a reading of the
Telecommunications Act would conflict with the Supreme
Court’s holding in Brand X that classification of broadband
“turns . . . on the factual particulars of how Internet
technology works and how it is provided, questions Chevron
leaves to the Commission to resolve in the first instance.”
545 U.S. at 991.
Amici Members of Congress in Support of Petitioners
advance an additional argument that post-
36
Telecommunications Act legislative history “demonstrates
that Congress never delegated to the Commission” authority
to regulate broadband service as a telecommunications
service. Members of Congress for Pet’rs Amicus Br. 4. In
support, they point out that Congress has repeatedly tried and
failed to enact open internet legislation, confirming, in their
view, that the Commission lacks authority to issue open
internet rules. But as the Supreme Court has made clear,
courts do not regard Congress’s “attention” to a matter
subsequently resolved by an agency pursuant to statutory
authority as “legislative history demonstrating a congressional
construction of the meaning of the statute.” American
Trucking Ass’ns v. Atchison, Topeka, & Santa Fe Railway
Co., 387 U.S. 397, 416–17 (1967). Following this approach,
we have rejected attempts to use legislative history to cabin an
agency’s statutory authority in the manner amici propose. For
example, in Advanced Micro Devices v. Civil Aeronautics
Board, petitioners challenged the Civil Aeronautics Board’s
rules adopting a more deferential approach to the regulation
of international cargo rates. 742 F.2d 1520, 1527–28 (D.C.
Cir. 1984). Petitioners asserted that the Board had no
authority to promulgate the rules because “Congress
deliberately eschewed the course now advanced by the
[Board],” id. at 1541, when it tried and failed to enact
legislation that would have put “limits on the Board’s
ratemaking functions regarding international cargo,” id. at
1523. Rejecting petitioners’ argument, we explained that
“Congress’s failure to enact legislation . . . d[oes] not
preclude analogous rulemaking.” Id. at 1542 (citing
American Trucking Ass’ns, 387 U.S. at 416–18). In that case,
as here, the relevant question was whether the agency had
statutory authority to promulgate its regulations, and, as we
explained, “congressional inaction or congressional action
short of the enactment of positive law . . . is often entitled to
no weight” in answering that question. Id. at 1541. Amici
37
also argue that Congress’s grants to the Commission of
“narrow authority over circumscribed aspects of the Internet”
indicate that the Commission lacks “the authority it claims
here.” Members of Congress for Pet’rs Amicus Br. 9. None
of the statutes amici cite, however, have anything to do with
the sort of common carrier regulations at issue here.
Full Service Network also urges us to resolve this case at
Chevron step one, though it takes the opposite position of US
Telecom. According to Full Service Network, broadband is
unambiguously a telecommunications service because it
functions primarily as a transmission service. That argument
clearly fails in light of Brand X, which held that classification
of broadband as an information service was permissible.
Brand X also requires that we reject intervenor
TechFreedom’s argument that the reclassification issue is
controlled by the Supreme Court’s decision in FDA v. Brown
& Williamson Tobacco Corp., 529 U.S. 120 (2000). In that
case, the Court held that “Congress ha[d] clearly precluded
the FDA from asserting jurisdiction to regulate tobacco
products.” Id. at 126. The Court emphasized that the FDA
had disclaimed any authority to regulate tobacco products for
more than eighty years and that Congress had repeatedly
legislated against this background. Id. at 143–59.
Furthermore, the Court observed, if the FDA did have
authority to regulate the tobacco industry, given its statutory
obligations and its factual findings regarding the harmful
effects of tobacco, the FDA would have had to ban tobacco
products, a result clearly contrary to congressional intent. See
id. at 135–43. If Congress sought to “delegate a decision of
such economic and political significance” to the agency, the
Court noted, it would have done so clearly. Id. at 160.
Relying on Brown & Williamson, TechFreedom urges us to
38
exercise “judicial skepticism of the [Commission’s] power
grab.” TechFreedom Intervenor Br. 18.
TechFreedom ignores Brand X. As explained above, the
Supreme Court expressly recognized that Congress, by
leaving a statutory ambiguity, had delegated to the
Commission the power to regulate broadband service. By
contrast, in Brown & Williamson the Court held that Congress
had “precluded” the FDA from regulating cigarettes.
This brings us, then, to petitioners’ and intervenors’
Chevron step two challenges.
First, US Telecom argues that the Commission’s
classification is unreasonable because many broadband
providers offer information services, such as email, alongside
internet access. According to US Telecom, because
broadband providers still offer such services, consumers must
perceive that those providers offer an information service.
For its part, the Commission agreed that broadband providers
offer email and other services, but simply concluded that
“broadband Internet access service is today sufficiently
independent of these information services that it is a separate
offering.” 2015 Open Internet Order, 30 FCC Rcd. at 5758
¶ 356. US Telecom nowhere challenges that conclusion, and
for good reason: the record contains extensive evidence that
consumers perceive a standalone offering of transmission,
separate from the offering of information services like email
and cloud storage. See supra at 25–27.
US Telecom next contends that the Commission’s
reclassification of broadband was unreasonable because DNS
and caching do not fall within the Communications Act’s
telecommunications management exception. As noted above,
that exception excludes from the definition of an information
service “any [service] for the management, control, or
39
operation of a telecommunications system or the management
of a telecommunications service.” 47 U.S.C. § 153(24). The
Commission found that “[w]hen offered as part of a
broadband Internet access service, caching [and] DNS [are]
simply used to facilitate the transmission of information so
that users can access other services.” 2015 Open Internet
Order, 30 FCC Rcd. at 5770 ¶ 372. Challenging this
interpretation, US Telecom argues that DNS and caching fall
outside the exception because neither “manage[s] a
telecommunications system or service,” US Telecom Pet’rs’
Br. 39, but are instead examples of the “many core
information-service functions associated with Internet
access,” id. at 37. US Telecom claims that the Commission’s
use of the telecommunications management exception was
also unreasonable because the Commission “contends that the
same functions—DNS and caching—are used for
telecommunications management when offered as part of
Internet access, but are an information service when third-
party content providers similarly offer them.” Id. at 40. We
are unpersuaded.
First, the Commission explained that the
Communications Act’s telecommunications management
exception encompasses those services that would have
qualified as “adjunct-to-basic” under the Computer II regime.
2015 Open Internet Order, 30 FCC Rcd. at 5766–67 ¶ 367
(citing Non-Accounting Safeguards Order, 11 FCC Rcd. at
21,958 ¶ 107). To qualify as an adjunct-to-basic service, a
service had to be “‘basic in purpose and use’ in the sense that
[it] facilitate[d] use of the network, and . . . [it] could ‘not
alter the fundamental character of the [telecommunications
service].’” Id. at 5767 ¶ 367 (last alteration in original)
(quoting In re North American Telecommunications Ass’n,
101 F.C.C. 2d 349, 359 ¶ 24, 360 ¶ 27 (1985)) (some internal
quotation marks omitted). The Commission concluded that
40
DNS and caching satisfy this test because both services
facilitate use of the network without altering the fundamental
character of the telecommunications service. DNS does so by
“allow[ing] more efficient use of the telecommunications
network by facilitating accurate and efficient routing from the
end user to the receiving party.” Id. at 5768 ¶ 368. Caching
qualifies because it “enabl[es] the user to obtain more rapid
retrieval of information through the network.” Id. at 5770
¶ 372 (internal quotation marks omitted). US Telecom does
not challenge the applicability of the adjunct-to-basic
standard, nor does it give us any reason to believe that the
Commission’s application of that standard was unreasonable.
See GTE Service Corp. v. FCC, 224 F.3d 768, 772 (D.C. Cir.
2000) (“[W]e will defer to the [Commission’s] interpretation
of [the Communications Act] if it is reasonable in light of the
text, the structure, and the purpose of [the Communications
Act].”).
As to US Telecom’s second point, the Commission
justified treating third-party DNS and caching services
differently on the ground that when such services are
“provided on a stand-alone basis by entities other than the
provider of Internet access service[,] . . . there would be no
telecommunications service to which [the services are]
adjunct.” 2015 Open Internet Order, 30 FCC Rcd. at 5769
¶ 370 n.1046. Again, US Telecom has given us no basis for
questioning the reasonableness of this conclusion. Once a
carrier uses a service that would ordinarily be an information
service—such as DNS or caching—to manage a
telecommunications service, that service no longer qualifies
as an information service under the Communications Act.
The same service, though, when unconnected to a
telecommunications service, remains an information service.
41
Intervenor TechFreedom makes one additional Chevron
step two argument. It contends that this case resembles
Utility Air Regulatory Group v. EPA, in which the Supreme
Court reviewed EPA regulations applying certain statutory
programs governing air pollution to greenhouse gases. 134 S.
Ct. 2427, 2437 (2014). EPA had “tailored” the programs to
greenhouse gases by using different numerical thresholds for
triggering application of the programs than those listed in the
statute because using “the statutory thresholds would [have]
radically expand[ed] those programs.” Id. at 2437–38.
Rejecting this approach, the Supreme Court held that because
the statute’s numerical thresholds were “unambiguous,” EPA
had no “authority to ‘tailor’ [them] to accommodate its
greenhouse-gas-inclusive interpretation of the permitting
triggers.” Id. at 2446. “[T]he need to rewrite clear provisions
of the statute,” the Court declared, “should have alerted EPA
that it had taken a wrong interpretive turn.” Id. According to
TechFreedom, the Commission’s need to extensively forbear
from Title II similarly reveals the “incoherence” of its
decision. TechFreedom Intervenor Br. 21.
This case is nothing like Utility Air. Far from rewriting
clear statutory language, the Commission followed an express
statutory mandate requiring it to “forbear from applying any
regulation or any provision” of the Communications Act if
certain criteria are met. 47 U.S.C. § 160(a). Nothing in the
Clean Air Act gave EPA any comparable authority.
Accordingly, the Commission’s extensive forbearance does
not suggest that the Order is unreasonable.
2.
We next consider US Telecom’s argument that the
Commission failed to adequately explain why, having long
classified broadband as an information service, it chose to
reclassify it as a telecommunications service. Under the
42
APA, we must “determine whether the Commission’s actions
were ‘arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.’” Verizon, 740 F.3d at
635 (quoting 5 U.S.C. § 706(2)(A)). As noted at the outset of
our opinion, “[o]ur role in this regard is a limited one, and we
will not substitute our judgment for that of the agency.”
EarthLink, Inc. v. FCC, 462 F.3d 1, 9 (D.C. Cir. 2006).
Provided that the Commission has “articulate[d] . . . a
‘rational connection between the facts found and the choice
made,’” we will uphold its decision. Verizon, 740 F.3d at
643–44 (alteration in original) (quoting State Farm, 463 U.S.
at 52) (some internal quotation marks omitted); see also
FERC v. Electric Power Supply Ass’n, 136 S. Ct. 760, 784
(2016) (“Our important but limited role is to ensure that [the
agency] engaged in reasoned decisionmaking—that it
weighed competing views, selected [an approach] with
adequate support in the record, and intelligibly explained the
reasons for making that choice.”).
As relevant here, “[t]he APA’s requirement of reasoned
decision-making ordinarily demands that an agency
acknowledge and explain the reasons for a changed
interpretation.” Verizon, 740 F.3d at 636. “An agency may
not, for example, depart from a prior policy sub silentio or
simply disregard rules that are still on the books.” FCC v.
Fox Television Stations, Inc., 556 U.S. 502, 515 (2009). That
said, although the agency “must show that there are good
reasons for the new policy[,] . . . it need not demonstrate to a
court’s satisfaction that the reasons for the new policy are
better than the reasons for the old one.” Id.US Telecom contends that the Commission lacked good
reasons for reclassifying broadband because “as Verizon made
clear, and as the [Commission] originally recognized, it could
have adopted appropriate Open Internet rules based upon
43
§ 706 without reclassifying broadband.” US Telecom Pet’rs’
Br. 54 (internal citations omitted). But the Commission did
not believe it could do so. Specifically, the Commission
found it necessary to establish three bright-line rules, the anti-
blocking, anti-throttling, and anti-paid-prioritization rules,
2015 Open Internet Order, 30 FCC Rcd. at 5607 ¶ 14, all of
which impose per se common carrier obligations by requiring
broadband providers to offer indiscriminate service to edge
providers, see Verizon, 740 F.3d at 651–52. “[I]n light of
Verizon,” the Commission explained, “absent a classification
of broadband providers as providing a ‘telecommunications
service,’ the Commission could only rely on section 706 to
put in place open Internet protections that steered clear of
regulating broadband providers as common carriers per se.”
2015 Open Internet Order, 30 FCC Rcd. at 5614 ¶ 42. This,
in our view, represents a perfectly “good reason” for the
Commission’s change in position.
Raising an additional argument, US Telecom asserts that
reclassification “will undermine” investment in broadband.
US Telecom Pet’rs’ Br. 54. The partial dissent agrees,
pointing specifically to 47 U.S.C. § 207, which subjects Title
II common carriers to private complaints. Concurring &
Dissenting Op. at 24. The Commission, however, reached a
different conclusion with respect to reclassification’s impact
on broadband investment. It found that “Internet traffic is
expected to grow substantially in the coming years,” driving
investment, 2015 Open Internet Order, 30 FCC Rcd. at 5792
¶ 412; that Title II regulation had not stifled investment when
applied in other circumstances, id. at 5793–94 ¶ 414; and that
“major infrastructure providers have indicated that they will
in fact continue to invest under the [Title II] framework,” id.at 5795 ¶ 416. In any event, the Commission found that the
virtuous cycle—spurred by the open internet rules—provides
an ample counterweight, in that any harmful effects on
44
broadband investment “are far outweighed by positive effects
on innovation and investment in other areas of the ecosystem
that [its] core broadband polices will promote.” Id. at 5791 ¶
410. In reviewing these conclusions, we ask not whether they
“are correct or are the ones that we would reach on our own,
but only whether they are reasonable.” EarthLink, 462 F.3d
at 12 (internal quotation marks omitted). Moreover, “[a]n
agency’s predictive judgments about areas that are within the
agency’s field of discretion and expertise are entitled to
particularly deferential review, as long as they are
reasonable.” Id. (internal quotation marks omitted). The
Commission has satisfied this highly deferential standard. As
to section 207, the Commission explained that “[a]lthough [it]
appreciate[d] carriers’ concerns that [its] reclassification
decision could create investment-chilling regulatory burdens
and uncertainty, [it] believe[d] that any effects are likely to be
short term and will dissipate over time as the marketplace
internalizes [the] Title II approach.” 2015 Open Internet
Order, 30 FCC Rcd. at 5791 ¶ 410. This too is precisely the
kind of “predictive judgment[] . . . within the agency’s field of
discretion and expertise” that we do not second guess.
In a related argument, the partial dissent contends that the
Commission lacked “good reasons” for reclassifying because
its rules, particularly the General Conduct Rule, will decrease
future investment in broadband by increasing regulatory
uncertainty. Although US Telecom asserts in the introduction
to its brief that the rules “will undermine future investment by
large and small broadband providers,” US Telecom Pet’rs’ Br.
4, it provides no further elaboration on this point and never
challenges reclassification on the ground that the rules will
harm broadband investment. As we have said before, “[i]t is
not enough merely to mention a possible argument in the most
skeletal way, leaving the court to do counsel’s work.” New
York Rehabilitation Care Management, LLC v. NLRB, 506
45
F.3d 1070, 1076 (D.C. Cir. 2007) (internal quotation marks
omitted). Given that no party adequately raised this
argument, we decline to consider it. See In re Cheney, 334
F.3d at 1108 (Reviewing courts “sit to resolve only legal
questions presented and argued by the parties.”).
Finally, the partial dissent disagrees with our conclusion
that the Commission had “good reasons” to reclassify
because, according to the partial dissent, it failed to make “a
finding of market power or at least a consideration of
competitive conditions.” Concurring & Dissenting Op. at 10.
But nothing in the statute requires the Commission to make
such a finding. Under the Act, a service qualifies as a
“telecommunications service” as long as it constitutes an
“offering of telecommunications for a fee directly to the
public.” 47 U.S.C. § 153(53). As explained above, supra at
24, when interpreting this provision in Brand X, the Supreme
Court held that classification of broadband turns on consumer
perception, see 545 U.S. at 990 (explaining that classification
depends on what “the consumer perceives to be the integrated
finished product”). Nothing in Brand X suggests that an
examination of market power or competition in the market is
a prerequisite to classifying broadband. True, as the partial
dissent notes, the Supreme Court cited the Commission’s
findings regarding the level of competition in the market for
cable broadband as further support for the agency’s decision
to classify cable broadband as an information service. See id.
at 1001 (describing the Commission’s conclusion that market
conditions supported taking a deregulatory approach to cable
broadband service). But citing the Commission’s economic
findings as additional support for its approach is a far cry
from requiring the Commission to find market power. The
partial dissent also cites several Commission decisions in
support of the proposition that the Commission has “for
nearly four decades made the presence or prospect of
46
competition the touchstone for refusal to apply Title II.”
Concurring & Dissenting Op. at 12. All of those cases,
however, predate the 1996 Telecommunications Act, which
established the statutory test that Brand X considered and that
we apply here.
US Telecom raises a distinct arbitrary and capricious
argument. It contends that the Commission needed to satisfy
a heightened standard for justifying its reclassification. As
US Telecom points out, the Supreme Court has held that “the
APA requires an agency to provide more substantial
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.’” Perez v. Mortgage Bankers
Ass’n, 135 S. Ct. 1199, 1209 (2015) (quoting Fox Television,
556 U.S. at 515). “[I]t is not that further justification is
demanded by the mere fact of policy change[,] but that a
reasoned explanation is needed for disregarding facts and
circumstances that underlay or were engendered by the prior
policy.” Fox Television, 556 U.S. at 515–16. Put another
way, “[i]t would be arbitrary and capricious to ignore such
matters.” Id. at 515.
US Telecom believes that the Commission failed to
satisfy the heightened standard because it departed from
factual findings it made regarding consumer perception in its
2002 Cable Broadband Order without pointing to any changes
in how consumers actually view broadband. According to US
Telecom, even in 2002, when the Commission classified
broadband as an information service, consumers used
broadband primarily as a means to access third-party content
and broadband providers marketed their services based on
speed. As we have explained, however, although in 2002 the
Commission found that consumers perceived an integrated
47
offering of an information service, in the present order the
Commission cited ample record evidence supporting its
current view that consumers perceive a standalone offering of
transmission. See supra at 25–27. It thus satisfied the APA’s
requirement that an agency provide a “reasoned
explanation . . . for disregarding facts and circumstances that
underlay . . . the prior policy.” Fox Television, 556 U.S. at515–16. Nothing more is required.
Presenting an argument quite similar to US Telecom’s,
the partial dissent asserts that the Commission needed to do
more than justify its current factual findings because, in this
case, “the agency explicitly invoke[d] changed
circumstances” as a basis for reclassifying broadband.
Concurring & Dissenting Op. at 10. At least when an agency
relies on a change in circumstances, the partial dissent
reasons, “Fox requires us to examine whether there is really
anything new.” Id. at 4. But we need not decide whether
there “is really anything new” because, as the partial dissent
acknowledges, id., the Commission concluded that changed
factual circumstances were not critical to its classification
decision: “[E]ven assuming, arguendo, that the facts
regarding how [broadband service] is offered had not
changed, in now applying the Act’s definitions to these facts,
we find that the provision of [broadband service] is best
understood as a telecommunications service, as discussed
[herein] . . . and disavow our prior interpretations to the extent
they held otherwise.” 2015 Open Internet Order, 30 FCC
Rcd. at 5761 ¶ 360 n.993.
US Telecom next argues that the Commission “could not
rationally abandon its prior policy without account[ing] for
reliance interests that its prior policy engendered.” US
Telecom Pet’rs’ Br. 51 (alteration in original) (internal
quotation marks omitted). The Commission, however, did not
48
fail to “account” for reliance interests. Fox Television, 556
U.S. at 515. Quite to the contrary, it expressly considered the
claims of reliance and found that “the regulatory status of
broadband Internet access service appears to have, at most, an
indirect effect (along with many other factors) on
investment.” 2015 Open Internet Order, 30 FCC Rcd. at 5760
¶ 360. The Commission explained that “the key drivers of
investment are demand and competition,” not the form of
regulation. Id. at 5792 ¶ 412. Additionally, the Commission
noted that its past regulatory treatment of broadband likely
had a particularly small effect on investment because the
regulatory status of broadband service was settled for only a
short period of time. Id. at 5760–61 ¶ 360. As the
Commission pointed out, just five years after Brand X upheld
the Commission’s classification of broadband as an
information service, the Commission asked in a notice of
inquiry whether it should reclassify broadband as a
telecommunications service. Id. at 5760 ¶ 360.
The partial dissent finds the Commission’s explanation
insufficient and concludes that it failed “to make a serious
assessment of [broadband providers’] reliance.” Concurring
& Dissenting Op. at 8. With regard to the Commission’s
conclusion that the regulatory status of broadband had only an
indirect effect on investment, the partial dissent believes that
this explanation is an “irrelevance” because “[t]he proposition
that ‘many other factors’ affect investment is a truism” and
thus the explanation “tells us little about how much” the prior
classification “accounts for the current robust broadband
infrastructure.” Id. at 5. But the Commission did more than
simply state that the regulatory classification of broadband
was one of many relevant factors. It went on to explain why
other factors, namely, increased demand for broadband and
increased competition to provide it, were more significant
drivers of broadband investment. 2015 Open Internet Order,
49
30 FCC Rcd. at 5760 ¶ 360 & n.986; id. at 5792 ¶ 412. We
also disagree with the partial dissent’s assertion that the
Commission “misread[] the history of the classification of
broadband” when it found that the unsettled regulatory
treatment of broadband likely diminished the extent of
investors’ reliance on the prior classification. Concurring &
Dissenting Op. at 7. As explained above, supra at 13–16, the
Commission classified broadband for the first time in 1998,
when it determined that the phone lines used in DSL service
qualified as a telecommunications service. See Advanced
Services Order, 13 FCC Rcd. at 24,014 ¶ 3, 24,029–30 ¶¶ 35–
36. Then, in 2002 the Commission classified cable broadband
service as an information service, see Cable Broadband Order,
17 FCC Rcd. at 4823 ¶¶ 39–40, a classification that was
challenged and not definitively settled until 2005 when the
Supreme Court decided Brand X. Only five years later, the
Commission sought public comment on whether it should
reverse course and classify broadband as a
telecommunications service. See In re Framework for
Broadband Internet Service, 25 FCC Rcd. at 7867 ¶ 2. Given
this shifting regulatory treatment, it was not unreasonable for
the Commission to conclude that broadband’s particular
classification was less important to investors than increased
demand. Contrary to our colleague, “[w]e see no reason to
second guess these factual determinations, since the court
properly defers to policy determinations invoking the
[agency’s] expertise in evaluating complex market
conditions.” Gas Transmission Northwest Corp. v. FERC,
504 F.3d 1318, 1322 (D.C. Cir. 2007) (internal quotation
marks and alteration omitted).
3.
Finally, we consider US Telecom’s argument that the
Commission could not reclassify broadband without first
determining that broadband providers were common carriers
50
under this court’s NARUC test. See National Ass’n of
Regulatory Utility Commissioners v. FCC, 533 F.2d 601(D.C. Cir. 1976); National Ass’n of Regulatory Utility
Commissioners v. FCC, 525 F.2d 630 (D.C. Cir. 1976).
Under that test, “a carrier has to be regulated as a common
carrier if it will make capacity available to the public
indifferently or if the public interest requires common carrier
operation.” Virgin Islands Telephone Corp. v. FCC, 198 F.3d
921, 924 (D.C. Cir. 1999) (internal quotation marks omitted).
As the Commission points out, however, this argument
ignores that the Communications Act “provides that ‘[a]
telecommunications carrier shall be treated as a common
carrier . . . to the extent that it is engaged in providing
telecommunications services,’” Resp’ts’ Br. 79 (alteration and
omission in original) (quoting 47 U.S.C. § 153(51)), and that
“[t]he Act thus authorizes—indeed, requires—broadband
providers to be treated as common carriers once they are
found to offer telecommunications service,” id. The
Communications Act in turn defines a telecommunications
service as “the offering of telecommunications for a fee
directly to the public,” 47 U.S.C. § 153(53), and the
Commission found that broadband providers satisfy this
statutory test: “[h]aving affirmatively determined that
broadband Internet access service involves
‘telecommunications,’ we also find . . . that broadband
Internet access service providers offer broadband Internet
access service ‘directly to the public.’” 2015 Open Internet
Order, 30 FCC Rcd. at 5763 ¶ 363. Other than challenging
the Commission’s interpretation of the term “offering”—an
argument which we have already rejected, see supra section
II.B.1—US Telecom never questions the Commission’s
application of the statute’s test for common carriage.
Moreover, US Telecom cites no case, nor are we aware of
one, holding that when the Commission invokes the statutory
test for common carriage, it must also apply the NARUC test.
51
III.
Having thus rejected petitioners’ arguments against
reclassification, we turn to US Telecom’s challenges to the
Commission’s regulation of interconnection arrangements—
arrangements that broadband providers make with other
networks to exchange traffic in order to ensure that their end
users can access edge provider content anywhere on the
internet. Broadband providers have such arrangements with
backbone networks, as well as with certain edge providers,
such as Netflix, that connect directly to broadband provider
networks. In the Order, the Commission found that regulation
of interconnection arrangements was necessary to ensure
broadband providers do not “use terms of interconnection to
disadvantage edge providers” or “prevent[] consumers from
reaching the services and applications of their choosing.”
2015 Open Internet Order, 30 FCC Rcd. at 5694 ¶ 205.
Several commenters, the Commission pointed out, had
emphasized “the potential for anticompetitive behavior on the
part of broadband Internet access service providers that serve
as gatekeepers to the edge providers . . . seeking to deliver
Internet traffic to the broadband providers’ end users.” Id. at
5691 ¶ 200.
As authority for regulating interconnection arrangements,
the Commission relied on Title II. “Broadband Internet
access service,” it explained, “involves the exchange of traffic
between a . . . broadband provider and connecting networks,”
since “[t]he representation to retail customers that they will be
able to reach ‘all or substantially all Internet endpoints’
necessarily includes the promise to make the interconnection
arrangements necessary to allow that access.” Id. at 5693–94
¶ 204. Because the “same data is flowing between the end
user and edge consumer,” the end user necessarily
experiences any discriminatory treatment of the edge
provider, the Commission reasoned, making interconnection
52
“simply derivative of” the service offered to end users. Id. at
5748–49 ¶ 339.
As a result, the Commission concluded that it could
regulate interconnection arrangements under Title II as a
component of broadband service. Id. at 5686 ¶ 195. It
refrained, however, from applying the General Conduct Rule
or any of the bright-line rules to interconnection arrangements
because, given that it “lack[ed] [a] background in practices
addressing Internet traffic exchange,” it would be “premature
to adopt prescriptive rules to address any problems that have
arisen or may arise.” Id. at 5692–93 ¶ 202. Rather, it
explained that interconnection disputes would be evaluated on
a case-by-case basis under sections 201, 202, and 208 of the
Communications Act. See id. at 5686–87 ¶ 195. US Telecom
presents two challenges to the Commission’s decision to
regulate interconnection arrangements under Title II, one
procedural and one substantive. We reject both.
Echoing its arguments with respect to reclassification, US
Telecom first claims that the NPRM provided inadequate
notice that the Commission would regulate interconnection
arrangements under Title II. As we noted above, an NPRM
satisfies APA notice obligations when it “expressly ask[s] for
comments on a particular issue or otherwise ma[kes] clear
that the agency [is] contemplating a particular change.” CSX
Transportation, Inc., 584 F.3d at 1081. The NPRM did just
that. It expressly asked whether the Commission should
apply its new rules—rules which it had signaled might depend
upon Title II reclassification, NPRM, 29 FCC Rcd. at 5612
¶ 148—to interconnection arrangements. The NPRM
explained that the 2010 Open Internet Order had applied only
“to a broadband provider’s use of its own network . . . but
[had] not appl[ied] . . . to the exchange of traffic between
networks.” NPRM, 29 FCC Rcd. at 5582 ¶ 59. Although the
53
Commission “tentatively conclude[d] that [it] should maintain
this approach, . . . [the NPRM sought] comment on whether
[the Commission] should change [its] conclusion.” Id.
US Telecom insists that the NPRM was nonetheless
inadequate because it nowhere suggested that the Commission
might justify regulating interconnection arrangements under
Title II on the basis that they are a component of the offering
of telecommunications to end users. Under the APA, an
NPRM provides adequate notice as long as it reveals the
“substance of the proposed rule or a description of the
subjects and issues involved.” 5 U.S.C. § 553(b)(3). An
NPRM does so if it “provide[s] sufficient factual detail and
rationale for the rule to permit interested parties to comment
meaningfully.” Honeywell International, Inc., 372 F.3d at
445 (internal quotation marks omitted). Again, the NPRM
did just that. It asked whether the Commission should expand
its reach beyond “a broadband provider’s use of its own
network” in order to “ensure that a broadband provider would
not be able to evade our open Internet rules by engaging in
traffic exchange practices.” NPRM, 29 FCC Rcd. at 5582
¶ 59. By focusing on the threat that broadband providers
might block edge provider access to end users at an earlier
point in the transmission pathway, the NPRM allowed
interested parties to comment meaningfully on the possibility
that the Commission would consider interconnection
arrangements to be part of the offering of telecommunications
to end users. Indeed, interested parties interpreted the NPRM
as presenting just that possibility. To take one example,
COMPTEL explained in its comments that “as feared by the
Commission in its [NPRM], a [broadband] provider can
simply evade the Commission’s 2010 rules by moving its
demand for an access fee upstream to the entry point to the
[broadband provider’s network].” Letter from Markham C.
Erickson, Counsel to COMPTEL, to Marlene H. Dortch,
54
FCC, GN Dkt. Nos. 14-28 & 10-127, at 10 (Feb. 19, 2015).
Because “[t]he interconnection point is simply a literal
extension of the [broadband provider’s network],”
COMPTEL explained, “applying the same open Internet rules
to the point of interconnection is a logical extension of the
2010 Open Internet Order and clearly in line with the
Commission’s . . . proposal [in the NPRM].” Id.US Telecom next argues that our decision in Verizon
prevents the Commission from regulating interconnection
arrangements under Title II without first classifying the
arrangements as an offering of telecommunications to edge
providers and backbone networks. As US Telecom points
out, Verizon recognized that broadband, and thus
interconnection arrangements, provides a service not only to
end users but also to edge providers and backbone networks,
namely, the ability to reach the broadband provider’s users.
Verizon, 740 F.3d at 653. According to US Telecom, Verizon
therefore requires the Commission to classify this service to
edge providers and backbone networks as a
telecommunications service before it regulates
interconnection arrangements under Title II.
US Telecom misreads Verizon. Although Verizon does
recognize that broadband providers’ delivery of broadband to
end users also provides a service to edge providers, id., it does
not hold that the Commission must classify broadband as a
telecommunications service in both directions before it can
regulate the interconnection arrangements under Title II. The
problem in Verizon was not that the Commission had
misclassified the service between carriers and edge providers
but that the Commission had failed to classify broadband
service as a Title II service at all. The Commission overcame
this problem in the Order by reclassifying broadband
55
service—and the interconnection arrangements necessary to
provide it—as a telecommunications service.
IV.
We now turn to the Commission’s treatment of mobile
broadband service, i.e., high-speed internet access for mobile
devices such as smartphones and tablets. As explained above,
the Commission permissibly found that mobile broadband—
like all broadband—is a telecommunications service subject
to common carrier regulation under Title II of the
Communications Act. We address here a second set of
provisions that pertain to the treatment of mobile broadband
as common carriage.
Those provisions, found in Title III of the
Communications Act, segregate “mobile services” into two,
mutually exclusive categories: “commercial mobile services”
and “private mobile services.” 47 U.S.C. § 332(c). Providers
of commercial mobile services—mobile services that are,
among other things, available “to the public” or “a substantial
portion of the public”—are subject to common carrier
regulation. Id. § 332(c)(1), (d)(1). Providers of private
mobile services, by contrast, “shall not . . . be treated as []
common carrier[s].” Id. § 332(c)(2).
In 2007, the Commission initially classified mobile
broadband as a private mobile service. At the time, the
Commission considered mobile broadband a “nascent”
service. 2007 Wireless Order, 22 FCC Rcd. at 5922 ¶ 59. In
the 2015 Order we now review, the Commission found that,
“[i]n sharp contrast to 2007,” the “mobile broadband
marketplace has evolved such that hundreds of millions of
consumers now use mobile broadband to access the Internet.”
2015 Open Internet Order, 30 FCC Rcd. at 5785 ¶ 398. The
Commission thus concluded that “today’s mobile broadband
56
Internet access service, with hundreds of millions of
subscribers,” is not a “private” mobile service “that offer[s]
users access to a discrete and limited set of endpoints.” Id. at
5788–89 ¶ 404. Rather, “[g]iven the universal access
provided today and in the foreseeable future by and to mobile
broadband and its present and anticipated future penetration
rates in the United States,” the Commission decided to
“classify[] mobile broadband Internet access as a commercial
mobile service” subject to common carrier regulation. Id. at
5786 ¶ 399; see generally id. at 5778–88 ¶¶ 388–403.
Petitioners CTIA and AT&T (“mobile petitioners”)
challenge the Order’s reclassification of mobile broadband as
a commercial mobile service. In their view, mobile
broadband is, and must be treated as, a private mobile service,
and therefore cannot be subject to common carrier regulation.
We reject mobile petitioners’ arguments and find that the
Commission’s reclassification of mobile broadband as a
commercial mobile service is reasonable and supported by the
record.
A.
In assessing whether the Commission permissibly
reclassified mobile broadband as a commercial rather than a
private mobile service, we begin with an overview of the
governing statutory and regulatory framework and of the
Commission’s application of that framework to mobile
broadband. The statute defines “commercial mobile service”
as “any mobile service . . . that is provided for profit and
makes interconnected service available (A) to the public or
(B) to such classes of eligible users as to be effectively
available to a substantial portion of the public, as specified by
regulation by the Commission.” 47 U.S.C. § 332(d)(1). The
statute then defines “private mobile service” strictly in the
negative, i.e., as “any mobile service . . . that is not a
57
commercial mobile service or the functional equivalent of a
commercial mobile service, as specified by regulation by the
Commission.” Id. § 332(d)(3).
Because private mobile service is a residual category
defined in relation to commercial mobile service, the
definition of commercial mobile service is the operative one
for our purposes. There is no dispute that mobile broadband
meets three of the four parts of the statutory definition of
commercial mobile service. Mobile broadband is a “mobile
service”; it “is provided for profit”; and it is available “to the
public” or “a substantial portion of the public.” Id.
§ 332(d)(1). In those respects, mobile broadband bears the
hallmarks of a commercial—and hence not a private—mobile
service. The sole remaining question is whether mobile
broadband also “makes interconnected service available.” Id.
The statute defines “interconnected service” as “service
that is interconnected with the public switched network (as
such terms are defined by regulation by the Commission).”
Id. § 332(d)(2). Until the Order, the Commission in turn
defined the “public switched network” as a set of telephone
(cellular and landline) networks, with users’ ten-digit
telephone numbers making up the interconnected endpoints of
the network. Specifically, “public switched network” meant
“[a]ny common carrier switched network . . . that use[s] the
North American Numbering Plan in connection with the
provision of switched services.” 47 C.F.R. § 20.3 (prior
version effective through June 11, 2015). The “North
American Numbering Plan” (NANP) is the ten-digit
telephone numbering plan used in the United States. See In re
Implementation of Sections 3(n) & 332 of the
Communications Act (“1994 Order”), 9 FCC Rcd. 1411, 1437
¶ 60 n.116 (1994).
58
In 1994, when the Commission initially established that
definition of “public switched network,” cellular telephone
(i.e., mobile voice) service was the major mobile service;
mobile broadband did not yet exist. Noting that the “purpose
of the public switched network is to allow the public to send
or receive messages to or from anywhere in the nation,” the
Commission observed that the NANP fulfilled that purpose by
providing users with “ubiquitous access” to all other users.
Id. at 1436–37 ¶¶ 59–60; see 2015 Open Internet Order, 30
FCC Rcd. at 5779 ¶ 391. Because mobile voice users could
interconnect with the public switched network as then defined
(the network of ten-digit telephone numbers), mobile voice
was classified as a “commercial”—as opposed to “private”—
“mobile service.” 1994 Order, 9 FCC Rcd. at 1454–55 ¶ 102.
It therefore was subject to common carrier treatment.
In 2007, the Commission first classified the then-
emerging platform of mobile broadband. The Commission
determined that mobile broadband users could not
interconnect with the public switched network—defined at the
time as the telephone network—because mobile broadband
uses IP addresses, not telephone numbers. See 2015 Open
Internet Order, 30 FCC Rcd. at 5784 ¶ 397; 2007 Wireless
Order, 22 FCC Rcd. at 5917–18 ¶ 45. Mobile broadband thus
was not considered an “interconnected service” (or, therefore,
a commercial mobile service), i.e., a “service that is
interconnected with the public switched network” as that term
was then “defined by . . . the Commission.” 47 U.S.C.
§ 332(d)(2). Presumably in light of mobile broadband’s
“nascent” status at the time, 2007 Wireless Order, 22 FCC
Rcd. at 5922 ¶ 59, the Commission gave no evident
consideration to expanding its definition of the “public
switched network” so as to encompass IP addresses in
addition to telephone numbers.
59
In the 2015 Order, the Commission determined that it
should expand its definition of the public switched network in
that fashion to “reflect[] the current network landscape.” 30
FCC Rcd. at 5779 ¶ 391; see id. at 5786 ¶ 399. The
Commission took note of “evidence of the extensive changes
that have occurred in the mobile marketplace.” Id. at 5785–
86 ¶ 398. For instance, as of the end of 2014, nearly three-
quarters “of the entire U.S. age 13+ population was
communicating with smart phones,” and “by 2019,”
according to one forecast, “North America will have nearly
90% of its installed base[] converted to smart devices and
connections.” Id. at 5785 ¶ 398. In addition, the Commission
noted that the “hundreds of millions of consumers” who
already “use[d] mobile broadband” as of 2015 could “send or
receive communications to or from anywhere in the nation,
whether connected with other mobile broadband subscribers,
fixed broadband subscribers, or the hundreds of millions of
websites available to them over the Internet.” Id. Those
significant developments, the Commission found,
“demonstrate[] the ubiquity and wide scale use of mobile
broadband Internet access service today.” Id. at 5786 ¶ 398.
The upshot is that, just as mobile voice (i.e., cellular
telephone) service in 1994 provided “ubiquitous access” for
members of the public to communicate with one another
“from anywhere in the nation,” mobile broadband by 2015
had come to provide the same sort of ubiquitous access. Id. at
5779–80 ¶ 391, 5785–86 ¶¶ 398–99. And the ubiquitous
access characterizing both mobile voice and mobile
broadband stands in marked contrast to “the private mobile
service[s] of 1994, such as a private taxi dispatch service,
services that offered users access to a discrete and limited set
of endpoints.” Id. at 5789 ¶ 404; see 1994 Order, 9 FCC Rcd.
at 1414 ¶ 4. In recognition of the similarity of mobile
broadband to mobile voice as a universal medium of
60
communication for the general public—and the dissimilarity
of mobile broadband to closed private networks such as those
used by taxi companies or local police and fire departments—
the Commission in 2015 sought to reclassify “today’s broadly
available mobile broadband” service as a commercial mobile
service like mobile voice, rather than as a private mobile
service like those employed by closed police or fire
department networks. 2015 Open Internet Order, 30 FCC
Rcd. at 5786 ¶ 399; see 1994 Order, 9 FCC Rcd. at 1414 ¶ 4.
Aligning mobile broadband with mobile voice based on their
affording similarly ubiquitous access, moreover, was in
keeping with Congress’s objective in establishing a defined
category of “commercial mobile services” subject to common
carrier treatment: to “creat[e] regulatory symmetry among
similar mobile services.” 1994 Order, 9 FCC Rcd. at 1413
¶ 2; see 2015 Open Internet Order, 30 FCC Rcd. at 5786
¶ 399; H.R. Rep. No. 103-111 at 259 (May 25, 1993) (noting
that amendments to section 332 were intended to ensure “that
services that provide equivalent mobile services are regulated
in the same manner”).
In the interest of achieving that regulatory symmetry and
bringing mobile broadband into alignment with mobile voice
as a commercial mobile service, the Commission updated its
definition of the “public switched network” to include both
users reachable by ten-digit phone numbers and users
reachable by IP addresses. See 2015 Open Internet Order, 30
FCC Rcd. at 5779 ¶ 391. The newly expanded definition of
“public switched network” thus covers “the network that
includes any common carrier switched network . . . that use[s]
the North American Numbering Plan, or public IP addresses,
in connection with the provision of switched services.” Id.(emphasis added) (alteration in original); 47 C.F.R. § 20.3;
see Bell Atlantic Telephone Cos. v. FCC, 206 F.3d 1, 4 (D.C.
Cir. 2000) (“[T]he internet is a ‘distributed packet-switched
61
network.’”). And because the public switched network now
includes IP addresses, the Commission found that mobile
broadband qualifies as an “interconnected service,” i.e.,
“service that is interconnected with the public switched
network” as redefined. 47 U.S.C. § 332(d)(2); see 2015 Open
Internet Order, 30 FCC Rcd. at 5779–80 ¶ 391, 5786 ¶ 399.
According to the Commission, then, mobile broadband
meets all parts of the statutory definition of a “commercial
mobile service” subject to common carrier regulation: it is a
“mobile service . . . that is provided for profit and makes
interconnected service available . . . to the public or . . . a
substantial portion of the public.” 47 U.S.C. § 332(d)(1). We
find the Commission’s reclassification of mobile broadband
as a commercial mobile service under that definition to be
reasonable and supported by record evidence demonstrating
the “rapidly growing and virtually universal use of mobile
broadband service” today. 2015 Open Internet Order, 30 FCC
Rcd. at 5786 ¶ 399. In support of its reclassification decision,
the Commission relied on, and recounted in detail, evidence
of the explosive growth of mobile broadband service and its
near universal use by the public. See id. at 5635–38 ¶¶ 88–92,
5779 ¶ 391, 5785–86 ¶¶ 398–99. In the face of that evidence,
we see no basis for concluding that the Commission was
required in 2015 to continue classifying mobile broadband as
a “private” mobile service.
B.
Mobile petitioners offer two principal arguments in
support of their position that mobile broadband nonetheless
must be treated as a private mobile service rather than a
commercial mobile service. First, they argue that “public
switched network” is a term of art confined to the public
switched telephone network. Second, they contend that, even
if the Commission can expand the definition of public
62
switched network to encompass users with IP addresses in
addition to users with telephone numbers, mobile broadband
still fails to qualify as an “interconnected service.”
We reject both arguments. In mobile petitioners’ view,
mobile broadband (or any non-telephone mobile service)—no
matter how universal, widespread, and essential a medium of
communication for the public it may become—must always
be considered a “private mobile service” and can never be
considered a “commercial mobile service.” Nothing in the
statute compels attributing to Congress such a wooden,
counterintuitive understanding of those categories. Rather,
Congress expressly delegated to the Commission the authority
to define—and hence necessarily to update and revise—those
categories’ key definitional components, “public switched
network” and “interconnected service.” 47 U.S.C. § 332(d);
see 2015 Open Internet Order, 30 FCC Rcd. at 5783–84
¶ 396.
“In this sort of case, there is no need to rely on the
presumptive delegation to agencies of authority to define
ambiguous or imprecise terms we apply under the Chevron
doctrine, for the delegation of interpretative authority is
express.” Women Involved in Farm Economics v. U.S.
Department of Agriculture, 876 F.2d 994, 1000–01 (D.C. Cir.
1989) (citation omitted); see Rush University Medical Center
v. Burwell, 763 F.3d 754, 760 (7th Cir. 2014); 2015 Open
Internet Order, 30 FCC Rcd. at 5783 ¶ 396 & n.1145. We
find the Commission’s exercise of that express definitional
authority to be a reasoned and reasonable interpretation of the
statute. We therefore sustain the Commission’s
reclassification of mobile broadband as a commercial mobile
service against mobile petitioners’ challenges. In light of that
disposition, we need not address the Commission’s alternative
finding that mobile broadband, even if not a commercial
63
mobile service, is still subject to common carrier treatment as
the “functional equivalent” of a commercial mobile service.
See 47 U.S.C. § 332(d)(3); 2015 Open Internet Order, 30 FCC
Rcd. at 5788–90 ¶¶ 404–08.
1.
We first consider mobile petitioners’ challenge to the
Commission’s updated definition of “public switched
network.” That term, as set out above, forms an integral
component of the statutory definition of “commercial mobile
service.” Any such service must qualify as an
“interconnected service,” defined in the statute as “service
that is interconnected with the public switched network.” 47
U.S.C. § 332(d)(1)–(2). And Congress expressly gave the
Commission the authority to define the public switched
network, id. § 332(d)(2), which the Commission exercised by
revising its definition in the Order. As we have explained, the
Commission, relying on the growing universality of mobile
broadband as a medium of communication for the public,
expanded the definition of the public switched network so that
it now uses IP addresses in addition to telephone numbers in
connection with the provision of switched services.
Mobile petitioners argue that Congress intended “public
switched network” to mean—forever—“public switched
telephone network,” and that the Commission thus lacks
authority to expand the definition of the network to include
endpoints other than telephone numbers. We are
unpersuaded. Mobile petitioners’ interpretation necessarily
contemplates adding a critical word (“telephone”) that
Congress left out of the statute, an unpromising avenue for an
argument about the meaning of the words Congress used.
See, e.g., Adirondack Medical Center v. Sebelius, 740 F.3d
692, 699–700 (D.C. Cir. 2014); Public Citizen, Inc. v. Rubber
Manufacturers Ass’n, 533 F.3d 810, 816 (D.C. Cir. 2008). If
64
Congress meant for the phrase “public switched network” to
carry the more restrictive meaning attributed to it by mobile
petitioners, Congress could (and presumably would) have
used the more limited—and more precise—term “public
switched telephone network.” Indeed, Congress used that
precise formulation in another, later-enacted statute. See 18
U.S.C. § 1039(h)(4). Here, though, Congress elected to use
the more general term “public switched network,” which by
its plain language can reach beyond telephone networks
alone. See 2015 Open Internet Order, 30 FCC Rcd. at 5783
¶ 396.
Not only did Congress decline to invoke the term “public
switched telephone network,” but it also gave the
Commission express authority to define the broader term it
used instead. See 47 U.S.C. § 332(d)(2). Mobile petitioners
conceive of “public switched network” as a term of art
referring only to a network using telephone numbers. But if
that were so, it is far from clear why Congress would have
invited the Commission to define the term, rather than simply
setting out its ostensibly fixed meaning in the statute. We
instead agree with the Commission that, in granting the
Commission general definitional authority, Congress
“expected the notion [of the public switched network] to
evolve and therefore charged the Commission with the
continuing obligation to define it.” 2015 Open Internet Order,
30 FCC Rcd. at 5783 ¶ 396.
It is of no moment that Congress, in another statute, used
the term “public switched network” in a context indicating an
intention to refer to the telephone network. See 47 U.S.C.
§ 1422(b)(1)(B)(ii) (referring to “the public Internet or the
public switched network”). That statute, unlike section
332(d)(2), contains no grant of authority to the Commission to
define the term. And it was enacted during the time when the
65
Commission’s prior, longstanding regulatory definition of
“public switched network” was in effect. Because the
Commission at the time had defined the “public switched
network” by reference to the telephone network, it is
unsurprising that Congress would have assumed the term to
have that meaning. But that assumption by no means
indicates that Congress meant to divest the Commission of the
definitional authority it had expressly granted the
Commission in section 332(d)(2). We do not understand
Congress’s express grant of definitional authority to have
come burdened with an unstated intention to compel the
Commission to forever retain a definition confined to one
specific type of “public switched network,” i.e., the telephone
network.
We therefore reject mobile petitioners’ counter-textual
argument that the statutory phrase “public switched network”
must be understood as if Congress had used the phrase
“public switched telephone network.” Instead, the more
general phrase “public switched network,” by its terms,
reaches any network that is both “public” and “switched.”
Mobile petitioners do not dispute that a network using both IP
addresses and telephone numbers is “public” and “switched.”
As the Commission explained, its expansion of the network to
include the use of IP addresses involves a “switched” network
in that it “reflects the emergence and growth of packet
switched Internet Protocol-based networks,” and it also
involves a “public” network in that “today’s broadband
Internet access networks use their own unique addressing
identifier, IP addresses, to give users a universally recognized
format for sending and receiving messages across the country
and worldwide.” 2015 Open Internet Order, 30 FCC Rcd. at
5779–80 ¶ 391 (emphasis added). The Commission thus
permissibly considered a network using telephone numbers
and IP addresses to be a “public switched network.”
66
2.
Mobile petitioners next challenge the Commission’s
understanding of “interconnected service.” That term, too, is
an integral part of the definition of commercial mobile
service. A commercial mobile service must “make[]
interconnected service available . . . to the public or to . . . a
substantial portion of the public.” 47 U.S.C. § 332(d)(1).
And “interconnected service” is “service that is
interconnected with the public switched network.” Id.§ 332(d)(2). As with the phrase “public switched network,”
Congress gave the Commission express authority to define the
term “interconnected service.” Id.
The Commission has defined “interconnected service” as
a service “that gives subscribers the capability to
communicate to or receive communication from all other
users on the public switched network.” 47 C.F.R. § 20.3(prior version effective through June 11, 2015); see 2015
Open Internet Order, 30 FCC Rcd. at 5779 ¶ 390. (We note
that, in the 2015 Order, the Commission excised the word
“all” from that definition. But as we explain below, the
Commission considered that adjustment a purely conforming
one with no substantive effect; we use the prior language to
confirm that mobile broadband would qualify as
interconnected service regardless of the Commission’s
adjustment.)
The question under the Commission’s definition of
“interconnected service,” then, is whether mobile broadband
“gives subscribers the capability to communicate to or receive
communication from all other users on the public switched
network” as redefined to encompass devices using both IP
addresses and telephone numbers. 47 C.F.R. § 20.3 (prior
version effective through June 11, 2015). The Commission
reasonably found that mobile broadband gives users that
67
“capability.” See 2015 Open Internet Order, 30 FCC Rcd. at
5779–80 ¶¶ 390–91, 5785–86 ¶ 398, 5787 ¶ 401.
As an initial matter, there is no dispute about the
“capability” of mobile broadband subscribers to
“communicate to” other mobile broadband users. As the
Commission explained in the Order—and as is undisputed—
“mobile broadband . . . gives its users the capability to send
and receive communications from all other users of the
Internet.” Id. at 5785 ¶ 398. The remaining issue for the
Commission therefore concerned communications from
mobile broadband users to telephone users: whether mobile
broadband “gives subscribers the capability to communicate
to” users via telephone numbers. 47 C.F.R. § 20.3. The
Commission concluded that it does.
Specifically, the Commission determined that mobile
broadband gives a subscriber the capability to communicate
with a telephone user through the use of Voice over Internet
Protocol (VoIP) applications. See 2015 Open Internet Order,
30 FCC Rcd. at 5786–87 ¶¶ 400–01. (Skype, FaceTime, and
Google Voice and Hangouts are popular examples of VoIP
applications.) VoIP technology enables a mobile broadband
user to send a voice call from her IP address to the recipient’s
telephone number. As a result, a mobile broadband user with
a VoIP application on her tablet can call her friend’s home
phone number even if the caller’s tablet lacks cellular voice
access (and thus has no assigned telephone number). When
she dials her friend’s telephone number, the VoIP service
sends the call from her tablet’s IP address over the mobile
broadband network to connect to the telephone network and,
ultimately, to her friend’s home phone. As such, mobile
broadband, through VoIP, “gives subscribers the capability to
communicate to” telephone users. 47 C.F.R. § 20.3.
68
In 2007, when the Commission first considered the
proper classification of then-nascent mobile broadband, the
Commission had a different understanding about the
relationship between mobile broadband and VoIP. At that
time, the Commission considered VoIP applications to be a
separate, non-integrated service, such that VoIP’s ability to
connect internet and telephone users was not thought to
render mobile broadband an interconnected service. See 2007
Wireless Order, 22 FCC Rcd. at 5917–18 ¶ 45. But when the
Commission revisited the issue nearly a decade later in the
Order we now review, the Commission found that its
“previous determination about the relationship between
mobile broadband Internet access and VoIP applications in
the context of section 332 no longer accurately reflects the
current technological landscape.” 2015 Open Internet Order,
30 FCC Rcd. at 5787 ¶ 401. In particular, it concluded that
VoIP applications now function as an integrated aspect of
mobile broadband, rather than as a functionally distinct,
separate service. The Commission therefore found that
mobile broadband “today, through the use of VoIP, . . . gives
subscribers the capability to communicate with all NANP
endpoints.” Id.In reaching that conclusion, the Commission emphasized
that “changes in the marketplace . . . highlight the
convergence between mobile voice and data networks that has
occurred since the Commission first addressed the
classification of mobile broadband Internet access in 2007.”
Id. The record before the Commission substantially supports
that understanding, as well as the associated finding that the
relationship between VoIP applications and mobile broadband
today significantly differs from that of 2007. For instance, in
2007, Apple’s iPhone—the only device at the time even
“resembling a modern smart phone”—had just been released
and was available through only one mobile carrier. Letter
69
from Harold Feld, et al., Public Knowledge to Marlene H.
Dortch, FCC, at 10, GN Dkt. Nos. 14-28 & 10-127 (Dec. 19,
2014) (“Public Knowledge 12/19 Letter”). Commenters drew
the Commission’s attention to its recognition in 2007 that
“mobile broadband available with a standard mobile phone of
the time ‘enable[d] users to access a limited selection of
websites’ and primarily offered extremely limited
functionality such as email.” Id. (citing 2007 Wireless Order,
22 FCC Rcd. at 5906 ¶ 11 & n.43). Because of those
limitations, “[i]ndependent ‘app stores’ that allow for
seamless downloading and integration of standalone
applications [e.g., VoIP applications] into the customer’s
handset did not exist” in 2007. Id.The Commission also noted that, today, mobile
broadband is dramatically faster: the average network
connection speed “exploded” in just three years, going from
an average connection speed of 709 kilobytes per second
(kbps) in 2010 to an average speed of 2,058 kbps for all
devices and 9,942 kbps for smartphones by 2013. 2015 Open
Internet Order, 30 FCC Rcd. at 5636 ¶ 89 & n.170. Partly as
a result, access to the internet and applications on one’s
mobile phone is no longer confined to a small number of
functions. Rather, “there has been substantial growth” even
since 2010—far more so since 2007—“in the digital app
economy . . . and VoIP” in particular. Id. at 5626 ¶ 76.
In addition, the Commission cited a letter which
explained that, because VoIP applications (such as FaceTime
on Apple devices and Google Hangouts on Android devices)
now come “bundled with the primary operating systems
available in every smartphone,” they are no longer “rare and
clearly functionally distinct” as they were in 2007. Letter
from Michael Calabrese, Open Technology Institute, et al., to
Marlene H. Dortch, FCC, at 6, GN Dkt. Nos. 14-28 & 10-127
70
(Dec. 11, 2014) (“OTI 12/11 Letter”); see 2015 Open Internet
Order, 30 FCC Rcd. at 5787 ¶ 401 n.1168. Any distinction
between calls made with a device’s “native” dialing capacity
and those made through VoIP thus has become “increasingly
inapt.” OTI 12/11 Letter at 5; see Public Knowledge 12/19
Letter at 10.
The Commission accordingly found that “[t]oday, mobile
VoIP . . . is among the increasing number of ways in which
users communicate indiscriminately between NANP and IP
endpoints on the public switched network.” 2015 Open
Internet Order, 30 FCC Rcd. at 5787 ¶ 401; see Resp’ts’ Br.
99 (relying on that finding). In light of those developments,
the Commission reasonably determined that mobile
broadband today is interconnected with the newly defined
public switched network. It “gives subscribers the capability
to communicate to . . . other users on the public switched
network,” whether the recipient has an IP address, telephone
number, or both. 47 C.F.R. § 20.3; see 2015 Open Internet
Order, 30 FCC Rcd. at 5779–80 ¶ 391, 5785–87 ¶¶ 398–401.
In contending otherwise, mobile petitioners argue that
mobile broadband itself is not “interconnected with the public
switched network,” 47 U.S.C. § 332(d)(2), because mobile
broadband does not allow subscribers to interconnect with
telephone users unless subscribers take the step of using a
VoIP application. Nothing in the statute, however, compels
the Commission to draw a talismanic (and elusive) distinction
between (i) mobile broadband alone enabling a connection,
and (ii) mobile broadband enabling a connection through use
of an adjunct application such as VoIP. To the contrary, the
statute grants the Commission express authority to define
“interconnected service.” 47 U.S.C. § 332(d)(2). And the
Commission permissibly exercised that authority to determine
that—in light of the increased availability, use, and
71
technological and functional integration of VoIP
applications—mobile broadband should now be considered
interconnected with the telephone network. Indeed, even for
communications from one mobile broadband user to another,
mobile broadband generally works in conjunction with a
native or third-party application of some sort (e.g., an email
application such as Gmail or a messaging application such as
WhatsApp) to facilitate transmission of users’ messages. The
conjunction of mobile broadband and VoIP to enable IP-to-
telephone communications is no different.
That is especially apparent in light of the Commission’s
regulatory definition of “interconnected service.” The
regulation calls for assessing whether mobile broadband
“gives subscribers the capability to communicate to”
telephone users. 47 C.F.R. § 20.3 (emphasis added). Mobile
petitioners do not challenge the Commission’s understanding
that a “capability to communicate” suffices to establish an
interconnected service, and we see no ground for rejecting the
Commission’s conclusion that mobile broadband gives
subscribers the “capability to communicate to” telephone
users through VoIP. And although the regulation also
references “receiv[ing] communications from” others in the
network, id., mobile petitioners also do not challenge the
Commission’s understanding that the capability either to
“communicate to or receive communication from” is enough,
id. (emphasis added). Consequently, the capability of mobile
broadband users “to communicate to” telephone users via
VoIP suffices to render the network—and, most importantly,
its users—“interconnected.”
Mobile petitioners note what they perceive to be a
separate problem associated with communications running in
the reverse direction (i.e., the capability of mobile broadband
users to “receive communications from” telephone users).
72
That ostensible problem pertains, not to mobile broadband
service, but instead to mobile voice service. In particular,
mobile petitioners argue that, if the public switched network
can be defined to use both IP addresses and telephone
numbers, mobile voice service would no longer qualify as an
“interconnected service” because telephone users cannot
establish a connection to IP users. The result, mobile
petitioners submit, is that the one network everyone agrees
was intended to qualify as a commercial mobile service—
mobile voice—would necessarily become a private mobile
service. We are unconvinced.
As a starting point, the Commission’s Order takes up the
proper classification of mobile broadband, not mobile voice.
The Commission thus did not conduct a formal assessment of
whether mobile voice would qualify as an interconnected
service under the revised definition of public switched
network. But were the Commission to address that issue in a
future proceeding, it presumably would note that, regardless
of whether mobile voice users can “communicate to” mobile
broadband users from their telephones, they can “receive
communication from” mobile broadband users through VoIP
for the reasons already explained. 47 C.F.R. § 20.3. That
capability would suffice to render mobile voice an
“interconnected service” under the Commission’s regulatory
definition of that term. Id.Moreover, insofar as the Commission may be asked in
the future to formally address whether mobile voice qualifies
as an interconnected service, the Commission could assess at
that time whether there exists the “capability” of
communications in the reverse direction, i.e., the capability of
mobile voice users to “communicate to” IP users from their
telephones. Id. We note that the Commission had
information before it in this proceeding indicating that a
73
mobile broadband (or other computer) user can employ a
service enabling her to receive telephone calls to her IP
address. See Public Knowledge 12/19 Letter at 11 n.50
(describing a television commercial demonstrating Apple’s
Continuity service, which enables an iPhone 6 user with
mobile voice service to call an iPad user with mobile
broadband service); Use Continuity to connect your iPhone,
iPad, iPod touch, and Mac, https://support.apple.com/en-us
/HT204681 (last visited June 14, 2016) (“With Continuity,
you can make and receive cellular phone calls from your iPad,
iPod touch, or Mac when your iPhone is on the same Wi-Fi
network.”); see also Receive Google Voice calls with
Hangouts, https://support.google.com/hangouts/answer
/6079064 (last visited June 14, 2016) (describing how the
“Google Voice” and “Hangouts” services allow mobile
broadband users to receive calls from telephone users); What
is a Skype Number?, https://support.skype.com/en/faq/FA331
/what-is-a-skype-number (last visited June 14, 2016)
(describing how a “Skype Number” enables mobile
broadband users to receive calls from telephone users).
For those reasons, we reject mobile petitioners’ argument
that the Commission’s classification of mobile broadband as
an “interconnected service” is impermissible because of its
supposed implications for the classification of mobile voice.
Rather, the Commission permissibly found that mobile
broadband now qualifies as interconnected because it gives
subscribers the ability to communicate to all users of the
newly defined public switched network. In the words of the
Commission: “mobile broadband Internet access service
today, through the use of VoIP, messaging, and similar
applications, effectively gives subscribers the capability to
communicate with all NANP endpoints as well as with all
users of the Internet.” 2015 Open Internet Order, 30 FCC
Rcd. at 5787 ¶ 401.
74
Finally, the finding that mobile broadband today “gives
subscribers the capability to communicate with all NANP
endpoints,” id. (emphasis added), confirms the immateriality
of the Commission’s removal of the word “all” from its
regulatory definition of “interconnected service.” As
mentioned earlier, that regulation, until the Order, defined
interconnected service as a service “that gives subscribers the
capability to communicate to or receive communication from
all other users on the public switched network.” 47 C.F.R.
§ 20.3 (prior version effective through June 11, 2015)
(emphasis added). In the updated definition, the Commission
left that language unchanged except that it removed the word
“all.” See 47 C.F.R. § 20.3 (current version effective June 12,
2015). Mobile petitioners attach great significance to the
removal of “all,” assuming that the change enabled the
Commission to find mobile broadband to be an
“interconnected service” even though, according to mobile
petitioners, broadband users have no capability to
communicate with telephone users. By excising the word
“all,” mobile petitioners assert, the Commission could find
that mobile broadband is an interconnected service based on
the ability of users to communicate only with some in the
network (fellow broadband users) notwithstanding the lack of
any capability to communicate with others in the network
(telephone users). Absent the latter ability, mobile petitioners
argue, mobile broadband cannot actually be considered
“interconnected” with the telephone network.
Mobile petitioners’ argument rests on a mistaken
understanding of the Commission’s actions. The Commission
did not rest its finding that mobile broadband is an
“interconnected service” solely on an assumption that it
would be enough for broadband subscribers to be able to
communicate with some in the network (only fellow IP users),
even if there were no capability at all to communicate with
75
others (telephone users). To the contrary, the Commission, as
explained, found that mobile broadband—through VoIP—
“gives subscribers the ability to communicate with all NANP
endpoints as well as with all users of the Internet.” 2015
Open Internet Order, 30 FCC Rcd. at 5787 ¶ 401 (emphasis
added). Once we accept that finding, as we have, we need not
consider petitioners’ argument challenging what the
Commission characterizes as merely a “conforming” change
with no independent substantive effect. See id. at 5787–88
¶ 402 & n.1175. (Specifically, the Commission notes that the
removal of “all” was meant to reiterate a carve-out that has
always existed in the regulation: another part of the definition
of “interconnected service” establishes that a service qualifies
as “interconnected” even if it “restricts access in certain
limited ways,” such as a service that blocks access to 900
numbers. Id. (quoting 47 C.F.R. § 20.3); id. at 5787 ¶ 402
n.1172.)
In the end, then, the removal of “all” is of no
consequence to the Commission’s rationale for finding that
mobile broadband constitutes an “interconnected service.”
Mobile broadband, the Commission reasonably concluded,
gives users the capability to communicate to all other users in
the newly defined public switched network, whether users
with an IP address, users with a telephone number, or users
with both. See id. at 5787 ¶ 401. Because mobile broadband
thus can be considered an interconnected service, the
Commission acted permissibly in reclassifying mobile
broadband as a commercial mobile service subject to common
carrier regulation, rather than a private mobile service
immune from such regulation.
3.
Mobile petitioners also argue that the Commission has
failed to “point to any change in the technology or
76
functionality of mobile broadband” sufficient to justify
reclassifying mobile broadband as a commercial mobile
service. US Telecom Pet’rs’ Br. 68. This argument fares no
better in the mobile context than it did in the Title II
reclassification context. Even if the Commission had not
demonstrated changed factual circumstances—which, as
described above, we think it has—mobile petitioners’
argument would fail because the Commission need only
provide a “reasoned explanation” for departing from its prior
findings. See Fox Television, 556 U.S. at 515–16 (“[I]t is not
that further justification is demanded by the mere fact of
policy change[,] but that a reasoned explanation is needed for
disregarding facts and circumstances that underlay . . . the
prior policy.”). It has done so here.
4.
Finally, we agree with the Commission that the need to
avoid a statutory contradiction in the treatment of mobile
broadband provides further support for its reclassification as a
commercial mobile service. Each of the two statutory
schemes covering mobile broadband requires classifying a
service in a particular way before it can be subject to common
carrier treatment. Under Title II, broadband must be
classified as a “telecommunications service.” Under Title III,
mobile broadband must be classified as a “commercial mobile
service.” Because the two classifications do not automatically
move in tandem, the Commission must make two distinct
classification decisions. To avoid the contradictory result of
classifying mobile broadband providers as common carriers
under Title II while rendering them immune from common
carrier treatment under Title III, the Commission, upon
reclassifying broadband generally—including mobile—as a
telecommunications service, reclassified mobile broadband as
a commercial mobile service. See 2015 Open Internet Order
at 5788 ¶ 403.
77
Avoiding that statutory contradiction not only assures
consistent regulatory treatment of mobile broadband across
Titles II and III, but it also assures consistent regulatory
treatment of mobile broadband and fixed broadband, in
furtherance of the Commission’s objective that “[b]roadband
users should be able to expect that they will be entitled to the
same Internet openness protections no matter what technology
they use to access the Internet.” 2015 Open Internet Order,
30 FCC Rcd. at 5638 ¶ 92. When consumers use a mobile
device (such as a tablet or smartphone) to access the internet,
they may establish a connection either through mobile
broadband or through a Wi-Fi connection at home, in the
office, or at an airport or coffee shop. Such Wi-Fi
connections originate from a landline broadband connection,
which is now a telecommunications service regulated as a
common carrier under Title II. If a consumer loses her Wi-Fi
connection for some reason while accessing the internet—
including, for instance, if she walks out the front door of her
house, and thus out of Wi-Fi range—her device could switch
automatically from a Wi-Fi connection to a mobile broadband
connection. If mobile broadband were classified as a private
mobile service, her ongoing session would no longer be
subject to common carrier treatment. In that sense, her
mobile device could be subject to entirely different regulatory
rules depending on how it happens to be connected to the
internet at any particular moment—which could change from
one minute to the next, potentially even without her
awareness.
The Commission’s decision to reclassify mobile
broadband as a commercial mobile service prevents that
counterintuitive outcome by assuring consistent regulatory
treatment of fixed and mobile broadband. By contrast, if
mobile broadband—despite the public’s “rapidly growing and
virtually universal use” of the service today, id. at 5786
78
¶ 399—must still be classified as a “private” mobile service,
broadband users may no longer experience “the same Internet
openness protections no matter what technology they use to
access the Internet.” Id. at 5638 ¶ 92.
C.
Mobile petitioners also challenge the sufficiency of the
Commission’s notice, particularly with respect to its
redefinition of the public switched network as well as its
removal of the word “all” from the definition of
interconnected service. As noted above, the APA requires
that an NPRM “include . . . either the terms or substance of
the proposed rule or a description of the subjects and issues
involved.” 5 U.S.C. § 553(b). But the APA also requires us
to take “due account” of “the rule of prejudicial error.” Id.§ 706.
A deficiency of notice is harmless if the challengers had
actual notice of the final rule, Small Refiner Lead Phase-
Down Task Force v. EPA, 705 F.2d 506, 549 (D.C. Cir.
1983), or if they cannot show prejudice in the form of
arguments they would have presented to the agency if given a
chance, Owner-Operator Independent Drivers Ass’n v.
Federal Motor Carrier Safety Administration, 494 F.3d 188,
202 (D.C. Cir. 2007). Both circumstances are present here,
and each independently supports our conclusion that any lack
of notice was ultimately harmless. As such, we need not
decide whether the Commission gave adequate notice of its
redefinition of the public switched network in the NPRM.
As mobile petitioners acknowledge, Vonage raised the
idea of redefining the public switched network in its
comments, pointing out the Commission’s “authority to
interpret the key terms in th[e] definition [of commercial
mobile service], including ‘interconnected’ and ‘public
79
switched network.’” Vonage Holdings Corp. Comments at
43, GN Dkt. Nos. 14-28 & 10-127 (July 18, 2014). Mobile
petitioner CTIA responded to that point in its reply comments,
disputing Vonage’s underlying assumption that mobile
broadband users can connect with all telephone users, see
CTIA Reply Comments at 45, GN Dkt. Nos. 14-28 & 10-127
(Sept. 15, 2014), thereby recognizing that the definition of
public switched network was in play.
In addition, over the course of several months before
finalization and release of the Order, mobile petitioners (and
others) submitted multiple letters to the Commission
concerning the potential for redefining the public switched
network. See, e.g., Letter from Henry G. Hultquist, AT&T, to
Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127
(Feb. 13, 2015) (“AT&T 2/13 Letter”); Letter from Scott
Bergmann, CTIA, to Marlene H. Dortch, FCC, at 13-18, GN
Dkt. Nos. 14-28 & 10-127 (Feb. 10, 2015); Letter from Scott
Bergmann, CTIA, to Marlene H. Dortch, FCC, GN Dkt. Nos.
14-28 & 10-127 (Jan. 14, 2015) (“CTIA 1/14 Letter”); Letter
from Gary L. Phillips, AT&T, to Marlene H. Dortch, FCC,
GN Dkt. Nos. 14-28 & 10-127 (Feb. 2, 2015); Letter from
Scott Bergmann, CTIA, to Marlene H. Dortch, FCC, GN Dkt.
Nos. 14-28 & 10-127 (Dec. 22, 2014) (“CTIA 12/22 Letter”);
Letter from Scott Bergmann, CTIA, to Marlene H. Dortch,
FCC, GN Dkt. Nos. 14-28 & 10-127 (Oct. 17, 2014) (“CTIA
10/17 Letter”).
We have previously charged petitioners challenging an
agency rule with actual notice based on letters like those
submitted by mobile petitioners. See Sierra Club v. Costle,
657 F.2d 298, 355 (D.C. Cir. 1981). But we have even more
evidence of actual notice here. Mobile petitioners note in
their letters that, in meetings with the Commission, they
discussed the substance of their arguments here, including
80
issues surrounding the redefinition of public switched
network. See AT&T 2/13 Letter at 1 (noting a meeting with
representatives from Commissioners O’Rielly’s and Pai’s
offices on February 11, 2015); CTIA 1/14 Letter at 1 (noting a
meeting with representatives from Commissioner Pai’s office
on January 12, 2015); CTIA 12/22 Letter at 1 (noting a
meeting with representatives from the Commission’s General
Counsel’s office and representatives from the Wireless
Telecommunications Bureau on December 18, 2014); CTIA
10/17 Letter at 1 (noting a meeting with the Commission’s
General Counsel and a representative from the Wireline
Competition Bureau on October 15, 2014). Thus, even if the
redefinition of public switched network was a “novel
proposal” by Vonage during the comment period, it is clear
from mobile petitioners’ own letters that they had actual
notice that the Commission was considering adoption of that
proposal. See National Mining Ass’n v. Mine Safety & Health
Administration, 116 F.3d 520, 531–32 (D.C. Cir. 1997).
In addition, in those letters, letters from others supporting
mobile petitioners’ views, and responsive letters from groups
like New America’s Open Technology Institute and Public
Knowledge, mobile petitioners engaged in a detailed,
substantive back-and-forth about the precise issues they
challenge here. Reclassification of mobile broadband and
redefinition of the public switched network were the focal
points of that discussion, in which petitioners exchanged
arguments about technology and policy with the groups
supporting a broader definition of the public switched
network. See Letters from CTIA and AT&T, supra; Letter
from Michael Calabrese, Open Technology Institute, to
Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127 (Jan.
27, 2015); Letter from Harold Feld, Public Knowledge, to
Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127 (Jan.
15, 2015); Letter from William H. Johnson, Verizon, to
81
Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127
(Dec. 24, 2014); Public Knowledge 12/19 Letter; Letter from
Michael E. Glover, Verizon, to Marlene H. Dortch, FCC, GN
Dkt. Nos. 14-28 & 10-127 (Oct. 29, 2014); OTI 12/11 Letter;
Letter from William H. Johnson, Verizon, to Marlene H.
Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127 (Oct. 17, 2014).
In those exchanges, mobile petitioners raised and fiercely
debated all of the same arguments they now raise before us,
thus demonstrating not only the presence of actual notice, but
also the absence of new arguments they might present to the
Commission on remand. Indeed, when asked at oral
argument, mobile petitioners could not list any new argument
on the issue of the redefinition of public switched network.
See Oral Arg. Tr. 74–79, 84–87.
Mobile petitioners also allege that the Commission gave
inadequate notice of the removal of “all” from the definition
of interconnected service. Any such failure, however, was
also harmless. As noted above, not only does the
Commission claim that the removal of “all” was
inconsequential to the regulation, but that adjustment also has
no bearing on our decision to uphold the Commission’s
reclassification decision. We would uphold the
Commission’s decision regardless of whether the Commission
validly removed “all” from the definition of “interconnected
service.” Mobile petitioners thus cannot show prejudice from
any lack of notice. See Steel Manufacturers Ass’n v. EPA, 27
F.3d 642, 649 (D.C. Cir. 1994) (explaining that inability to
comment on one rationale for rule was harmless when agency
had “adequate and independent grounds” for rule).
Mobile petitioners, for those reasons, fail to show the
prejudice required by the APA to succeed on their arguments
of insufficient notice. We therefore reject their challenges.
82
V.
Having upheld the Commission’s reclassification of
broadband services, both fixed and mobile, we consider next
Full Service Network’s challenges to the Commission’s
decision to forbear from applying portions of the
Communications Act to those services. Section 10 of the
Communications Act provides that the Commission “shall
forbear from applying any regulation or any provision” of the
Communications Act to a telecommunications service or
carrier if three criteria are satisfied: (1) “enforcement of such
regulation or provision is not necessary to ensure that” the
carrier’s practices “are just and reasonable and are not
unjustly or unreasonably discriminatory,” 47 U.S.C.
§ 160(a)(1); (2) “enforcement of such regulation or provision
is not necessary for the protection of consumers,” id.§ 160(a)(2); and (3) “forbearance from applying such
provision or regulation is consistent with the public interest,”
id. § 160(a)(3). Under the third criterion, “the Commission
shall consider whether forbearance . . . will promote
competitive market conditions, including the extent to which
such forbearance will enhance competition among providers
of telecommunications services.” Id. § 160(b). Thus, section
10 imposes a mandatory obligation upon the Commission to
forbear when it finds these conditions are met.
Section 10(c) gives any carrier the right to “submit a
petition to the Commission requesting” forbearance. Id.
§ 160(c). In regulations issued pursuant to section 10(c), the
Commission requires “petitions for forbearance” to include a
“[d]escription of relief sought,” make a prima facie case that
the statutory criteria for forbearance are satisfied, identify any
related matters, and provide any necessary evidence. 47
C.F.R. § 1.54.
83
In the Order, the Commission decided to forbear from
numerous provisions of the Communications Act. 2015 Open
Internet Order, 30 FCC Rcd. at 5616 ¶ 51. Full Service
Network raises both procedural and substantive challenges to
the Commission’s forbearance decision. None succeeds.
A.
Full Service Network first argues that the Commission
should have followed its regulatory requirements governing
forbearance petitions even though it forbore of its own accord.
In the Order, the Commission rejected this contention, stating
that “[b]ecause the Commission is forbearing on its own
motion, it is not governed by its procedural rules insofar as
they apply, by their terms, to section 10(c) petitions for
forbearance.” Id. at 5806 ¶ 438.
“[W]e review an agency’s interpretation of its own
regulations with ‘substantial deference.’” In re Sealed Case,
237 F.3d 657, 667 (D.C. Cir. 2001) (quoting Thomas
Jefferson University v. Shalala, 512 U.S. 504, 512 (1994)).
The agency’s interpretation “will prevail unless it is ‘plainly
erroneous or inconsistent’ with the plain terms of the disputed
regulation.” Everett v. United States, 158 F.3d 1364, 1367
(D.C. Cir. 1998) (quoting Auer v. Robbins, 519 U.S. 452, 461
(1997)).
The Commission’s interpretation of its regulations easily
satisfies this standard. By their own terms, the regulations
apply to “petitions for forbearance,” and nowhere say
anything about what happens when, as here, the Commission
decides to forbear without receiving a petition. See 47 C.F.R.
§ 1.54. To the extent this silence renders the regulations
ambiguous in the circumstance before us, the Commission’s
interpretation is hardly “plainly erroneous.” Everett, 158 F.3d
at 1367 (internal quotation marks omitted).
84
Full Service Network also contends that the NPRM
violated the APA’s notice requirement because it nowhere
identified the rules from which the Commission later decided
to forbear. The NPRM, however, listed the provisions from
which the Commission likely would not forbear, which by
necessary implication indicated that the Commission would
consider forbearing from all others. The NPRM did so by
citing a 2010 notice of inquiry, in which the Commission had
contemplated that, if it were to classify the Internet
connectivity component of broadband Internet access
service, it would forbear from applying all but a
handful of core statutory provisions—sections 201,
202, 208, and 254—to the service. In addition, the
Commission identified sections 222 and 255 as
provisions that could be excluded from forbearance,
noting that they have attracted longstanding and
broad support in the broadband context.
NPRM, 29 FCC Rcd. at 5616 ¶ 154 (footnotes and internal
quotation marks omitted). The NPRM sought “further and
updated comment” on that course of action. Id. Thus, Full
Service Network “should have anticipated that” the
Commission would consider forbearing from all remaining
Title II provisions. Covad Communications Co., 450 F.3d at
548. Indeed, Full Service Network anticipated that the
Commission would do just that. In its comments, Full Service
Network argued that the Commission should not forbear from
the provisions at issue here, thus demonstrating that it had no
trouble “comment[ing] meaningfully,” Honeywell
International, Inc., 372 F.3d at 445. See Letter from Earl W.
Comstock, Counsel for Full Service Network and
TruConnect, to Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28
& 10-127 (Feb. 20, 2015); Letter from Earl W. Comstock,
Counsel for Full Service Network and TruConnect, to
85
Marlene H. Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127, at 1
(Feb. 3, 2015).
B.
Full Service Network contends that the Commission
acted arbitrarily and capriciously in forbearing from the
mandatory network connection and facilities unbundling
requirements contained in sections 251 and 252. As relevant
here, section 251 requires telecommunications carriers “to
interconnect directly or indirectly” with other carriers and
prohibits them from “impos[ing] unreasonable or
discriminatory conditions or limitations on[] the resale
of . . . telecommunications services.” 47 U.S.C. § 251(a)(1),
(b)(1). “Incumbent local exchange carrier[s],” meaning
carriers who “provided telephone exchange service” in a
particular area as of the effective date of the
Telecommunications Act, must provide nondiscriminatory
access to their existing networks and unbundled access to
network elements in order to allow service-level competition
through resale. Id. § 251(c), (h)(1). Section 252 sets
standards for contracts that implement section 251
obligations.
Full Service Network first argues that section 10(a)(3)’s
public interest determination “must be made for each
regulation, provision and market . . . using the definition and
context of that provision in the [Communications] Act.” Full
Service Network Pet’rs’ Br. 14–15 (emphasis omitted).
Because section 251 “applies to ‘local exchange carriers,’”
Full Service Network contends, “the geographic market, as
the name implies and the definition in the [Communications]
Act confirms, is local and not national.” Id. at 15 (emphasis
omitted) (quoting 47 U.S.C. § 251).
86
Our decision in EarthLink, Inc. v. FCC, 462 F.3d 1,
forecloses this argument. There, EarthLink made a similar
argument—that the inclusion of the phrase “geographic
markets” in section 10 meant that the Commission could not
“forbear on a nationwide basis” from separate unbundling
requirements in section 271 “without considering more
localized regions individually.” Id. at 8. Rejecting this
argument, we focused on the language of section 10, and held
that “[o]n its face, the statute imposes no particular mode of
market analysis or level of geographic rigor.” Id. Rather,
“the language simply contemplates that the FCC might
sometimes forbear in a subset of a carrier’s markets; it is
silent about how to determine when such partial relief is
appropriate.” Id. For the same reason, Full Service Network
cannot rope section 251’s requirements into the
Commission’s section 10 analysis.
Full Service Network’s argument is also inconsistent with
our decision in Verizon Telephone Cos. v. FCC, 570 F.3d 294(D.C. Cir. 2009). There, Verizon sought forbearance from
section 251 in some of its telephone-service markets. Id. at
299. The Commission denied Verizon’s petition, finding
insufficient evidence of facilities-based competition to render
the provision’s application unnecessary to protect the interests
of consumers under section 10(a)(2) and to satisfy section
10(a)(3)’s public-interest requirement. Id. Challenging that
decision, Verizon argued that the Commission’s forbearance
decision was incompatible with the text of section 251
because section 251 required the Commission to find that lack
of access would “‘impair the ability of the
telecommunications carrier seeking access to
provide . . . service[],’” which the Commission had not done.
Id. at 300 (omission and alteration in original) (quoting 47
U.S.C. § 251). We rejected this argument, explaining that
“[t]he dispute before this court . . . concerns whether the
87
statutory text of § 10—not § 251—contradicts the FCC’s
interpretation.” Id. We found reasonable the Commission’s
conclusion that its section 10 analysis did not need to
incorporate any statutory requirement arising from section
251. Id. at 300–01. We do so again here.
Full Service Network next challenges the Commission’s
finding that “the availability of other protections adequately
addresses commenters’ concerns about forbearance from the
interconnection provisions under the section 251/252
framework.” 2015 Open Internet Order, 30 FCC Rcd. at
5849–50 ¶ 513 (footnote omitted). Specifically, Full Service
Network attacks the Commission’s determination that section
201 gives it sufficient authority to ensure that broadband
networks connect to one another for the mutual exchange of
traffic. Section 201 requires “every common carrier engaged
in interstate or foreign communication by wire or radio to
furnish such communication service upon reasonable request
therefor” and, upon an order of the Commission, “to establish
physical connections with other carriers, to establish through
routes and charges applicable thereto and the divisions of
such charges, and to establish and provide facilities and
regulations for operating such through routes.” 47 U.S.C.
§ 201(a). “All charges, practices, classifications, and
regulations for and in connection with such communication
service, shall be just and reasonable . . . .” Id. § 201(b).
Section 251 includes a savings provision that “[n]othing in
this section shall be construed to limit or otherwise affect the
Commission’s authority under section 201.” Id. § 251(i).
Full Service Network first contends that the
Commission’s authority under section 201 does not extend to
physical co-location, under which local exchange carriers
must allow third-party providers to physically locate cables on
their property in furtherance of network connections. In
88
support, Full Service Network relies on our decision in Bell
Atlantic Telephone Cos. v. FCC, 24 F.3d 1441 (D.C. Cir.
1994), in which we refused to uphold under section 201 a
Commission rule requiring physical co-location. The rule, we
reasoned, would unnecessarily raise Takings Clause issues
because the Commission could use virtual co-location, where
local exchange carriers maintain equipment that third-party
providers can use, to implement section 201’s “physical
connection” requirement without raising constitutional issues.
Id. at 1446. So while Full Service Network is correct that Bell
Atlantic imposes one limit on the Commission’s reach under
section 201, that case also demonstrates that the Commission
retains authority to regulate network connections under that
section.
Next, Full Service Network argues that section 152(b),
which “prevent[s] the Commission from taking intrastate
action solely because it further[s] an interstate goal,” AT&T
Corp. v. Iowa Utilities Board, 525 U.S. 366, 381 (1999),
prohibits the Commission from “us[ing] its interstate
authority under [section] 201 to regulate broadband Internet
access service that is an intrastate ‘telephone exchange
service’ under the [Communications] Act,” Full Service
Network Pet’rs’ Br. 17 (emphasis omitted) (quoting 47 U.S.C.
§ 153(54)). According to Full Service Network, the
Commission erred by refusing to determine whether
broadband service qualifies as a “telephone exchange service”
because that definition would prevent the Commission from
classifying the internet as jurisdictionally interstate.
In the Order, the Commission “reaffirm[ed] [its]
longstanding conclusion” that broadband service falls within
its jurisdiction as an interstate service. 2015 Open Internet
Order, 30 FCC Rcd. at 5803 ¶ 431; see Cable Broadband
Order, 17 FCC Rcd. at 4832 ¶ 59; In re GTE Telephone
89
Operating Cos. GTOC Tariff No. 1, GTOC Transmittal No.
1148, 13 FCC Rcd. 22,466, 22,474–83 ¶¶ 16–32 (1998).
“The Internet’s inherently global and open architecture,” the
Commission reasoned, “mak[es] end-to-end jurisdictional
analysis extremely difficult—if not impossible—when the
services at issue involve the Internet.” 2015 Open Internet
Order, 30 FCC Rcd. at 5803 ¶ 431 (internal quotation marks
omitted). The Commission also determined that because it
had found the section 10 criteria met as to section 251, it had
no reason to “resolve whether broadband Internet access
service could constitute ‘telephone exchange service’” under
section 251. Id. at 5851 ¶ 513 n.1575.
We approved the Commission’s jurisdictional approach
in Core Communications, Inc. v. FCC, 592 F.3d 139, 144
(D.C. Cir. 2010). Although the petitioners in that case never
challenged the general framework of the Commission’s “end-
to-end analysis, . . . under which the classification of a
communication as local or interstate turns on whether its
origin and destination are in the same state,” id. at 142, we
recognized that
[d]ial-up internet traffic is special because it involves
interstate communications that are delivered through
local calls; it thus simultaneously implicates the
regimes of both § 201 and of §§ 251–252. Neither
regime is a subset of the other. They intersect, and
dial-up internet traffic falls within that intersection.
Given this overlap, § 251(i)’s specific saving of the
Commission’s authority under § 201 against any
negative implications from § 251 renders the
Commission’s reading of the provisions at least
reasonable.
90
Id.; see also National Ass’n of Regulatory Utility
Commissioners v. FCC, 746 F.2d 1492, 1501 (D.C. Cir. 1984)
(“[W]e have concluded that the FCC has broad power to
regulate physically intrastate facilities where they are used for
interstate communication.”). To be sure, Core
Communications concerned dial-up internet access, but
because broadband involves a similar mix of local facilities
and interstate information networks, we see no meaningful
distinction between the interpretation approved in Core
Communications and the one the Commission offered here.
Nor do we see any reason to obligate the Commission to
determine the legal status of each underlying “hypothetical
regulatory obligation[]” that could result from any particular
Communications Act provision prior to undertaking the
section 10 forbearance analysis. AT & T Inc. v. FCC, 452
F.3d 830, 836–37 (D.C. Cir. 2006).
Full Service Network’s final argument is not especially
clear. It appears to claim that the Commission provided
inadequate support for its forbearance decision. Pointing out
that in prior proceedings the Commission had found that
mandatory unbundling in the telephone context would
promote competition and emphasizing that Congress passed
section 251 to foster competition, Full Service Network
argues that “[section 10] surely requires more to support
forbearance than an assertion by the FCC that ‘other
authorities’ are adequate and the public interest will be better
served by enhancing the agency’s discretion.” Full Service
Network Pet’rs’ Br. 20.
In evaluating Full Service Network’s argument that the
Commission failed to provide adequate justification for its
forbearance decision, we are guided by “the traditional
‘arbitrary and capricious’ standard,” Cellular
Telecommunications & Internet Ass’n v. FCC, 330 F.3d 502,
91
507–08 (D.C. Cir. 2003), under which “the agency must
examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection
between the facts found and the choice made,” State Farm,
463 U.S. at 43 (internal quotation marks omitted). We have
applied this standard to section 10 forbearance decisions and
have “consistently deferred to [such decisions], except in
cases where the Commission deviated without explanation
from its past decisions or did not discuss section 10’s criteria
at all.” Verizon v. FCC, 770 F.3d 961, 969 (D.C. Cir. 2014)
(internal citations omitted).
In the Order, the Commission identified two bases for
forbearing from sections 251 and 252. First, it considered
evidence from commenters who argued that “last-mile
unbundling requirements . . . led to depressed investment in
the European broadband marketplace.” 2015 Open Internet
Order, 30 FCC Rcd. at 5796 ¶ 417. Those commenters
identified several studies suggesting that mandatory
unbundling had reduced investment in broadband
infrastructure in Europe relative to the United States. See
Letter from Maggie McCready, Verizon, to Marlene H.
Dortch, FCC, GN Dkt. Nos. 14-28 & 10-127 (Jan. 26, 2015);
Letter from Kathryn Zachem, Comcast, to Marlene H. Dortch,
FCC, GN Dkt. Nos. 14-28 & 10-127, at 5–7 (Dec. 24, 2014)
(identifying Martin H. Thelle & Bruno Basalisco,
Copenhagen Economics, How Europe Can Catch Up With the
US: A Contrast of Two Contrary Broadband Models (2013));
Letter from Christopher S. Yoo to Marlene H. Dortch, FCC,
GN Dkt. Nos. 14-28, 10-127, 09-191 (June 10, 2014). The
Commission reasoned that its decision to forbear from section
251’s unbundling requirement, in combination with regulation
under other provisions of Title II, would avoid similar
problems and encourage further deployment because the
scheme “establishes the regulatory predictability needed by
92
all sectors of the Internet industry to facilitate prudent
business planning, without imposing undue burdens that
might interfere with entrepreneurial opportunities.” 2015
Open Internet Order, 30 FCC Rcd. at 5796 ¶ 417.
The Commission also identified “numerous concerns
about the burdens—or, at a minimum, regulatory
uncertainty—that would be fostered by a sudden, substantial
expansion of the actual or potential regulatory requirements
and obligations relative to the status quo from the near-term
past,” in which many broadband providers were not subject to
any aspect of Title II. Id. at 5839 ¶ 495. In reaching this
conclusion, the Commission drew from its experience with
the mobile voice industry, which “thrived under a market-
based Title II regime” that included significant forbearance,
“demonstrating that robust investment is not inconsistent with
a light-touch Title II regime.” Id. at 5799–800 ¶ 423.
Full Service Network argues that the Commission’s
“prior predictions of ‘vibrant intermodal
competition’ . . . ‘cannot be reconciled with marketplace
realities.’” Full Service Network Pet’rs’ Reply Br. 10
(quoting 2015 Open Internet Order, 30 FCC Rcd. at 5743
¶ 330). As we noted above, however, “[a]n agency’s
predictive judgments about areas that are within the agency’s
field of discretion and expertise are entitled to particularly
deferential review, as long as they are reasonable.”
EarthLink, 462 F.3d at 12 (internal quotation marks omitted).
In this case, the Commission’s predictive judgments about the
effect mandatory unbundling would have on broadband
deployment were perfectly reasonable and supported by
record evidence. Multiple studies provided evidence that
mandatory unbundling harmed investment in Europe. Such
evidence, combined with the Commission’s experience in
using a “light touch” regulatory program for mobile voice,
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demonstrates “a rational connection between the facts found
and the choice made” to forbear from applying sections 251
and 252. State Farm, 463 U.S. at 43 (internal quotation
marks omitted). The APA demands nothing more.
The partial dissent agrees with much of this, but
nonetheless believes that the Commission acted arbitrarily
and capriciously by “attempt[ing] to have it both ways” when
it found a lack of competition in its reclassification decision,
but simultaneously found adequate competition to justify
forbearance. Concurring & Dissenting Op. at 67. The partial
dissent also believes that the Commission’s competition
analysis was contrary to its own precedent. Id. at 66.
Notably, however, and despite the partial dissent’s assertion,
see id. at 60–61, Full Service Network has never claimed that
the Commission misapplied any of the section 10(a) factors,
failed to analyze competitive effect as required by section
10(b), or acted contrary to its forbearance precedent. Indeed,
when pressed at oral argument, Full Service Network
disclaimed any intent to make these arguments. Oral Arg. Tr.
139–40. Full Service Network’s argument regarding the
Commission’s competition analysis was confined to its
contention that section 251’s focus on local competition
required the Commission to perform a local market analysis
as part of its forbearance inquiry. As the partial dissent
acknowledges, EarthLink “fully supports the Commission” on
that score. Concurring & Dissenting Op. at 68. According to
the partial dissent, however, by citing section 10(b) in its
brief, Full Service Network presented a broader challenge to
the Commission’s competition analysis. Id. at 60–61. But
Full Service Network cited section 10(b) only once, and only
in the context of its argument that the Commission “must
evaluate each provision [under section 10] using the definition
and context of that provision in the Act,” which, “[i]n the
context of the local ‘connection link’ to the Internet that
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phone and cable company broadband service
provides, . . . must be made on a local market-by-market
basis.” Full Service Network Pet’rs’ Br. 15 (emphasis
omitted). We have addressed that argument above, and Full
Service Network makes no other section 10(b) argument.
Because Full Service Network never presents in its briefs the
arguments made by the partial dissent, those arguments lie
outside the scope of our review.
VI.
We turn next to petitioners’ challenges to the particular
rules adopted by the Commission. As noted earlier, the
Commission promulgated five rules in the Order: rules
banning (i) blocking, (ii) throttling, and (iii) paid
prioritization, 2015 Open Internet Order, 30 FCC Rcd. at
5647 ¶ 110; (iv) a General Conduct Rule, id. at 5660 ¶ 136;
and (v) an enhanced transparency rule, id. at 5669–82 ¶¶ 154–
85. Petitioners Alamo and Berninger (together, Alamo)
challenge the anti-paid-prioritization rule as beyond the
Commission’s authority. US Telecom challenges the General
Conduct Rule as unconstitutionally vague. We reject both
challenges.
A.
In its challenge to the anti-paid-prioritization rule,
petitioner Alamo contends that, even with reclassification of
broadband as a telecommunications service, the Commission
lacks authority to promulgate such a rule under section
201(b) of Title II and section 303(b) of Title III. The
Commission, however, grounded the rules in “multiple,
complementary sources of legal authority”—not only Titles II
and III, but also section 706 of the Telecommunications Act
of 1996 (now codified at 47 U.S.C. § 1302). Id. at 5720–21
¶¶ 273–74. As to section 706, this court concluded in Verizon
95
that it grants the Commission independent rulemaking
authority. 740 F.3d at 635–42. Alamo nonetheless argues
that the Commission lacks authority to promulgate rules under
section 706. It rests that argument on a claim that this court’s
contrary conclusion in Verizon was dicta.
Alamo misreads Verizon. Our decision in that case
considered three rules from the 2010 Open Internet Order: an
anti-blocking rule, an anti-discrimination rule, and a
transparency rule. See id. at 633. We determined that section
706 vests the Commission “with affirmative authority to enact
measures encouraging the deployment of broadband
infrastructure” and that the Commission had “reasonably
interpreted section 706 to empower it to promulgate rules
governing broadband providers’ treatment of Internet traffic.”
Id. at 628. In doing so, we also found that the Commission’s
justification for those rules—“that they will preserve and
facilitate the ‘virtuous circle’ of innovation that has driven the
explosive growth of the Internet”—was reasonable and
supported by substantial evidence. Id. We ultimately struck
down the anti-blocking and anti-discrimination rules on the
ground that they amounted to common carrier regulation
without any accompanying determination that broadband
providers should be regulated as common carriers. See id. at
655–58. But we upheld the Commission’s transparency rule
as a permissible and reasonable exercise of its section 706
authority, one that did not improperly impose common carrier
obligations on broadband providers. See id. at 659. Because
our findings with regard to the Commission’s 706 authority
were necessary to our decision to uphold the transparency
rule, those findings cannot be dismissed as dicta. Seminole
Tribe of Florida v. Florida, 517 U.S. 44, 67 (1996) (“When
an opinion issues for the Court, it is not only the result but
also those portions of the opinion necessary to that result by
which we are bound.”). We note, moreover, that the separate
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opinion concurring in part and dissenting in part agreed with
the court’s conclusion as to the existence of rulemaking
authority under section 706 and made no suggestion that the
conclusion was mere dicta. See Verizon, 740 F.3d at 659–68
(Silberman, J., concurring in part and dissenting in part).
Alamo does not contend that the anti-paid-prioritization
rule falls outside the scope of the Commission’s rulemaking
authority under section 706 or is otherwise an improper
exercise of that authority (if, as we held in Verizon and
reiterate here, that authority exists in the first place). Alamo
argues only that Verizon was wrong on the antecedent
question of the Commission’s authority to promulgate rules
under section 706 at all. Unfortunately for Alamo, Verizon
established precedent on the existence of the Commission’s
rulemaking authority under section 706 and thus controls our
decision here. Consequently, we reject Alamo’s challenges to
the Commission’s section 706 authority and to the anti-paid-
prioritization rule.
Our colleague picks up where Alamo leaves off, arguing
that, even if Verizon’s conclusions about the existence of the
Commission’s section 706 authority were not mere dicta,
Verizon’s conclusions about the scope of that authority
(including the permissibility of the Commission’s reliance on
the “virtuous cycle” of innovation) were dicta. Concurring &
Dissenting Op. at 52. Both sets of conclusions, however,
were necessary to our upholding the transparency rule. See
Verizon, 740 F.3d at 639–40, 644–49. Consequently, as we
held in Verizon and reaffirm today, the Commission’s section
706 authority extends to rules “governing broadband
providers’ treatment of internet traffic”—including the anti-
paid-prioritization rule—in reliance on the virtuous cycle
theory. Verizon, 740 F.3d at 628; see 2015 Open Internet
Order, 30 FCC Rcd. at 5625–34 ¶¶ 76–85; id. at 5623–24
97
¶¶ 281–82. Even if there were any lingering uncertainty
about the import of our decision in Verizon, we fully adopt
here our findings and analysis in Verizon concerning the
existence and permissible scope of the Commission’s section
706 authority, including our conclusion that the
Commission’s virtuous cycle theory provides reasonable
grounds for the exercise of that authority.
That brings us to our colleague’s suggestion that the
Order embodies a “central paradox[]” in that the Commission
relied on the Telecommunications Act to “increase
regulation” even though the Act was “intended to ‘reduce
regulation.’” Concurring & Dissenting Op. at 53. We are
unmoved. The Act, by its terms, aimed to “encourage the
rapid deployment of new telecommunications technologies.”
Telecommunications Act of 1996, Pub. L. 104–104, 110 Stat
56. If, as we reiterate here (and as the partial dissent agrees),
section 706 grants the Commission rulemaking authority, it is
unsurprising that the grant of rulemaking authority might
occasion the promulgation of additional regulation. And if, as
is true here (and was true in Verizon), the new regulation is
geared to promoting the effective deployment of new
telecommunications technologies such as broadband, the
regulation is entirely consistent with the Act’s objectives.
B.
The Due Process Clause “requires the invalidation of
laws [or regulations] that are impermissibly vague.” FCC v.
Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012).
US Telecom argues that the General Conduct Rule falls
within that category. We disagree.
The General Conduct Rule forbids broadband providers
from engaging in conduct that “unreasonably interfere[s] with
or unreasonably disadvantage[s] (i) end users’ ability to
98
select, access, and use broadband Internet access service or
the lawful Internet content, applications, services, or devices
of their choice, or (ii) edge providers’ ability to make lawful
content, applications, services, or devices available to end
users.” 2015 Open Internet Order, 30 FCC Rcd. at 5660
¶ 136. The Commission adopted the General Conduct Rule
based on a determination that the three bright-line rules—
barring blocking, throttling, and paid prioritization—were, on
their own, insufficient “to protect the open nature of the
Internet.” Id. at 5659–60 ¶¶ 135–36. Because “there may
exist other current or future practices that cause the type of
harms [the] rules are intended to address,” the Commission
thought it “necessary” to establish a more general, no-
unreasonable interference/disadvantage standard. Id. The
standard is designed to be flexible so as to address unforeseen
practices and prevent circumvention of the bright-line rules.
The Commission will evaluate conduct under the General
Conduct Rule on a case-by-case basis, taking into account a
“non-exhaustive” list of seven factors. Id. at 5661 ¶ 138.
Before examining the merits of the vagueness challenge,
we first address US Telecom’s argument that the NPRM
provided inadequate notice that the Commission would issue
a General Conduct Rule of this kind. Although the
Commission did not ultimately adopt the “commercially
reasonable” standard proposed in the NPRM, the Commission
specifically sought “comment on whether [it] should adopt a
different rule to govern broadband providers’ practices to
protect and promote Internet openness.” NPRM, 29 FCC
Rcd. at 5604 ¶ 121. The NPRM further asked: “How can the
Commission ensure that the rule it adopts sufficiently protects
against harms to the open Internet, including broadband
providers’ incentives to disadvantage edge providers or
classes of edge providers in ways that would harm Internet
openness? Should the Commission adopt a rule that prohibits
99
unreasonable discrimination and, if so, what legal authority
and theories should we rely upon to do so?” Id. In light of
those questions, US Telecom was on notice that the
Commission might adopt a different standard to effectuate its
goal of protecting internet openness.
US Telecom contends that the NPRM was nonetheless
inadequate because general notice of the possible adoption of
a new standard, without notice about the rule’s content, is
insufficient. But the NPRM described in significant detail the
factors that would animate a new standard. See, e.g., id. at
5605–06 ¶¶ 124–126; id. at 5607 ¶¶ 129–31; id. at 5608
¶ 134. The factors that are to guide application of the General
Conduct Rule significantly resemble those identified in the
NPRM. See 2015 Open Internet Order, 30 FCC Rcd. at
5661–64 ¶¶ 139–45. The Rule also adopted the “case-by-
case,” “totality of the circumstances” approach proposed in
the NPRM. 29 FCC Rcd. at 5604 ¶ 122. By making clear
that the Commission was considering establishment of a
general standard and providing indication of its content, the
NPRM offered adequate notice under the APA.
Moving to the substance of US Telecom’s vagueness
argument, we note initially that it comes to us as a facial
challenge. Traditionally, a petitioner could succeed on such a
claim “only if the enactment [wa]s impermissibly vague in all
of its applications.” Village of Hoffman Estates v. Flipside,
Hoffman Estates, Inc., 455 U.S. 489, 495 (1982). That high
bar was grounded in the understanding that a “plaintiff who
engages in some conduct that is clearly proscribed cannot
complain of the vagueness of the law as applied to the
conduct of others.” Holder v. Humanitarian Law Project, 561
U.S. 1, 18–19 (2010) (internal quotation marks omitted).
More recently, however, in Johnson v. United States, 135 S.
Ct. 2551 (2015), the Supreme Court suggested some
100
skepticism about that longstanding framework. Noting that
past “holdings squarely contradict the theory that a vague
provision is constitutional merely because there is some
conduct that clearly falls within the provision’s grasp,” the
Court described the “supposed requirement of vagueness in
all applications” as a “tautology.” Id. at 2561. We need not
decide the full implications of Johnson, because we conclude
that the General Conduct Rule satisfies due process
requirements even if we do not apply Hoffman’s elevated bar
for facial challenges.
Vagueness doctrine addresses two concerns: “first, that
regulated parties should know what is required of them so
they may act accordingly; second, precision and guidance are
necessary so that those enforcing the law do not act in an
arbitrary or discriminatory way.” Fox Television, 132 S. Ct.
at 2317. Petitioners argue that the General Conduct Rule is
unconstitutionally vague because it fails to provide regulated
entities adequate notice of what is prohibited. We are
unpersuaded. Unlike the circumstances at issue in Fox
Television, id. at 2317–18, the Commission here did not seek
retroactively to enforce a new policy against conduct
predating the policy’s adoption. The General Conduct Rule
applies purely prospectively. We find that the Rule gives
sufficient notice to affected entities of the prohibited conduct
going forward.
The degree of vagueness tolerable in a given statutory
provision varies based on “the nature of the enactment.”
Hoffman Estates, 455 U.S. at 498. Thus, “the Constitution is
most demanding of a criminal statute that limits First
Amendment rights.” DiCola v. FDA, 77 F.3d 504, 508 (D.C.
Cir. 1996). The General Conduct Rule does not implicate that
form of review because it regulates business conduct and
imposes civil penalties. In such circumstances, “regulations
101
will be found to satisfy due process so long as they are
sufficiently specific that a reasonably prudent person, familiar
with the conditions the regulations are meant to address and
the objectives the regulations are meant to achieve, would
have fair warning of what the regulations require.” Freeman
United Coal Mining Co. v. Federal Mine Safety & Health
Review Commission, 108 F.3d 358, 362 (D.C. Cir. 1997).
That standard is met here. The Commission has
articulated “the objectives the [General Conduct Rule is]
meant to achieve,” id.: to serve as a complement to the
bright-line rules and advance the central goal of protecting
consumers’ ability to access internet content of their
choosing. See 2015 Open Internet Order, 30 FCC Rcd. at
5659–60 ¶¶ 135–37. The Commission set forth seven factors
that will guide the determination of what constitutes
unreasonable interference with, or disadvantaging of, end-user
or edge-provider access: end-user control; competitive
effects; consumer protection; effect on innovation,
investment, or broadband deployment; free expression;
application agnosticism; and standard practices. See id. at
5661–64 ¶¶ 139–45. The Commission’s articulation of the
Rule’s objectives and specification of the factors that will
inform its application “mark out the rough area of prohibited
conduct,” which suffices to satisfy due process in this context.
DiCola, 77 F.3d at 509 (internal quotation marks omitted).
Moreover, the Commission did not merely set forth the
factors; it also included a description of how each factor will
be interpreted and applied. For instance, when analyzing the
competitive effects of a practice, the Commission instructs
that it will “review the extent of an entity’s vertical
integration as well as its relationships with affiliated entities.”
2015 Open Internet Order, 30 FCC Rcd. at 5662 ¶ 140. The
Commission defines a practice as application-agnostic if it
102
“does not differentiate in treatment of traffic, or if it
differentiates in treatment of traffic without reference to the
content, application, or device.” Id. at 5663 ¶ 144 n.344.
Many of the paragraphs in that section of the Order also
specifically identify the kind of conduct that would violate the
Rule. The Commission explains, for example, that “unfair or
deceptive billing practices, as well as practices that fail to
protect the confidentiality of end users’ proprietary
information, will be unlawful.” Id. at 5662 ¶ 141. It goes on
to emphasize that the “rule is intended to include protection
against fraudulent practices such as ‘cramming’ and
‘slamming.’” Id. And “[a]pplication-specific network
practices,” including “those applied to traffic that has a
particular source or destination, that is generated by a
particular application . . . , [or] that uses a particular
application- or transport- layer protocol,” would trigger
concern as well. Id. at 5663 ¶ 144 n.344.
Given that “we can never expect mathematical certainty
from our language,” those sorts of descriptions suffice to
provide fair warning as to the type of conduct prohibited by
the General Conduct Rule. Grayned v. City of Rockford, 408
U.S. 104, 110 (1972). To be sure, as a multifactor standard
applied on a case-by-case basis, a certain degree of
uncertainty inheres in the structure of the General Conduct
Rule. But a regulation is not impermissibly vague because it
is “marked by flexibility and reasonable breadth, rather than
meticulous specificity.” Id. (internal quotation marks
omitted). Fair notice in these circumstances demands “no
more than a reasonable degree of certainty.” Throckmorton v.
National Transportation Safety Board, 963 F.2d 441, 444
(D.C. Cir. 1992) (internal quotation marks omitted). We are
mindful, moreover, that “by requiring regulations to be too
specific courts would be opening up large loopholes allowing
conduct which should be regulated to escape regulation.”
103
Freeman, 108 F.3d at 362 (alterations and internal quotation
marks omitted). That concern is particularly acute here,
because of the speed with which broadband technology
continues to evolve. The dynamic market conditions and
rapid pace of technological development give rise to
pronounced concerns about ready circumvention of
particularized regulatory restrictions. The flexible approach
adopted by the General Conduct Rule aims to address that
concern in a field in which “specific regulations cannot begin
to cover all of the infinite variety of conditions.” Id.(alteration and internal quotation marks omitted).
Any ambiguity in the General Conduct Rule is therefore a
far cry from the kind of vagueness this court considered
problematic in Timpinaro v. SEC, 2 F.3d 453 (D.C. Cir.
1993), on which US Telecom heavily relies. In that case, we
found a multifactor SEC rule defining a professional trading
account to be unconstitutionally vague because “a trader
would be hard pressed to know when he is in danger of
triggering an adverse reaction.” Id. at 460. We emphasized
that “five of the seven factors . . . are subject to seemingly
open-ended interpretation,” and that the uncertainty is “all the
greater when these mysteries are considered in combination,
according to some undisclosed system of relative weights.”
Id. Unlike in Timpinaro, in which the factors were left
unexplained, in this case, as noted, the Commission included
a detailed paragraph clarifying and elaborating on each of the
factors. And because the provision at issue in Timpinaro was
a technical definition of a professional trading account, the
context of the regulation shed little additional light on its
meaning. In contrast, the knowledge that the General
Conduct Rule was expressly adopted to complement the
bright-line rules helps delineate the contours of the proscribed
conduct here.
104
Finally, the advisory-opinion procedure accompanying
the General Conduct Rule cures it of any potential lingering
constitutional deficiency. The Commission announced in the
Order that it would allow companies to obtain an advisory
opinion concerning any “proposed conduct that may implicate
the rules,” in order to “enable companies to seek guidance on
the propriety of certain open Internet practices before
implementing them.” 2015 Open Internet Order, 30 FCC
Rcd. at 5706 ¶¶ 229–30. The opinions will be issued by the
Enforcement Bureau and “will be publicly available.” Id. at
5706–07 ¶¶ 229, 231. As a result, although the Commission
did not reach a definitive resolution during the rulemaking
process as to the permissibility under the General Conduct
Rule of practices such as zero-rating and usage caps, see id. at
5666–67 ¶ 151, companies that seek to pursue those sorts of
practices may petition for an advisory opinion and thereby
avoid an inadvertent infraction. The opportunity to obtain
prospective guidance thus provides regulated entities with
“relief from [remaining] uncertainty.” DiCola, 77 F.3d at
509; see also Hoffman, 455 U.S. at 498.
Petitioners argue that the advisory-opinion process is
insufficient because opinions cannot be obtained for existing
conduct, conduct subject to a pending inquiry, or conduct that
is a “mere possibilit[y].” 2015 Open Internet Order, 30 FCC
Rcd. at 5707 ¶ 232. But the fact that advisory opinions
cannot be used for present conduct or conduct pending
inquiry is integral to the procedure’s purpose—to encourage
providers to “be proactive about compliance” and obtain
guidance on proposed actions before implementing them. Id.at 5706 ¶ 229. Petitioners also point out that the guidance
provided in advisory opinions is not binding. See id. at 5708
¶¶ 235. The Bureau’s ability to adjust its views after issuing
an advisory opinion, however, does not negate the
procedure’s usefulness for companies seeking to avoid
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inadvertent violations of the Rule. Nonbinding opinions thus
are characteristic of advisory processes, including the
Department of Justice Antitrust Division’s business review
letter procedure, which served as the model for the
Commission’s process. See id. Expecting the Bureau to issue
final, irrevocable decisions on the permissibility of proposed
conduct before seeing the actual effects of that conduct could
produce anomalous results.
Our colleague also identifies certain perceived
deficiencies in the advisory-opinion process. Notably,
however, the partial dissent makes no argument that the
General Conduct Rule is unconstitutionally vague. Rather, in
arguing that the Commission’s reclassification of broadband
is arbitrary and capricious, the partial dissent criticizes the
advisory-opinion process on the grounds that the Bureau
could choose to refrain from offering answers and that the
process will be slow. See Concurring & Dissenting Op. at
22–23. Insofar as those criticisms may seem germane to
petitioners’ vagueness challenge, we find them unpersuasive.
Even if the Bureau’s discretion about whether to provide an
answer could be problematic in the absence of any further
guidance in the Rule as to the kinds of conduct it prohibits,
here, as explained, the Rule does provide such guidance. The
advisory-opinion procedure simply acts as an additional
resource available to companies in instances of particular
uncertainty. Moreover, the partial dissent’s suppositions
about the slowness of the process stem solely from the
absence of firm deadlines by which the Bureau must issue an
opinion. There is no indication at this point, however, that the
Bureau will fail to offer timely guidance.
In the end, the advisory-opinion procedure can be
expected to provide valuable (even if imperfect) guidance to
providers seeking to comply with the General Conduct Rule.
106
The procedure thereby alleviates any remaining concerns
about the Rule’s allegedly unconstitutional vagueness. For
the reasons described, we uphold the Rule.
VII.
We finally turn to Alamo and Berninger’s First
Amendment challenge to the open internet rules. Having
upheld the FCC’s reclassification of broadband service as
common carriage, we conclude that the First Amendment
poses no bar to the rules.
A.
Before moving to the merits of the challenge, we must
address intervenor Cogent’s argument that Alamo and
Berninger lack standing to bring this claim. Because the rules
directly affect Alamo’s business, we conclude that Alamo has
standing.
In order to establish standing, a plaintiff must
demonstrate an “injury in fact” that is “fairly traceable” to the
defendant’s action and that can be “redressed by a favorable
decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–
61 (1992) (alterations and internal quotation marks omitted).
The dispute here is primarily about the first prong, injury in
fact. An injury in fact requires “invasion of a legally
protected interest which is (a) concrete and particularized, and
(b) actual or imminent, not conjectural or hypothetical.” Id.(citations and internal quotation marks omitted).
Alamo uses fixed wireless technology to provide internet
service to customers outside San Antonio, Texas. See Alamo
Br., Portman Decl. ¶ 2. The company claims it “is injured by
the Order because it is a provider of broadband Internet access
service that the FCC seeks to regulate.” Id. ¶ 5 (italics
omitted). As a broadband provider, Alamo is itself “an object
107
of the action . . . at issue.” Lujan, 504 U.S. at 561. When a
person or company that is the direct object of an action
petitions for review, “there is ordinarily little question that the
action . . . has caused [it] injury, and that a judgment
preventing . . . the action will redress it.” Id. at 561–62.
Here, however, Alamo seeks pre-enforcement review of the
rules, which raises the question of whether it has
demonstrated that the rules inflict a sufficiently concrete and
actual injury. We conclude that Alamo has made the requisite
showing.
Pre-enforcement review, particularly in the First
Amendment context, does not require plaintiffs to allege that
they “will in fact” violate the regulation in order to
demonstrate an injury. Susan B. Anthony List v. Driehaus,
134 S. Ct. 2334, 2345 (2014). Standing “to challenge laws
burdening expressive rights requires only a credible statement
by the plaintiff of intent to commit violative acts and a
conventional background expectation that the government
will enforce the law.” Act Now to Stop War & End Racism
Coalition v. District of Columbia, 589 F.3d 433, 435 (D.C.
Cir. 2009) (internal quotation marks omitted). Because “an
agency rule, unlike a statute, is typically reviewable without
waiting for enforcement,” that principle applies with
particular force here. Chamber of Commerce v. FEC, 69 F.3d
600, 604 (D.C. Cir. 1995).
Alamo explains that the “Open Internet conduct rules
eliminate Alamo’s discretion to manage the Internet traffic on
its network.” Portman Decl. ¶ 5. That statement indicates
that, were it not for the rules, Alamo would explore
alternative methods of managing internet traffic—namely
blocking, throttling, or paid prioritization. In the context of
this challenge, the company’s “affidavit can only be
understood to mean that” if the rules were removed, it would
108
seek to exercise its discretion and explore business practices
prohibited by the rules. Ord v. District of Columbia, 587 F.3d
1136, 1143 (D.C. Cir. 2009). Alamo has thus adequately
manifested its “intention to engage in a course of conduct
arguably affected with a constitutional interest, but proscribed
by [regulation].” Driehaus, 134 S. Ct. at 2342 (internal
quotation marks omitted). Its inability to follow through on
that intention constitutes an injury in fact for purposes of pre-
enforcement review of the rules.
That conclusion is fortified by the “strong presumption of
judicial review under the Administrative Procedure Act” and
the understanding that “the courts’ willingness to permit pre-
enforcement review is at its peak when claims are rooted in
the First Amendment.” New York Republican State
Committee v. SEC, 799 F.3d 1126, 1135 (D.C. Cir. 2015)
(internal quotation marks omitted). In order “to avoid the
chilling effects that come from unnecessarily expansive
proscriptions on speech,” “courts have shown special
solicitude” to such claims. Id. at 1135–36.
Because Alamo’s standing enables us to consider the
First Amendment arguments with respect to all three bright-
line rules, we have no need to consider Berninger’s standing.
See Rumsfeld v. Forum for Academic & Institutional Rights,
Inc., 547 U.S. 47, 52 n.2 (2006).
B.
Alamo argues that the open internet rules violate the First
Amendment by forcing broadband providers to transmit
speech with which they might disagree. We are unpersuaded.
We have concluded that the Commission’s reclassification of
broadband service as common carriage is a permissible
exercise of its Title II authority, and Alamo does not
challenge that determination. Common carriers have long
109
been subject to nondiscrimination and equal access
obligations akin to those imposed by the rules without raising
any First Amendment question. Those obligations affect a
common carrier’s neutral transmission of others’ speech, not
a carrier’s communication of its own message.
Because the constitutionality of each of the rules
ultimately rests on the same analysis, we consider the rules
together. The rules generally bar broadband providers from
denying or downgrading end-user access to content and from
favoring certain content by speeding access to it. In effect,
they require broadband providers to offer a standardized
service that transmits data on a nondiscriminatory basis. Such
a constraint falls squarely within the bounds of traditional
common carriage regulation.
The “basic characteristic” of common carriage is the
“requirement [to] hold[] oneself out to serve the public
indiscriminately.” Verizon, 740 F.3d at 651 (internal
quotation marks omitted). That requirement prevents
common carriers from “mak[ing] individualized decisions, in
particular cases, whether and on what terms to deal.” FCC v.
Midwest Video Corp., 440 U.S. 689, 701 (1979) (internal
quotation marks omitted). In the communications context,
common carriers “make[] a public offering to provide
communications facilities whereby all members of the public
who choose to employ such facilities may communicate or
transmit intelligence of their own design and choosing.” Id.(alteration and internal quotation marks omitted). That is
precisely what the rules obligate broadband providers to do.
Equal access obligations of that kind have long been
imposed on telephone companies, railroads, and postal
services, without raising any First Amendment issue. See
Denver Area Educational Telecommunications Consortium,
110
Inc. v. FCC, 518 U.S. 727, 739 (1996) (plurality opinion)
(noting that the “speech interests” in leased channels are
“relatively weak because [the companies] act less like editors,
such as newspapers or television broadcasters, than like
common carriers, such as telephone companies”); FCC v.
League of Women Voters of California, 468 U.S. 364, 378
(1984) (“Unlike common carriers, broadcasters are entitled
under the First Amendment to exercise the widest journalistic
freedom consistent with their public duties.” (alteration and
internal quotation marks omitted)); Columbia Broadcasting
System, Inc. v. Democratic National Committee, 412 U.S. 94,
106 (1973) (noting that the Senate decided in passing the
Communications Act “to eliminate the common carrier
obligation” for broadcasters because “it seemed unwise to put
the broadcaster under the hampering control of being a
common carrier and compelled to accept anything and
everything that was offered him so long as the price was paid”
(quoting 67 Cong. Rec. 12,502 (1926))). The Supreme Court
has explained that the First Amendment comes “into play”
only where “particular conduct possesses sufficient
communicative elements,” Texas v. Johnson, 491 U.S. 397,
404 (1989), that is, when an “intent to convey a particularized
message [is] present, and in the surrounding circumstances
the likelihood [is] great that the message would be understood
by those who viewed it,” Spence v. Washington, 418 U.S.
405, 410–11 (1974). The absence of any First Amendment
concern in the context of common carriers rests on the
understanding that such entities, insofar as they are subject to
equal access mandates, merely facilitate the transmission of
the speech of others rather than engage in speech in their own
right.
As the Commission found, that understanding fully
applies to broadband providers. In the Order, the
Commission concluded that broadband providers “exercise
111
little control over the content which users access on the
Internet” and “allow Internet end users to access all or
substantially all content on the Internet, without alteration,
blocking, or editorial intervention,” thus “display[ing] no such
intent to convey a message in their provision of broadband
Internet access services.” 2015 Open Internet Order, 30 FCC
Rcd. at 5869 ¶ 549. In turn, the Commission found, end users
“expect that they can obtain access to all content available on
the Internet, without the editorial intervention of their
broadband provider.” Id. Because “the accessed speech is
not edited or controlled by the broadband provider but is
directed by the end user,” id. at 5869–70 ¶ 549, the
Commission concluded that broadband providers act as “mere
conduits for the messages of others, not as agents exercising
editorial discretion subject to First Amendment protections,”
id. at 5870 ¶ 549. Petitioners provide us with no reason to
question those findings.
Because the rules impose on broadband providers the
kind of nondiscrimination and equal access obligations that
courts have never considered to raise a First Amendment
concern—i.e., the rules require broadband providers to allow
“all members of the public who choose to employ such
facilities [to] communicate or transmit intelligence of their
own design and choosing,” Midwest Video, 440 U.S. at 701(internal quotation marks omitted)—they are permissible. Of
course, insofar as a broadband provider might offer its own
content—such as a news or weather site—separate from its
internet access service, the provider would receive the same
protection under the First Amendment as other producers of
internet content. But the challenged rules apply only to the
provision of internet access as common carriage, as to which
equal access and nondiscrimination mandates present no First
Amendment problem.
112
Petitioners and their amici offer various grounds for
distinguishing broadband service from other kinds of common
carriage, none of which we find persuasive. For instance, the
rules do not automatically raise First Amendment concerns on
the ground that the material transmitted through broadband
happens to be speech instead of physical goods. Telegraph
and telephone networks similarly involve the transmission of
speech. Yet the communicative intent of the individual
speakers who use such transmission networks does not
transform the networks themselves into speakers. See id. at
700–01.
Likewise, the fact that internet speech has the capacity to
reach a broader audience does not meaningfully differentiate
broadband from telephone networks for purposes of the First
Amendment claim presented here. Regardless of the scale of
potential dissemination, both kinds of providers serve as
neutral platforms for speech transmission. And while the
extent of First Amendment protection can vary based on the
content of the communications—speech on “matters of public
concern,” such as political speech, lies at the core of the First
Amendment, Snyder v. Phelps, 562 U.S. 443, 451 (2011)
(internal quotation marks omitted)—both telephones and the
internet can serve as a medium of transmission for all manner
of speech, including speech addressing both public and
private concerns. The constitutionality of common carriage
regulation of a particular transmission medium thus does not
vary based on the potential audience size.
To be sure, in certain situations, entities that serve as
conduits for speech produced by others receive First
Amendment protection. In those circumstances, however, the
entities are not engaged in indiscriminate, neutral
transmission of any and all users’ speech, as is characteristic
of common carriage. For instance, both newspapers and
113
“cable television companies use a portion of their available
space to reprint (or retransmit) the communications of others,
while at the same time providing some original content.” City
of Los Angeles v. Preferred Communications, Inc., 476 U.S.
488, 494 (1986) (internal quotation marks omitted). Through
both types of actions—creating “original programming” and
choosing “which stations or programs to include in [their]
repertoire”—newspapers and cable companies “seek[] to
communicate messages on a wide variety of topics and in a
wide variety of formats.” Id.In selecting which speech to transmit, newspapers and
cable companies engage in editorial discretion. Newspapers
have a finite amount of space on their pages and cannot
“proceed to infinite expansion of . . . column space.” Miami
Herald Publishing Co. v. Tornillo, 418 U.S. 241, 257 (1974).
Accordingly, they pick which articles and editorials to print,
both with respect to original content and material produced by
others. Those decisions “constitute the exercise of editorial
control and judgment.” Id. at 258. Similarly, cable operators
necessarily make decisions about which programming to
make available to subscribers on a system’s channel space.
As with newspapers, the “editorial discretion” a cable
operator exercises in choosing “which stations or programs to
include in its repertoire” means that operators “engage in and
transmit speech.” Turner Broadcasting System, Inc. v. FCC,
512 U.S. 622, 636 (1994) (internal quotation marks omitted).
The Supreme Court therefore applied intermediate First
Amendment scrutiny to (but ultimately upheld) must-carry
rules constraining the discretion of a cable company
concerning which programming to carry on its channel menu.
See id. at 661–62.
In contrast to newspapers and cable companies, the
exercise of editorial discretion is entirely absent with respect
114
to broadband providers subject to the Order. Unlike with the
printed page and cable technology, broadband providers face
no such constraints limiting the range of potential content
they can make available to subscribers. Broadband providers
thus are not required to make, nor have they traditionally
made, editorial decisions about which speech to transmit. See
2015 Open Internet Order, 30 FCC Rcd. at 5753 ¶ 347, 5756
¶ 352, 5869–70 ¶ 549. In that regard, the role of broadband
providers is analogous to that of telephone companies: they
act as neutral, indiscriminate platforms for transmission of
speech of any and all users.
Of course, broadband providers, like telephone
companies, can face capacity constraints from time to time.
Not every telephone call will be able to get through
instantaneously at every moment, just as service to websites
might be slowed at times because of significant network
demand. But those kinds of temporary capacity constraints do
not resemble the structural limitations confronting newspapers
and cable companies. The latter naturally occasion the
exercise of editorial discretion; the former do not.
If a broadband provider nonetheless were to choose to
exercise editorial discretion—for instance, by picking a
limited set of websites to carry and offering that service as a
curated internet experience—it might then qualify as a First
Amendment speaker. But the Order itself excludes such
providers from the rules. The Order defines broadband
internet access service as a “mass-market retail service”—i.e.,
a service that is “marketed and sold on a standardized
basis”—that “provides the capability to transmit data to and
receive data from all or substantially all Internet endpoints.”
2015 Open Internet Order, 30 FCC Rcd. at 5745–46 ¶ 336 &
n.879. That definition, by its terms, includes only those
broadband providers that hold themselves out as neutral,
115
indiscriminate conduits. Providers that may opt to exercise
editorial discretion—for instance, by offering access only to a
limited segment of websites specifically catered to certain
content—would not offer a standardized service that can
reach “substantially all” endpoints. The rules therefore would
not apply to such providers, as the FCC has affirmed. See
FCC Br. 81, 146 n.53.
With standard broadband internet access, by contrast,
there is no editorial limitation on users’ access to lawful
internet content. As a result, when a subscriber uses her
broadband service to access internet content of her own
choosing, she does not understand the accessed content to
reflect her broadband provider’s editorial judgment or
viewpoint. If it were otherwise—if the accessed content were
somehow imputed to the broadband provider—the provider
would have First Amendment interests more centrally at
stake. See Forum for Academic & Institutional Rights, 547
U.S. at 63–65; PruneYard Shopping Center v. Robins, 447
U.S. 74, 86–88 (1980). But nothing about affording
indiscriminate access to internet content suggests that the
broadband provider agrees with the content an end user
happens to access. Because a broadband provider does not—
and is not understood by users to—“speak” when providing
neutral access to internet content as common carriage, the
First Amendment poses no bar to the open internet rules.
VIII.
For the foregoing reasons, we deny the petitions for
review.
So ordered.
WILLIAMS, Senior Circuit Judge, concurring in part and
dissenting in part: I agree with much of the majority opinion
but am constrained to dissent. In my view the Commission’s
Order must be vacated for three reasons:
I. The Commission’s justification of its switch in
classification of broadband from a Title I information service
to a Title II telecommunications service fails for want of
reasoned decisionmaking. (a) Its assessment of broadband
providers’ reliance on the now-abandoned classification
disregards the record, in violation of its obligation under
F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009). Furthermore, the Commission relied on explanations
contrary to the record before it and failed to consider issues
critical to its conclusion. Motor Vehicles Mfrs. Ass’n v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). (b) To the
extent that the Commission relied on changed factual
circumstances, its assertions of change are weak at best and
linked to the Commission’s change of policy by only the
barest of threads. (c) To the extent that the Commission
justified the switch on the basis of new policy perceptions, its
explanation of the policy is watery thin and self-contradictory.
II. The Commission has erected its regulatory scheme on
two statutory sections that would be brought into play by
reclassification (if reclassification were supported by reasoned
decisionmaking), but the two statutes do not justify the rules
the Commission has adopted.
Application of Title II gives the Commission authority to
apply § 201(b) of the Communications Act, 47 U.S.C.
§ 201(b). The Commission invokes a new interpretation of
§ 201 to sustain its ban on paid prioritization. But it has failed
to offer a reasonable basis for that interpretation. Absent such
a basis, the ban is not in accordance with law. 5 U.S.C.
§ 706(2)(A) & (C).
2
Application of Title II also removes an obstacle to most
of the Commission’s reliance on § 706 of the
Telecommunications Act of 1996, 47 U.S.C. § 1302, namely
any rules that have the effect of treating the subject firms as
common carriers. See Verizon Communications Inc. v.
Federal Communications Commission, 740 F.3d 623, 650
(2014). But the limits of § 706 itself render it inadequate to
justify the ban on paid prioritization and kindred rules.
I discuss § 201(b) and § 706 in subparts A and B of part
II.
III. The Commission’s decision to forbear from
enforcing a wide array of Title II’s provisions is based on
premises inconsistent with its reclassification of broadband.
Its explicit refusal to take a stand on whether broadband
providers (either as a group or in particular instances) may
have market power manifests not only its doubt as to whether
it could sustain any such finding but also its pursuit of a “Now
you see it, now you don’t” strategy. The Commission invokes
something very like market power to justify its broad
imposition of regulatory burdens, but then finesses the issue
of market power in justifying forbearance.
Many of these issues are closely interlocked, making it
hard to pursue a clear expository path. Most particularly, the
best place for examining the Commission’s explanation of the
jewel in its crown—its ban on paid prioritization—is in
discussion of its new interpretation of 47 U.S.C. § 201. But
that explanation is important for understanding the
Commission’s failure to meet its obligations under Fox
Television, above all the obligation to explain why such a ban
promotes the “virtuous cycle,” which (as the majority
observes) is the primary justification for reclassification under
Title II. Thus a discussion critical to part I of this opinion is
3
deferred to part II. I ask the reader’s indulgence for any
resulting confusion.
* * *
I should preface the discussion by acknowledging that the
Commission is under a handicap in regulating internet access
under the Communications Act of 1934 as amended by the
Telecommunications Act of 1996. The first was designed for
regulating the AT&T monopoly, the second for guiding the
telecommunications industry from that monopoly into a
competitive future. The 1996 Act begins by describing itself
as:
An Act [t]o promote competition and reduce regulation in
order to secure lower prices and higher quality services
for American telecommunications consumers and
encourage the rapid deployment of new
telecommunications technologies.
Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56. Two central paradoxes of the Commission’s position
are (1) its use of an Act intended to “reduce regulation” to
instead increase regulation, and (2) its coupling adoption of a
dramatically new policy whose rationality seems heavily
dependent on the existing state of competition in the
broadband industry, under an Act intended to “promote
competition,” with a resolute refusal even to address the state
of competition. In the Commission’s words, “Thus, these
rules do not address, and are not designed to deal with, the
acquisition or maintenance of market power or its abuse, real
or potential.” Order ¶ 11 n.12.
4
I
I agree with the majority that the Commission’s
reclassification of broadband internet as a telecommunications
service may not run afoul of any statutory dictate in the
Telecommunications Act. But in changing its interpretation,
the Commission failed to meet the modest requirements of
Fox Television.
Fox states that an agency switching policy must as
always “show that there are good reasons for the new policy.”
556 U.S. at 515. But in special circumstances more is
required. An “agency need not always provide a more
detailed justification than what would suffice for a new policy
created on a blank slate. [But s]ometimes it must—when, for
example, 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.” Id.Here the Commission justifies its decision on two bases:
changed facts and a new policy judgment. To the extent it
rests on new facts, Fox requires us to examine whether there
is really anything new. Fox also, of course, requires us to
consider reliance interests, regardless of what the Commission
has said about them. Thus novel facts and reliance interests
are plainly at issue. The Commission also argues that its
policy change would be reasonable even if the facts had not
changed. Order ¶ 360 n.993 (“[W]e clarify that, even
assuming, arguendo, that the facts regarding how [broadband]
is offered had not changed, in now applying the Act’s
definitions to these facts, we find that the provision of
[broadband] is best understood as a telecommunications
service, as discussed [elsewhere] . . . and disavow our prior
interpretations to the extent they held otherwise.”). In sum
then, at a minimum, we must inquire whether the Commission
5
gave reasonable attention to petitioners’ claims of reliance
interests, how much the asserted factual change amounts to,
and finally whether the Commission has met the minimal
burden of showing “that there are good reasons for the new
policy.” I address them in that order.
(a) Reliance. The Order deals with reliance interests
summarily, noting, “As a factual matter, the regulatory status
of broadband internet access service appears to have, at most,
an indirect effect (along with many other factors) on
investment.” Order ¶ 360. The Commission’s support for the
conclusion is weak and its pronouncement superficial.
To the extent that the Commission’s judgment relies on
the presence of “many other factors,” it relies on an
irrelevance. The proposition that “many other factors” affect
investment is a truism. In a complex economy there will be
few phenomena that are entirely driven by a single variable.
Investment in broadband obviously reflects such matters as
market saturation, the cost of capital, obsolescence,
technological innovation, and a host of macroeconomic
variables. Put more generally, the presence of causal factors
X and Y doesn’t show the irrelevance of factor Z. The
significance of these factors tells us little about how much the
relatively permissive regime that has hitherto applied accounts
for the current robust broadband infrastructure. At least in
general terms, the Commission elsewhere seems to answer
that the old regime accounts for much. In an introductory
paragraph it commends “the ‘light-touch’ regulatory
framework that has facilitated the tremendous investment and
innovation on the Internet.” Order ¶ 5.
For its factual support, the Commission essentially lists
several anecdotes about what happened to stock prices and
what corporate executives said about investment in response
to Commission proposals for regulatory change. For example,
6
the Order notes that, after the Commission proposed tougher
rules, the stocks of telecommunications companies
outperformed the broader market. Order ¶ 360. This might
be interesting if the Commission had performed a
sophisticated analysis trying to hold other factors constant. In
the absence of such an analysis, the evidence shows only that
the threat of regulation was not so onerous as to precipitate
radical stock market losses. The Order also has a quotation
from the Time Warner Cable COO saying, in response to an
FCC announcement of possible Title II classification
(accompanied by some vague Commission assurances), “So
. . . yes, we will continue to invest.” Id. n.986 (emphasis
added by the Commission). Citation of this remark would be
an apt response to a strawman argument that there would have
been no investment in broadband if the new rules had always
applied, but not to the argument that a significant portion of
the current investment was made in reliance on the old
regime. Further, it is reasonable to expect that corporate
executives—with their incentives to enhance the firm’s
appearance as an attractive investment opportunity and thus to
keep its cost of capital down—would take the most favorable
view of a new policy consistent with their obligations to
investors not to paint too rosy a picture.
A more important (and logically prior) question is why
this evidence matters at all. I take Fox’s position on reliance
interests to be addressed to both fairness and efficiency. If a
regulatory switch will significantly undercut the productivity
and value of past investments, made in reasonable reliance on
the old regime, rudimentary fairness suggests that the agency
should take that into account in evaluating a possible switch.
And a pattern of capricious change would undermine any
agency purpose of encouraging future investment on the basis
of new rules. But the effect of past policy on past investment
is quite different from future levels of investment. For
example, the Environmental Protection Agency’s new
7
regulations on coal-fired power plants very well might spur
investment in energy by making legacy coal-fired plants less
feasible to operate, thus encouraging investment in renewable
energy to replace them. But that tells us little about whether
the prior regulations on coal-fired plants and their alternatives,
adjusted in light of reasonably foreseeable change, had a
material impact on prior energy investments.
The Commission also argues that “the regulatory history
regarding the classification of broadband Internet access
service would not provide a reasonable basis for assuming that
the service would receive sustained treatment as an
information service in any event.” Order ¶ 360. In short, the
Commission says that reliance was not reasonable. The
statement misreads the history of the classification of
broadband. In March 2002, the Commission classified cable
broadband as an information service, see In the Matter of
Inquiry Concerning High-Speed Access to the Internet over
Cable and Other Facilities (the “Cable Modem Declaratory
Ruling”), 17 F.C.C. Rcd. 4798 (2002); soon after that Order
was affirmed by the Supreme Court in National Cable &
Telecommunications Ass’n v. Brand X Internet Service, 545
U.S. 967 (2005), the Commission reclassified the transmission
component of DSL service as an information service as well.
See Appropriate Framework for Broadband Access to the
Internet Over Wireline Facilities et al. (the “Wireline
Broadband Classification Order”), 20 F.C.C. Rcd. 14853
(2005). The Commission continued to hold that view until
2010, when in the 2010 Notice, Notice of Inquiry, Framework
for Broadband Internet Service, 25 F.C.C. Rcd. 7866 (2010),
it sought comment on reclassification (though rejecting it in
the ultimate 2010 Order). I’m puzzled at the Commission’s
implicit claim, Order ¶ 360, that judicial uncertainly—dating
back to the 9th Circuit’s 2000 decision in AT&T Corp. v. City
of Portland, 216 F.3d 871 (9th Cir. 2000), reading the statute
to compel classification as a telecommunications service—
8
made it unreasonable for firms investing in provision of
internet access to think that the Commission would persist in
its longheld commitment. The Commission offered fierce
resistance to the 9th Circuit decision, resistance that
culminated in its success in Brand X. It seems odd, in this
context, to discount firms’ reliance on the Commission’s own
assiduously declared views.
According to data that Commission itself uses, Order ¶ 2,
broadband providers invested $343 billion1 during the five
years after Brand X, from 2006 through 2010. This amounts
to about $3,000 on average for every American household.
U.S. Census Bureau, Quickfacts,
https://www.census.gov/quickfacts/table/PST045215/00.2 For
the Commission to ignore these sums as investment in
reliance on its rules is to say it will give reliance interests zero
weight.
No one supposes that firms’ past investment in reliance
on a set of rules should give them immunity to regulatory
change. But Fox requires an agency at least to make a serious
assessment of such reliance. The Commission has failed to do
so.
1
Broadband Investment – Historical Broadband Provider
Capex, United States Telecom Association, available at
https://www.ustelecom.org/broadband-industry-
stats/investment/historical-broadband-provider-capex.
2
This uses the average number of households between 2010
and 2014 (116 million), which gives an average of $2,951 per
household. Between 2006 and 2010, there were fewer households,
so the average is likely above $3,000 per household.
9
(b) Changed facts. The Commission identifies two
changes, neither of which seems very radical or logically
linked to the new regime. First, it argues that consumers now
use broadband “to access third party content, applications and
services.” Order ¶¶ 330, 346-47. But that is nothing new. In
the Order from well over a decade ago that Brand X affirmed,
the Commission said that consumers “may obtain many
functions from companies with whom the cable operator has
not even a contractual relationship” instead of from their cable
internet service provider. Declaratory Ruling and Notice of
Proposed Rulemaking, 17 F.C.C. Rcd. 4798 ¶¶ 25, 38 & n.153
(2002) (“Declaratory Ruling”).
Second, the Order points to the emphasis that providers
put on the “speed and reliability of transmission separately
from and over” other features. Order ¶¶ 330, 351. Again,
there is nothing new about these statements from broadband
providers, who have been advertising speed for decades. See
Dissenting Statement of Commissioner Ajit Pai to Order (“Pai
Dissent”) at 357-58; Dissenting Statement of Commissioner
Michael O’Rielly to Order at 391. As Justice Scalia put it in
an undisputed segment of his Brand X dissent, broadband
providers (like pizzerias) “advertise[] quick delivery” as an
“advantage[] over competitors.” 545 U.S. at 1007 n.1 (Scalia,
J., dissenting).
At no point does the Commission seriously try to quantify
these alleged changes in the role or speed of internet service
providers. Even if there were changes in degree in these
aspects of the internet, the Commission doesn’t explain why
an increase in consumer access to third-party content, or an
increase in competition to offer high-speed service, would
make application of Title II more appropriate as a policy
matter now than it was at the time of the Declaratory Ruling
at issue in Brand X.
10
I confess I do not understand the majority’s view that the
section of Fox on changed circumstances, quoted above, is not
triggered so long as the agency’s current view of the
circumstances is sustainable. Maj. Op. 47. Whatever the
soundness of such a view, it seems inapplicable where, as
here, the agency explicitly invokes changed circumstances:
“Changed factual circumstances cause us to revise our earlier
classification of broadband Internet access service.” Order
¶ 330.
(c) New reasoning. Perhaps recognizing the frailty of its
claims of changed facts, the Commission tries to cover its
bases by switching to the alternative approach set forth in Fox,
a straightforward disavowal of its prior interpretation of the
1996 Act and related policy views. See, e.g., Order ¶ 360
n.993.
The Commission justifies its reclassification almost
entirely in terms of arguments that provision of such services
as DNS and caching, when provided by a broadband provider,
do not turn the overall service into an “information service.”
Rather, those functions in its view fit within § 153(24)’s
exception for telecommunications systems management.
Order ¶ 365-81. Thus, the Commission set for itself a highly
technical task of classification, concluding that broadband
internet access could fit within the literal terms of the
pertinent statutory sections. And it accomplished the task.
That it could do so is hardly surprising in view of the broad
leeway provided by Brand X, which gave it authority to
reverse the policy judgment it had made in the decision there
under review, the Declaratory Ruling.
But in doing so the Commission performed Hamlet
without the Prince—a finding of market power or at least a
consideration of competitive conditions. The Declaratory
Ruling sustained in Brand X invoked serious economic
11
propositions as the basis for its conclusion. For example, the
Brand X majority noted that in reaching its initial
classification decision the Commission had concluded that
“broadband services should exist in a minimal regulatory
environment that promotes investment and innovation in a
competitive market.” Id. ¶ 5, quoted by Brand X, 545 U.S. at
1001 (internal quotation marks omitted). But the Commission
has now discovered, for reasons still obscure, that a “minimal
regulatory environment,” far from promoting investment and
innovation, retards them, so that the Commission must replace
that environment with a regime that is far from “minimal.”
And when parties claimed that the Declaratory Ruling
was inconsistent with the Commission’s decision to subject
facilities-based enhanced services providers to an obligation
to offer their wires on a common-carrier basis to competing
enhanced-services providers, In re Amendment of Sections
64.702 of the Commission’s Rules and Regulations (Third
Computer Inquiry), 104 F.C.C. 2d 958, 964 ¶ 4 (1986), the
Brand X Court responded by looking to the policy reasons that
the Commission itself had invoked, reasons grounded in
concern over monopoly. The Court said:
In the Computer II rules, the Commission subjected
facilities-based providers to common-carrier duties not
because of the nature of the “offering” made by those
carriers, but rather because of the concern that local
telephone companies would abuse the monopoly power
they possessed by virtue of the “bottleneck” local
telephone facilities they owned. . . . The differential
treatment of facilities-based carriers was therefore a
function not of the definitions of “enhanced service” and
“basic service,” but instead of a choice by the
Commission to regulate more stringently, in its
discretion, certain entities that provided enhanced service.
12
545 U.S. at 996. Thus the Court recognized the
Commission’s practice of regarding risks of “abuse [of]
monopoly power” as pivotal in Computer II. While the 1996
Act by no means conditions classification under Title II on a
finding of market power, Brand X shows that the Court
recognized the relevance of market power to the
Commission’s classification decisions. See Declaratory
Ruling ¶ 47 (resting the classification decision in part on the
desire to avoid “undermin[ing] the goal of the 1996 Act to
open all telecommunications markets to competition”).
Of course the Court’s citation of these instances of
Commission reliance on the economic and social values
associated with competition are just examples brought to our
attention by Brand X. In addressing activities on the
periphery of highly monopolized telephone service, the
Commission has for nearly four decades made the presence or
prospect of competition the touchstone for refusal to apply
Title II. The Computer II decision, for example, says of the
Computer I decision, “A major issue was whether
communications common carriers should be permitted to
market data processing services, and if so, what safeguards
should be imposed to insure that the carriers would not engage
in anti-competitive or discriminatory practices.” In re
Amendment of Section 64.702 of the Commission’s Rules and
Regulations (Second Computer Inquiry), 77 F.C.C. 2d 384,
389-90 ¶ 15 (1980) (“Computer II”). In the Computer II
decision, it is hard to go more than a page or so without
encountering discussion of competition. The decision
concludes that, “In view of all of the foregoing evidence of an
effective competitive situation, we see no need to assert
regulatory authority over data processing services.” Id. at
433, ¶ 127. The competitiveness of the market was in large
part what the inquiry was about. See Jonathan E.
Nuechterlein & Philip J. Weiser, Digital Crossroads 190-91
13
(2d ed. 2013) (explaining link of Computer II’s unbundling
rules to FCC’s concern over monopoly).
Yet in the present Order the Commission contradicted its
prior strategy and explicitly declined to offer any market
power analysis: “[T]hese rules do not address, and are not
designed to deal with, the acquisition or maintenance of
market power or its abuse, real or potential.” Order ¶ 11 n.12.
In fact, as we’ll see, many of the Commission’s policy
arguments assert what sound like claims of market power, but
without going through any of the fact-gathering or analysis
needed to sustain such claims.
The Order made no finding on market power; in order to
do so it would have to answer a number of basic questions.
Most notably, as shown in Figure 1 below, there are a fairly
large number of competitors in most markets, with 74% of
American households having access to at least two fixed
providers giving speeds greater than 10 Mbps and 88% with at
least two fixed providers giving access to service at 3 Mbps.
In re Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans in a
Reasonable & Timely Fashion, & Possible Steps to Accelerate
Such Deployment Pursuant to Section 706 of the
Telecommunications Act of 1996, as Amended by the
Broadband Data Improvement Act, 30 F.C.C. Rcd. 1375 ¶ 83
(2015) (“2015 Broadband Report”). Furthermore, 93% of
Americans have access to three or more mobile broadband
providers—access which at least at the margin must operate in
competition with suppliers of fixed broadband. In re
Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993: Annual Report and Analysis of
Competitive Market Conditions with Respect to Mobile
Wireless, Seventeenth Report, 29 F.C.C. Rcd. 15311 ¶ 51,
Chart III.A.2 (2014).
14
Figure 1: American Households’ Access to
Fixed Broadband Providers
Source: 2015 Broadband Report, Chart 2.
The Commission emphasizes how few people have
access to 25 Mbps, but that criterion is not grounded in any
economic analysis. For example, Netflix—a service that
demands high speeds—recommends only 5 Mbps for its high-
definition quality service and 3 Mbps for its standard
definition quality. Netflix, Internet Connection Speed
Recommendations, https://help.netflix.com/en/node/306. A
likely explanation for why there has not been more rollout of
higher speeds is that many people are reluctant to pay the
extra price for it. Indeed, the 2015 Broadband Report
indicates that fewer than 30% of customers for whom 25
Mbps broadband is available actually order it. 2015
Broadband Report ¶ 41 (including Table 3 and Chart 1).
15
That many markets feature few providers offering service
at 25 Mbps or above is hardly surprising. In a competitive
world of rapidly improving technology, it’s unreasonable to
expect that all firms will simultaneously launch the
breakthrough services everywhere, especially in a context in
which more than 70% of the potential customers decline to
use the latest, priciest service.
The Commission established the 25 Mbps standard in its
2015 Broadband Report ¶ 45. Its explanations seem
superficial at best. For example, it relies on the marketing
materials of broadband providers touting the availability and
benefits of speeds at or greater than 25 Mbps. Id. ¶ 28.
Perhaps the authors of the Order have never had the
experience of a salesperson trying to sell something more
expensive than the buyer inquired about—and, not
coincidentally, more lucrative for the salesperson. The
Commission also justifies the standard by arguing that 10
Mbps would be insufficient to “participate in an online class,
download files, and stream a movie at the same time” and to
“[v]iew 2 [high-definition] videos.” Id. ¶ 39. This is like
setting a standard for cars that requires space for seven
passengers. The data seem to suggest that many American
families are unwilling to pay the extra to be sure that all
members can have continuous, simultaneous, separate access
to high-speed connectivity (perhaps some of them read?
engage in conversation?). The fact that the Commission
strains so much to justify its arbitrary criterion shows how out
of line with reality such a criterion is. The weakness of the
Commission’s reasoning suggests that its main purpose in
setting the “standard” may simply be to make it appear that
millions of Americans are at the mercy of only one supplier,
or at best two, for critically needed access to the modern
world. All without bothering to conduct an economic
analysis!
16
Of course, if the Commission had assessed market power,
it would have needed to define the relevant market, to
understand the extent to which providers of different speeds
and different services compete with each other. When
defining markets for purposes of assessing competition, the
Department of Justice and Federal Trade Commission use the
“small but significant and non-transitory increase in price”
(“SSNIP”) test. The test tries to determine whether a market
actor can benefit from a hypothetical increase in price,
indicating market power. U.S. Department of Justice and the
Federal Trade Commission, Horizontal Merger Guidelines 9
(2010) (“Horizontal Merger Guidelines”). But the
Commission did not conduct such a test, and we cannot say
how it would come out.
Because broadband competition is geographically
specific, simple market share data at a national level are of
limited value. But firms that provide service to large numbers
of consumers, albeit not everywhere, seem likely to rank as
potential competitors quite broadly. With these limits in
mind, we can look at U.S. subscriber numbers for each of the
firms in the market, Leichtman Research, About 645,000 Add
Broadband in the Third Quarter of 2015,
http://www.leichtmanresearch.com/press/111715release.html,
and construct a Herfindahl–Hirschman Index, which in fact is
1,445 points. This level is in the Department of Justice’s
Range for “Unconcentrated Markets”—that is, markets where
no firm has market power. Horizontal Merger Guidelines at
18-19. I report below the data used to construct the index. In
fact, this number is biased upward (and thus biased toward
finding market power), since the data for several smaller
companies are grouped as if for only one, making it seem as if
there is more concentration than there in fact is.
Similarly, the Commission scoffs at what it regards as
low turnover in customers’ use of mobile service providers,
17
but the rate of turnover actually looks quite substantial. The
Commission points to average monthly churn rates of 1.56%
in mobile broadband across four leading providers. Order
¶ 98 n.211. Assuming that a single person does not switch
more than once in a year, that rate of churn means that
18.72% of customers switch providers each year, suggesting
quite robust competition. Interestingly, the Commission is
especially hard on declines in churn rate, id., which in the
absence of increased concentration or some new obstacle to
switching might well suggest increased consumer satisfaction.
To bolster its switching data claims, the Commission
points to documents in which parties to the rulemaking make
conclusory assertions purportedly showing that 27 percent of
mobile broadband consumers do not switch though
“dissatisfied” with their current carriers. Order ¶ 98. Without
a plausible measure of “dissatisfaction” (none is offered), the
number is meaningless.
18
Table 1: Fixed Broadband Subscribers by Provider
Subscribers
Number Percent
Cable Companies
Comcast 22,868,000 25.55%
Time Warner Cable 13,016,000 14.54%
Charter 5,441,000 6.08%
Cablevision 2,784,000 3.11%
Suddenlink 1,202,400 1.34%
Mediacom 1,067,000 1.19%
WOW (WideOpenWest) 712,300 0.80%
Cable ONE 496,865 0.56%
Other Major Private Cable
6,675,000 7.46%
Companies
Total Cable 54,262,565 60.62%
Telephone Companies
AT&T 15,832,000 17.69%
Verizon 9,223,000 10.30%
CenturyLink 6,071,000 6.78%
Frontier 2,415,500 2.70%
Windstream 1,109,600 1.24%
FairPoint 313,982 0.35%
Cincinnati Bell 281,300 0.31%
Total Telephone 35,246,382 39.38%
Total Broadband 89,508,947 100.00%
Source: Leichtman Research.
19
Even though never making any finding on market power,
the Commission seems almost always to speak of fixed and
mobile broadband separately. Of course to a degree the
statute requires this. But if the Commission were the least bit
serious about the market dysfunction that might provide
support for its actions, it would consider competition between
the two. The frequent articles in the conventional press about
fixed broadband customers’ “cutting the cord” in favor of
complete reliance on mobile suggests it would be an
interesting inquiry.
None of the above is intended to suggest that the
Commission could not have made a sustainable finding that
every firm in every relevant market has market power. My
aim is simply to make two points: (1) that such a degree of
market power cannot be assumed, as the Commission itself
seems to acknowledge in its disclaimer of interest in market
power, Order ¶ 11 n.12; and (2) that the Commission’s
reliance on consumers’ “high switching costs,” id. ¶ 81
(discussed below in part II), which is an implicit assertion that
the providers have market power, poses an empirical question
that is susceptible of resolution and is in tension with the
Commission’s assertion that it is not addressing “market
power or its abuse, real or potential.”
In a move evidently aimed at circumventing the whole
market power issue (despite Title II’s origin as a program for
monopoly regulation), the Commission rests on its “virtuous
cycle” theory, to wit the fact that “innovations at the edges of
the network enhance consumer demand, leading to expanded
investments in broadband infrastructure that, in turn, spark
new innovations at the edge.” Order ¶ 7. The Commission
clearly expects the policy adopted here to cause increases in
broadband investment.
20
I see no problem with the general idea. Indeed, it seems
to me it captures an important truth about any sector of the
economy. Though the subsectors may compete over rents, the
prosperity of each subsector depends on the prosperity of the
others—at least it does so unless some wholly disruptive
technology replaces one of the subsectors. American wheat
producers, American railroads, steamship lines, and wheat
consumers around the globe participate in a virtuous cycle;
medical device inventors, hospitals, doctors, and patients
participate in a virtuous cycle. Innovation, to be sure, is
especially robust in the information technology and
application sectors, but a mutual relationship between
subsectors pervades the economy.
There is an economic classification issue that the
Commission does not really tackle: whether broadband
internet access is like transportation or is a platform in a two-
sided market, i.e., a business aiming to “facilitate interactions
between members of . . . two distinct customer groups,” David
S. Evans & Richard Schmalensee, The Industrial
Organization of Markets with Two-Sided Platforms, 3
COMPETITION POLICY INTERNATIONAL 151, 152 (2007), which
in this case would be edge providers and users. (Two-sided
markets are barely discussed at all, with the only mentions of
any sort in the Order at ¶¶ 151 n.363, 338 & n.890, 339
n.897.) Although the Commission seems at one point to
characterize broadband internet access as a two-sided market,
see id. ¶ 338, it nowhere develops any particular
consequences from that classification or taps into the vast
scholarly treatment of the subject. The answer to the question
may well shed light on the reasonableness of the regulations,
but in view of the Commission’s non-reliance on the
distinction we need not go there.
I do not understand the Commission to claim that its new
rules will have a direct positive effect on investment in
21
broadband. The positive effect is expected from the way in
which, in the Commission’s eyes, the new rules encourage
demand for and supply of content, which it believes will
indirectly spur demand for and investment in broadband
access.
The direct effect, of which the Commission doesn’t really
speak, seems unequivocally negative, as petitioner United
States Telecom Association (“USTA”) argues. USTA Pet’rs’
Br. 4 (“Individually and collectively, these rules will
undermine future investment by large and small broadband
providers, to the detriment of consumers.”); see also id. 54.
Besides imposing the usual costs of regulatory compliance,
the Order increases uncertainty in policy, which both reason
and the most recent rigorous econometric evidence suggest
reduce investment. Scott R. Baker, Nicholas Bloom & Steven
J. Davis, Measuring Economic Policy Uncertainty, 131
QUARTERLY JOURNAL OF ECONOMICS (forthcoming 2016).
(Though the paper is focused on economy-wide policy
uncertainty and effects, it is hard to see why the linkage
shown would not apply in an industry-specific setting.) In
fact, the Order itself acknowledges that vague rules threaten to
“stymie” innovation, Order ¶ 138, but then proceeds to adopt
vague rules.
Here, a major source of uncertainty is the Internet
Conduct Standard, which forbids broadband providers to
“unreasonably interfere with or unreasonably disadvantage”
consumer access to internet content. 47 C.F.R. § 8.11. All of
these terms—“unreasonably,” “interfere,” and
“disadvantage”—are vague ones that increase uncertainty for
regulated parties. Indeed, the FCC itself is uncertain what the
policy means, as indicated by the FCC Chairman’s admission
that even he “do[esn’t] really know” what conduct is
proscribed. February 26, 2015 Press Conference, available at
http://goo.gl/oiPX2M (165:30-166:54). The Commission
22
does announce a “nonexhaustive list” of seven factors to be
used in assessing providers’ practices, including “end-user
control,” “consumer protection,” “effect on innovation,” and
“free expression.” Order ¶¶ 138-45. But these factors
themselves are vague and unhelpful at resolving the
uncertainty.
The Commission made an effort to palliate the negative
effect of its “standards” by establishing a procedure for
obtaining advisory opinions. Order ¶¶ 229-39. It delegated
authority to issue such opinions to its Enforcement Bureau,
perhaps thereby telegraphing its general mindset on how
broadly it intends its prohibitions to be read. But the Bureau
has complete discretion on whether to provide an answer at
all. Order ¶ 231. Further, any advice given will not provide a
basis for longterm commitments of resources: the Bureau is
free to change its mind at will, and as the opinions will be
issued only at the staff level, the Commission reserves its
freedom to act contrary to the staff’s conclusions at any time.
Order ¶ 235. I do not understand this to mean that the
Commission will seek penalties against parties acting in
reliance on an opinion while it is still in effect, but parties in
receipt of a favorable opinion are on notice that they may be
forced to shut down a program the minute the Bureau reverses
itself or the Commission countermands the Bureau.
Besides affording rather fragile assurance, the advisory
process promises to be slow. “[S]taff will have the discretion
to ask parties requesting opinions, as well as other parties that
may have information relevant to the request or that may be
impacted by the proposed conduct, for additional
information.” Id. ¶ 233. Given these possible information
requests from various parties, including adverse ones, it is
unsurprising that the Commission is unwilling to give any
timeliness commitment, explicitly “declin[ing] to establish
23
any firm deadlines to rule on [requests for advisory opinions]
or issue response letters.” Id. ¶ 234.
The palliative effect of these procedures may be
considerable for the very large service providers. They are
surely accustomed to having their lawyers suit up, research all
the angles, participate in proceedings after notice has been
given to all potentially adversely affected parties, and receive,
after an indefinite stretch, a green light or a red one. For the
smaller fry, the internet service provider firms whose growth
is likely to depend on innovative business models (precisely
the sort that seem likely to run afoul of the Commission’s
broad prescriptions; see part II.B), the slow and costly
advisory procedure will provide only a mild antidote to those
prescriptions’ negative effect. This of course fits the general
pattern of regulation’s being more burdensome for small firms
than for large, as larger firms can spread regulation’s fixed
costs over more units of output. See Nicole V. Crain & W.
Mark Crain, The Impact of Regulatory Costs on Small Firms 7
(2010). And in evaluating the impact on investment in
broadband, which the Commission assures us the Order will
stimulate, quality is surely relevant as well as quantity.
Further, given the breadth and vagueness of the standards,
many of the acts for which firms are driven to seek advice will
likely be rather picayune. As head of the Civil Aeronautics
Board in its what proved to be its waning days, Alfred Kahn
got a call in the middle of the night from an airline trying to
find out whether its application to transport sheep from
Virginia to England had been approved. “The matter was
urgent, because the sheep were in heat!” Susan E. Dudley,
Alfred Kahn, 1917-2010, Remembering the Father of Airline
Deregulation, 34 REGULATION 8, 10 (2011). The internet we
know wasn’t built by firms requesting bureaucratic approval
for every move.
24
Furthermore, 47 U.S.C. § 207, which applies to
broadband providers once they are subject to Title II,
increases uncertainty yet more. Section 207 allows “[a]ny
person claiming to be damaged by any common carrier . . .
[to] either make complaint to the Commission . . . , or . . .
bring suit for the recovery of the damages for which such
common carrier may be liable under the provisions of this
chapter.” In other words, reclassification exposes broadband
providers to the direct claims of supposedly injured parties,
further increasing uncertainty and risk. In short, the Order’s
probable direct effect on investment in broadband seems
unambiguously negative.
As to the hoped-for indirect effect, the idea that it will be
positive depends on the supposition that these new rules (the
specific and the general) will cure some material problem,
will avert some threat that either is now burdening the internet
or could reasonably be expected to do so absent the
Commission’s intervention. Why, precisely, the observer
wants to know, has the Commission repudiated the policy
judgment it made in 2002, that “broadband services should
exist in a minimal regulatory environment that promotes
investment and innovation in a competitive market”?
Declaratory Ruling ¶ 5. The answer evidently turns on the
Commission’s conclusion that broadband providers have
indulged (or will indulge) in behavior that threatens the
internet’s “virtuous cycle.” Indeed, the majority points to the
need to reclassify broadband so that the Commission could
promulgate the rules as the Commission’s “‘good reason’ for
[its] change in position,” Maj. Op. 43, and indeed its only
reason. But the record contains multiple reasons for thinking
that the Commission’s new rules will retard rather than
enhance the “virtuous cycle,” and the Commission’s failure to
answer those objections renders its decision arbitrary and
capricious. I now turn to those arguments, first in the context
25
of 47 U.S.C. §§ 201, 202 (part II.A) and then in the context of
§ 706 of the 1996 Act (part II.B).
II
Having reclassified broadband service under Title II, the
Commission has relied on two specific provisions to sustain
its actions: § 201(b) of the Communications Act, 47 U.S.C.
§ 201(b), and § 706 of the Telecommunications Act of 1996,
47 U.S.C. § 1302. The petitioners contend that neither
provides adequate support for the Commission’s actions.
Furthermore, as just mentioned, the Commission’s arguments
here bear directly on the reasonableness of the reclassification
decision itself.
A
Petitioners Alamo Broadband Inc. and Daniel Berninger
(“Alamo-Berninger”) argue that even if Title II could properly
be applied to broadband service, that Title gives the
Commission no authority to prohibit reasonable rate
distinctions. Alamo-Berninger Br. 17-19. Berninger is a
would-be edge provider working on new technology that he
believes could provide much enhanced telephone service—but
only if he could be assured that “latency, jitter, and packet loss
in the transmission of a communication will [not] threaten
voice quality and destroy the value proposition of a high-
definition service.” Declaration of Daniel Berninger, October
13, 2015, at 2. He is ready to pay for the assurance of high-
quality service, and asserts that the Commission’s ban on paid
prioritization will obstruct successful commercial
development of his innovation. Berninger appears to be
exactly the sort of small, innovative edge provider that the
Commission claims its Order is designed to assist. In the
26
words of Shel Silverstein’s children’s song, “Some kind of
help is the kind of help we all can do without.”
For our purposes, of course, the question is whether, as
the Alamo-Berninger brief argues, the section of the statute
invoked by the Commission under Title II, namely § 201(b),
authorizes the ban, or, more precisely, whether the
Commission has offered any reasonable interpretation of
§ 201(b) that would encompass the ban.
A number of points by way of background: First, nothing
in the Order suggests that the paid prioritization ban allows
any exception for rate distinctions based on differing costs of
transmission, time-sensitivity of the material transmitted, or
congestion levels at the time of transmission, all variables
historically understood to justify distinctions in rates. Alfred
E. Kahn, The Economics of Regulation (1988), at 63 (different
costs), 63-64 (different elasticities of demand, as would be
reflected in time sensitivity), 88-94 (congestion). The Alamo-
Berninger brief cites the FCC chairman’s observation in
Congress, “There is nothing in Title II that prohibits paid
prioritization,” Hearing before the Subcommittee on
Communications and Technology of the United States House
of Representatives Committee on Energy and Commerce, and
Technology of the United States House Commission,” Video
at 44:56 (May 20, 2014), available at
http://go.usa.gov/3aUmY, but that need not detain us. More
important, general principles of public utility rate regulation
have always allowed reasonable rate distinctions, with many
factors determining reasonableness. Kahn, The Economics of
Regulation, at 63 (noting that, “from the very beginning,
regulated companies have been permitted to discriminate in
the economic sense, charging different rates for various
services”). But the ban adopted by the Commission prohibits
rate differentials for priority handling regardless of factors
that would render them reasonable under the above
27
understandings. Although the Order provides for the
possibility of waiver, it cautions, “An applicant seeking
waiver relief under this rule faces a high bar. We anticipate
granting such relief only in exceptional cases.” Order ¶ 132.
Second, in a case discussing the terms “unjust” and
“unreasonable” as used in § 201(b) and in its fraternal twin
§ 202(a), we said that those words “open[] a rather large area
for the free play of agency discretion.” Orloff v. FCC, 352
F.3d 415, 420 (D.C. Cir. 2003); see also Global Crossing
Telecomms., Inc. v. Metrophones Telecomms., Inc., 550 U.S.
45 (2007) (recognizing the Commission’s broad authority to
define “unreasonable practice[s]” under § 201(b)). But
“large” is not infinite.
Third, in the order under review in Orloff the
Commission focused on § 202 but mentioned § 201. We
summarized it as holding that “if a practice is just and
reasonable under § 202, it must also be just and reasonable
under § 201.” Orloff, 352 F.3d at 418 (citing Orloff v.
Vodafone AirTouch Licenses LLC d/b/a Verizon Wireless, 17
F.C.C. Rcd. 8987, 8999 (2002) (“Defendants . . . offer[] the
same defenses to the section 201(b) claim as they do to the
section 202(a) claim. We reject Orloff’s section 201(b) claim.
As noted, section 201(b) declares unlawful only ‘unjust or
unreasonable’ common-carrier practices. For the reasons
discussed [regarding section 202(a)], we find Defendants’
concessions practices to be reasonable.”)).
Fourth, the Commission (at least for the moment) allows
ISPs to provide consumers differing levels of service at
differing prices. As it says in its brief, “The Order does not
regulate rates—for example, broadband providers can (and
some do) reasonably charge consumers more for faster service
or more data.” Commission Br. 133. The statement is true
(for now) vis-à-vis rates to consumers. But the ban on paid
28
prioritization obviously regulates rates—the rates paid by
edge providers; it insists that the incremental rate for assured
or enhanced quality of service must be zero. Although I
cannot claim that the parties’ exposition of the technology is
clear to me, it seems evident that the factors affecting quality
of delivery to a consumer include not only whatever service
characteristics go into promised (and delivered) speed at the
consumer end but also circumstances along the route. “Paid
peering” (discussed below) would be unintelligible if it were
otherwise.
With these background points in mind, I turn to the
Commission’s treatments of “unjust” and “unreasonable”
under §§ 201 and 202. Its principal discussions of the concept
have occurred in the context of § 202(a), which bars “any
unjust or unreasonable discrimination in charges,
practices. . . ,” etc. Section § 201(b), relied on by the
Commission here, is very similar but does not include the
word “discrimination.” § 201(b) (“All charges, practices,
classifications, and regulations for and in connection with
such communication service, shall be just and reasonable, and
any such charge, practice, classification, or regulation that is
unjust or unreasonable is declared to be unlawful . . . .”) The
Order’s language explaining its view of § 201(b) doesn’t
mention this difference, so evidently the Commission’s
interpretation doesn’t rely on it.
The Commission’s decisions under § 202 have plainly
recognized the permissibility of reasonable rate differences.
In In re Dev. of Operational, Tech. & Spectrum Requirements
for Meeting Fed., State & Local Pub. Safety Agency Commc'n
Requirements Through the Year 2010, 15 F.C.C. Rcd. 16720
(2000), for example, the Commission issued an order
declaring that premium charges for prioritized emergency
mobile services were not unjust and unreasonable. In full
accord with the usual understanding of rate regulation, the
29
Commission said, “Section 202 . . . does not prevent carriers
from treating users differently; it bars only unjust or
unreasonable discrimination. Carriers may differentiate
among users so long as there is a valid reason for doing so.”
Id. at 16730-31(emphasis in original)). It reasoned that, “in
emergency situations, non-[emergency] customers simply are
not ‘similarly situated’ with [emergency] personnel” because
“the ability of [the latter] to communicate without delays
during emergencies is essential.” Id. at 16731. Even when
the Commission engages in full-scale rate regulation (which it
purports to eschew in the Order), it explicitly recognizes that
reasonable price differentials are appropriate where the
services in question are unlike. See, e.g., In re AT&T
Communications Revisions to Tariff F.C.C. No. 12, 6 F.C.C.
Rcd. 7039 ¶ 8 (1991).
Tellingly, in its prioritized emergency mobile services
decision the Commission did not see fit to discuss § 201 at all.
The principle underlying the Commission’s understanding of
§ 202 was a broad one—that allowance of differential rates
based on “valid reasons” advances the public interest.
Whatever explains the lack of any reference to § 201, the
Commission’s recognition that differential rates were not
inherently unjust or unreasonable under § 202 requires, as a
minimum of coherent reasoning, that it offer some explanation
why the same words in § 201 should preclude such
differentials. See Orloff v. Vodafone AirTouch Licenses LLC
d/b/a Verizon Wireless, 17 F.C.C. Rcd. 8987, 8999 (finding
reasonableness and justness under § 202 to be sufficient for
finding the same under § 201). Of course this is no more than
a recognition of the principle, prevailing throughout the era of
federal regulation of natural monopolies, that it is just and
reasonable that customers receiving extra speed or reliability
should pay extra for it. A classic and pervasive example is the
differential in natural gas transmission between firm and
interruptible service. See, e.g., Fort Pierce Utilities Auth. of
30
City of Fort Pierce v. FERC, 730 F.2d 778, 785-86 (D.C. Cir.
1984).
I note that the ban here is simply on differences in rates,
an issue normally addressed under statutory language barring
discrimination. So it is at least anomalous that the
Commission here relies on § 201(b), which says nothing about
discrimination, rather than § 202(a), which does. The only
reason I can discern is that the Commission’s interpretation of
§ 202 was more clearly established, and obviously didn’t ban
reasonable discriminations. Accordingly, the Commission
jumped over to § 201(b), about which it had said relatively
little.
In the passage where the Order claims support from
§ 201(b), the Commission appears to acknowledge that it has
never interpreted that section to support a sweeping ban on
quality-of-service premiums, but, speaking of its anti-
discrimination decisions (evidently under both §§ 201(b) and
202(a)), it says that “none of those precedents involved
practices that the Commission has twice found threaten to
create barriers to broadband development that should be
removed under section 706.” Order ¶ 292. This is an odd
form of statutory interpretation. Finessing any effort to fit the
agency action within the statutory language, it only claims
that the banned practice threatens broadband deployment.
Maybe the theory works, but it can do so only by a sturdy
showing of how the banned conduct posed a “threat.” As
we’ll see, the Commission has made no such showing, let
alone a sturdy one.
Indeed, I can find no indication—and the Commission
presents none—that any of the agencies regulating natural
monopolies, such as the Interstate Commerce Commission,
Federal Energy Regulatory Commission, or Federal
Communications Commission—has ever attempted to use its
31
mandate to assure that rates are “just and reasonable”3 to
invalidate a rate distinction that was not unreasonably
discriminatory. To uproot over a century of interpretation—
and with so little explanation—is truly extraordinary.
In its interpretation of § 201 the Commission rests its
claim of a “threat” to the “virtuous cycle” theory mentioned
above: “innovations at the edges of the network enhance
consumer demand, leading to expanded investments in
broadband infrastructure that, in turn, spark new innovations
at the edge,” Order ¶ 7, and the cycle repeats on and on.
The key question is what underlies the Commission’s
idea that a ban on paid prioritization will lead to more content,
giving the cycle extra spin (or, equivalently, reducing the drag
caused by paid prioritization). Order ¶ 7. In what way will an
across-the-board ban on paid prioritization increase edge
provider content (and thus consumer demand)? Or, putting it
in terms of a “threat,” how does paid prioritization threaten
the flourishing of the edge provider community (and thus
consumer demand, and thus broadband deployment)?
3
See, e.g., Interstate Commerce Act of 1887, 24 Stat. 379, § 1
(“All charges made for any service rendered or to be rendered in the
transportation of passengers or property as aforesaid, or in
connection therewith, or for the receiving, delivering, storage, or
handling of such property, shall be reasonable and just; and every
unjust and unreasonable charge for such service is prohibited and
declared to be unlawful.”); Federal Power Act, 16 U.S.C. § 824d
(“All rates and charges made, demanded, or received by any public
utility for or in connection with the transmission or sale of electric
energy subject to the jurisdiction of the Commission, and all rules
and regulations affecting or pertaining to such rates or charges shall
be just and reasonable, and any such rate or charge that is not just
and reasonable is hereby declared to be unlawful.”)
32
In fact, as we’ll see, the Commission’s hypothesis that
paid prioritization has deleterious effects seems not to rest on
any evidence or analysis. Further, the Order fails to address
critiques and alternatives.
I look first to the support offered by the Commission for
its claim. The Order asserts that “[t]he Commission’s
conclusion [that allowance of paid prioritization would
disadvantage certain types of edge providers] is supported by
a well-established body of economic literature, including
Commission staff working papers.” Order ¶ 126. This claim
is, to put it simply, false. The Commission points to four
economics articles, none of which supports the conclusion that
all distinctions in rates, even when based on differentials in
service, will reduce the aggregate welfare afforded by a set of
economic transactions.4 Indeed, the Commission plainly
didn’t look at the articles. None of them even addresses price
distinctions calibrated to variations in quality of service;
rather they are devoted to the sort of price differences
addressed by the Robinson-Patman Act, 15 U.S.C. § 13,
targeting sellers who sell the same good of the same quality at
different prices. Three say that in some circumstances rules
against price differentials can be beneficial (to repeat, the
articles speak of rules against differentials not related to
4
Michael L. Katz, Price Discrimination and Monopolistic
Competition, 52 ECONOMETRICA 1453, 1453-71 (1984) (“Price
Discrimination”); Michael L. Katz, Non-Uniform Pricing, Output
and Welfare under Monopoly, 50 REV. ECON. STUD. 37, 37-56
(1983) (“Output and Welfare”); Michael L. Katz, The Welfare
Effects of Third-Degree Price Discrimination in Intermediate Good
Markets, 77 AM. ECON. REV. 154, 154-167 (1987); Yoshihiro
Yoshida, Third Degree Price Discrimination in Input Markets:
Output and Welfare, 90 AM. ECON. REV. 240, 240-246 (2000)
(“Third Degree Price Discrimination”).
33
quality of service), not that they are beneficial.5 The fourth
paper, still within the sphere of non-quality-related price
distinctions, is still worse for the Commission, concluding that
“a flat ban” on price discrimination (even assuming no
differential in cost and quality, unlike the Commission rule)
“could have adverse welfare consequences,” and that “the
analysis does not reveal whether there is any implementable
form of regulation that would be welfare-improving.” Katz,
The Welfare Effects, at 165.
It is probably no coincidence that the author of three of
these articles, Michael Katz, a former chief economist at the
Commission, filed a declaration in this proceeding opposing
the type of regulation adopted in the Order as overly broad,
especially given that the behavior banned was at most
responsible for only hypothetical harms. Protecting and
Promoting Consumer Benefits Derived from the internet:
Declaration of Michael L. Katz, July 15, 2014 (“Katz
Declaration”), at 2-3. I will discuss his critique and the
alternatives he offers shortly.
The Order also points to two old Commission reports that
it claims support its argument. Order ¶ 126 n.297. They do
not. One, Jay M. Atkinson & Christopher C. Barnekov, A
Competitively Neutral Approach to Network Interconnection,
OPP Working Paper Series, No. 34, at 15 (2000), deals with
network interconnection pricing and advocates a “bill and
5
Katz, Price Discrimination, at 1454 (“uniform pricing is
more efficient than price discrimination when the number of
uninformed consumers is small”); Katz, Output and Welfare, at 37
(“there may be scope for improving market performance through
regulation” of price discrimination); Yoshida, Third Degree Price
Discrimination, at 244 (“[i]n general, we cannot expect” the
condition required for regulation to improve welfare to be true).
34
keep” system (“under which carriers split equally those costs
that are solely incremental to interconnection, and recover all
remaining costs from their own customers,” according to the
report, id. at ii). Unlike the articles cited, it does address
variations in quality of service, but only to argue that the
ability of one provider to lower its quality doesn’t undermine
the case for “bill and keep” because the quality-lowering
provider will bear “the main impact itself.” Id. at 20. This is
an interesting proposition, but, assuming its truth, it doesn’t
connect in any obvious way to a flat ban on paid
prioritization; if the Commission knows a way to make that
connection, it hasn’t revealed it.
The second, Gerald W. Brock, Telephone Pricing to
Promote Universal Service and Economic Freedom, OPP
Working Paper Series, No. 18 (1986), is an interesting
consideration of the possible welfare losses that may follow
from pricing that collects a high proportion of fixed costs
from usage fees. As with the Atkinson & Barnekov paper, its
connection to paid prioritization is unclear, and the
Commission’s opinion writers have made no effort even to
identify a connection, much less explain it. In discussing a
possible anti-discrimination rule, the paper posits one under
which a firm may adopt “any combination of two-part tariffs,
volume discounts, and so forth but is required to offer the
same set of prices to all customers.” Id. at 44. Although it
isn’t clear that the paper gives an endorsement to such a rule,
such an endorsement would not support the Commission’s
ban on quality-of-service based differentials.
I apologize for taking the reader through this parade of
irrelevancies. But it is on these that the Commission has
staked its claim to analytical support for the idea that paid
prioritization poses a serious risk to broadband deployment.
35
The Commission does point to episodes supposedly
supporting its view that paid prioritization constitutes a
significant threat. Order ¶ 69, 79 n.123. It is, however,
merely pointing to a handful of episodes among the large
number of transactions conducted by many broadband
providers. Furthermore, neither in this Order nor in the 2010
Broadband Order, 25 F.C.C. Rcd. at 17915-26, ¶¶ 20-37, cited
by this Order as support, Order ¶ 79 n.123, does the
Commission sift through the evidence to show that any
episode impaired the ability of the internet to maximize
consumer satisfaction and the flourishing of edge providers in
the aggregate, as opposed to harm to a particular edge
provider. Nor does it show whether, if there was harm, a far
narrower rule would not have handled the problem. (For
example, if a broadband provider throttled an edge provider’s
content at the same time as the broadband provider provided
similar content, then—assuming no justification—grounds for
action against such behavior could be discerned. Compare
§ 616(a)(3) of the Communications Act, 47 U.S.C.
§ 536(a)(3).) In his dissent to the Order, Commissioner Pai,
using terms perhaps feistier than would suit a court,
summarized it as follows:
The evidence of these continuing threats? There is
none; it’s all anecdote, hypothesis, and hysteria. A small
ISP in North Carolina allegedly blocked VoIP calls a
decade ago. Comcast capped BitTorrent traffic to ease
upload congestion eight years ago. Apple introduced
FaceTime over Wi-Fi first, cellular networks later.
Examples this picayune and stale aren’t enough to tell a
coherent story about net neutrality. The bogeyman never
had it so easy.
Pai Dissent at 333. And Judge Silberman’s observations
about the episodes marshalled to support the precursor order
vacated in Verizon seem as applicable today as then:
36
That the Commission was able to locate only four
potential examples of such conduct is, frankly,
astonishing. In such a large industry where, as Verizon
notes, billions of connections are formed between users
and edge providers each year, one would think there
should be ample examples of just about any type of
conduct.
Verizon, 740 F.3d at 664-65 (Judge Silberman, dissenting
from the decision’s dicta).
The short of it is that the Commission has nowhere
explained why price distinctions based on quality of service
would tend to impede the flourishing of the internet, or,
conversely, why the status quo ante would not provide a
maximum opportunity for the flourishing of edge providers as
a group—or small innovative edge providers as a subgroup.
It gets worse. Having set forth the notion that paid
prioritization poses a threat to broadband deployment—so
much so as to justify jettisoning its historic interpretation of
§§ 201(b), 202(a), and resting that notion on conclusory
assertions of parties and irrelevant scholarly material—the
Commission then fails to respond to criticisms and
alternatives proposed in the record, in clear violation of the
demands of State Farm, 463 U.S. at 43, 51.
I start with comments in the record explaining the
problems that the ban on paid prioritization could cause in the
broadband market. The comments suggest that by effectively
banning pricing structures that could benefit some people
substantially, but impose minimal (and seemingly quite
justifiable) costs on others, the ban on paid prioritization
could replace the virtuous cycle with a vicious cycle, in which
regulatory overreach reduces the number and quality of
services available, reducing demand for broadband, and in
37
turn reducing the content and services available owing to the
reduced number of users. Investment would suffer as the
number of users declines (or fails to grow as it otherwise
would have).
For example, the joint comment by the International
Center for Law & Economics and TechFreedom paints a
picture in which innovation and investment could be
substantially harmed by the ban on paid prioritization:
With most current [internet service] pricing models,
consumers have little incentive or ability (beyond the
binary choice between consuming or not consuming)
to prioritize their use of data based on their
preferences. In other words, the marginal cost to
consumers of consuming high-value, low-bit data (like
VoIP [transmitting voice over the internet], for
example) is the same as the cost of consuming low-
value, high-bit data (like backup services, for
example), assuming neither use exceeds the user’s
allotted throughput. And in both cases, with all-you-
can-eat pricing, consumers face a marginal cost of $0
(at least until they reach a cap). The result is that
consumers will tend to over-consume lower-value data
and under-consume higher-value data, and,
correspondingly, content developers will over-invest
in the former and under-invest in the latter. The
ultimate result—the predictable consequence of
mandated neutrality rules—is a net reduction in the
overall value of content both available and consumed,
and network under-investment.
Comments of International Center for Law & Economics and
TechFreedom at 17 (July 17, 2014).
38
In other words, paid prioritization would encourage ISP
innovations such as providing special speed for voice
transmission (for which timeliness and freedom from latency
and jitter—delays or variations in delay in delivery of
packets—are very important), at little or no cost to services
where timeliness (especially timeliness measured in
milliseconds) is relatively unimportant. Similarly, pricing for
extra speed would incentivize edge providers to innovate in
technologies that enable their material to travel faster (or
reduce latency or jitter) even in the absence of improved ISP
technology. To be sure, usage caps (which are permissible for
now under the Order) provide some incentive for edge
providers to invest in innovations enabling faster transit
without extra Mbps and thus enable their customers to enjoy
more service at less risk of exceeding the caps. But the usage
caps are a blunt instrument, as their burden is felt by all
consumers, whereas the sort of pricing increment forbidden by
the Commission would be focused (de facto) on the edge
providers for whom speed and other quality-of-service
features are especially important. Thus paid prioritization
would yield finely tuned incentives for innovation exactly
where it is needed to relieve network congestion. These
innovations could improve the experience for users, driving
demand and therefore investment. The Order nowhere
responds to this contention.
At oral argument it was suggested that with paid
prioritization the speed of the high rollers comes at the
expense of others. This is true and not true. Consider ways
that the United States government applies paid prioritization
in two monopolies that it runs, Amtrak and the U.S. Postal
Service. Both offer especially fast service at a premium. If
the resources devoted to providing extra speed for the
premium passengers and mail were spread evenly among all
passengers and mail, the now slower moving passengers and
mail could travel a bit faster. But the revenues available
39
would be diminished for want of the premium charges, and in
any event it is hard to see how coach passengers or senders of
ordinary mail are injured by the availability of speedier,
costlier service.
Of course one can imagine priority pricing that could
harm consumers. The record contains a declaration
recognizing the possibility and opposing the Commission’s
solution. It is by the author of three of the very economics
papers that the Commission says support its position, Michael
Katz, who was a chief economist of the Commission under
President Clinton. Pointing to the risk of distorting
competition and harming customers through banning pricing
strategies and “full use of network management techniques,”
Katz urged disallowing conduct “only in response to specific
instances of identified harm, rather than imposing sweeping
prohibitions that throw out the good with the bad.” Katz
Declaration at 2-3.
Perhaps the Commission has answers to this. But despite
going out of its way to rely on papers by Katz that were
irrelevant, the Commission never deigned to reflect on the
concerns he expressed about harm to innovation and
consumer welfare.
Furthermore, in its single-minded focus on innovation at
the “edge” (and only some kinds of innovation at that), the
Commission ignored arguments that the process of providing
broadband service is itself one where innovation, not only in
technology but in pricing strategies and business models, can
contribute to maximization of the internet’s value to all users.
A comment of Professor Justin Hurwitz makes the point:
Current research suggests that traditional, best-effort,
non-prioritized routing may yield substantially
inefficient use of the network resource. It may well
40
turn out to be the case that efficient routing of data like
streaming video requires router-based prioritization. It
may even turn out that efficient routing of streaming
video data is necessarily harmful to other data—it may
not be possible to implement a single network
architecture that efficiently handles data with
differentiated characteristics. If this is the case, then it
may certainly be “commercially reasonable” that
streaming video providers pay a premium for the
efficient handling of their data, in order to compensate
for the negative externalities that those uses impose
upon other users and uses.
Comments of Justin (Gus) Hurwitz at 17 (July 18, 2014).
(Professor Hurwitz may have been mistakenly operating on
the belief that the Commission would allow for
“commercially reasonable” practices. The Commission
ultimately rejected a ban on “commercially unreasonable”
practices, Order ¶ 150, but created no defense of commercial
reasonableness for any of its bans. The Commission did
create an exception for “reasonable network management” for
rules other than the ban on paid prioritization. Order ¶ 217.)
Generalizing the point made by Professor Hurwitz:
Unless there is capacity for all packets to go at the same speed
and for that speed to be optimal for the packets for which
speed is most important, there must be either (1) prioritization
or (2) identical speed for all traffic. If all go at the same
speed, then service is below optimal for the packets for which
speed is important. If there is unpaid prioritization, and it is
made available to the senders of packets for which
prioritization is important, then (1) those senders get a free
ride on costs charged in part to other packet senders and (2)
those senders have less incentive to improve their packets’
technological capacity to use less transmission capacity.
41
Allowance of paid prioritization eliminates those two defects
of unpaid prioritization.
One prominent critic of the ban on paid prioritization—
Timothy Brennan, the Commission’s chief economist at the
time the Order was initially in production, who has called the
rules “an economics-free zone”6—offered an alternative that
addressed these concerns. His argument goes as follows. If
some potential content providers might refrain from entry for
fear that poor service might stifle advantageous interactions
with other sites (thus thwarting the virtuous cycle), that fear
could be assuaged by requiring that ISPs meet minimum
quality standards. Brennan writes that
a minimum quality standard does not preclude above-
minimum quality services and pricing schemes that
could improve incentives to improve broadband
networks and facilitate innovation in the development
and marketing of audio and video content. Moreover,
a minimum quality standard should reduce the costs of
and impediments to congestion management necessary
under net neutrality.
Comments of International Center for Law & Economics and
TechFreedom at 48; see also id. at 47. This is a proposal
based on the notion that consumers value the things prevented
by the Order, but it offers an alternative that solves a (perhaps
hypothetical) problem at which the Order is aimed (relieving
content providers of the fear discussed above and thus
ensuring the virtuous cycle), without such significant costs as
6
See http://www.wsj.com/articles/economics-free-obamanet-
1454282427.
42
those the commentators discussed. The Order offers no
response.
Notice that the drag on innovation to which these
commentators allude has a clear adverse effect on the virtuous
cycle invoked by the Commission. To be sure, as a general
matter investment at the edge provider and the ISP level will
be mutually reinforcing, but sound incentives for innovation at
both levels will provide more benefit enhancements to
consumers per dollar invested.
I’ve already noted with bemusement the Commission’s
utter disregard of arguments by two of its former chief
economists, Michael Katz and Tim Brennan, that were
submitted into the record. Lest the point be understated, I
should also mention that the views of yet a third, Thomas W.
Hazlett, also appear in several submissions. CenturyLink
points to Thomas W. Hazlett and Dennis L. Weisman, Market
Power in U.S. Broadband Industries, 38 REVIEW OF
INDUSTRIAL ORGANIZATION 151 (2011), for the proposition
that there is no evidence that broadband providers are earning
supra-normal rates of return. This may be another clue why
the Commission steers clear of any claim of market power.
And the Comments of Daniel Lyons (July 29, 2014), Net
Neutrality and Nondiscrimination Norms in
Telecommunications, 1029 ARIZ. L. REV. 1029 (“Lyons
Comments”) at 1070, cite Thomas W. Hazlett & Joshua D.
Wright, The Law and Economics of Network Neutrality, 45
IND. L. REV. 767, 798 (2012), for the argument that there is
much to be learned from antitrust law, which treats vertical
arrangements on a rule-of-reason basis. To the argument that
antitrust enforcement is costly, time-consuming and
unpredictable, Hazlett and Wright acknowledge the point but
argue that it has been responsible for some of the genuine
triumphs in the telecommunications industry, such as the
43
break-up of AT&T. The Lyons submission finds confirmation
in the Department of Justice’s Ex Parte Submission in the
2010 proceeding, arguing that “antitrust is up to the task of
protecting consumers from vertical contracts that threaten
competition.”7
The silent treatment given to three of its former chief
economists seems an apt sign of the Commission’s thinking as
it pursued its forced march through economic rationality.
The Commission does invoke justifications other than the
“virtuous cycle” to support its Order. For example, it asserts
that “[t]he record . . . overwhelmingly supports the
proposition that the Internet’s openness is critical to its ability
to serve as a platform for speech and civic engagement,” for
which it cites comments from three organizations. Order ¶ 77
& n.118. The Order makes no attempt, however, to explain
how these particular rules, and the language of § 201, relate to
these goals. A raw assertion that the internet’s openness
promotes free speech, while in a general sense surely true (at
least on some assumptions about the meaning of “openness”),
is not enough reasoning to support a ban on paid
prioritization.
Further, having eschewed any claim that it found the ISPs
to possess market power, Order ¶ 11 n.12 (“[T]hese rules do
not address, and are not designed to deal with, the acquisition
or maintenance of market power or its abuse, real or
7
Lyons Comments at 1070 (quoting Thomas W. Hazlett &
Joshua D. Wright, The Law and Economics of Network Neutrality,
45 IND. L. REV. 767, 803 (2012)). See also In re Economic Issues
in Broadband Competition: A National Broadband Plan for Our
Future, Ex Parte Submission of the United States Department of
Justice, 2010 WL 45550 (2010).
44
potential”), the Commission invokes a kind of “market-
power-lite.” The argument fundamentally is that ISPs occupy
a “gatekeeper” role and may use that role to block content
whose flow might injure them: They might want to do this in
order to prioritize their content over that of other content
providers (or perhaps other purposes inconsistent with
efficient use of the net). And they might be able to do this
because impediments to customers’ switching will enable
them to restrict others’ content without incurring a penalty in
the form of customer cancellations. Order ¶¶ 79-82.
The Commission’s reliance on market-power-lite is
puzzling in a number of ways. First, the Commission’s
primary fact—the existence of switching costs—begs the
question of why the Commission did not look at other forms
of evidence for market power. See Horizontal Merger
Guidelines, 11 (saying that “the costs and delays of switching
products” are taken into account in implementing the
hypothetical monopolist test). If the Commission relies on
one possible source of market power, one wonders why it
would not seek data that would pull together the full range of
sources, including market concentration. It may be that the
Department of Justice’s submission in the Notice of Inquiry
that ultimately led to the Order, see In re A National
Broadband Plan for Our Future, 24 F.C.C. Rcd. 4342 (2009),
reviewing some of the data but reaching no conclusion, led the
Commission to believe that a serious inquiry would come up
empty. In re Economic Issues in Broadband Competition: A
National Broadband Plan for Our Future, Ex Parte
Submission of the United States Department of Justice, 2010
WL 45550 (2010).
Second, even a valid finding of market power would not
be much of a step towards validating a ban on paid
prioritization or linking it to § 201. Eight years before the
Order, the Federal Trade Commission ordered a staff study
45
and published the results. Broadband Connectivity
Competition Policy, Federal Trade Commission (2007),
available at
https://www.ftc.gov/sites/default/files/documents/reports/broa
dband-connectivity-competition-policy/v070000report.pdf.
As with DOJ later, the report was non-committal on the issue
of market power but reviewed (1) ISP incentives to
discriminate and not to discriminate under conditions of
market power, id. at 72-75, and (2) varieties of paid
prioritization, assessing their risks and benefits, id. at 83-97.
Instead of a nuanced assessment building on the FTC staff
paper (or for that matter contradicting it), the Commission
adopted a flat prohibition, paying no attention to
circumstances under which specific varieties of paid
prioritization would (again, assuming market power)
adversely or favorably affect the value of the internet to all
users. In the absence of such an evaluation, the Order’s
scathing terms about paid prioritization, used as a justification
for the otherwise unexplained switch in interpretation of
§ 201(b), fall flat. Order ¶ 292.
Finally, the Commission’s argument that paid
prioritization would be used largely by “well-heeled
incumbents,” Order ¶ 126 n.286, not only is ungrounded
factually (so far as appears) but contradicts the Commission’s
decision (and the reasoning behind its decision) not to apply
its paid prioritization ban to types of paid prioritization that
use caching technology.8
8
Since I would conclude that the Commission acted
arbitrarily and capriciously in its reclassification decision
regardless of whether DNS and caching fit the
telecommunications management exception, 47 U.S.C.
§ 153(24), I will not address that.
46
Caching is the storage of frequently accessed data in a
location closer to some users of the data. The provider of the
caching service (in some contexts called a content delivery
network) thus increases the speed at which the end user can
access the data. Order ¶ 372 & n.1052. In effect, then, it
prioritizes the content in question. It is provided sometimes
by ISPs (sometimes at the expense of edge providers) and
sometimes by third parties. Id.For example, Netflix has entered agreements with several
large broadband providers to obtain direct access to their
content delivery networks, i.e., cached storage on their
networks. See Order ¶¶ 198-205, 200 n.504 (noting that
Netflix has entered into direct arrangements with Comcast,
Verizon, Time Warner Cable, and AT&T); see also
http://www.bloomberg.com/bw/articles/2014-02-24/netflixs-
deal-with-comcast-isnt-about-net-neutrality-except-that-it-is.
Contracts under which caching is supplied by broadband
providers or by third parties are often called paid peering
arrangements. Regardless of the name, they involve expenses
incurred directly or indirectly by an edge provider, using a
caching technology to store content closer to end users, so as
to assure accelerated transmission of its content via a
broadband provider.
Although the Commission acknowledges that caching
agreements raise many of the same issues as other types of
paid prioritization, it expressly declines to adopt regulations
governing them, opting instead to hear disputes related to such
arrangements under §§ 201 & 202 and to “continue to
monitor” the situation. Order ¶ 205. The Order defines paid
prioritization as “the management of a broadband provider’s
47
network to directly or indirectly favor some traffic over other
traffic, including through use of techniques such as traffic
shaping, prioritization, resource reservation, or other forms of
preferential traffic management, either (a) in exchange for
consideration (monetary or otherwise) from a third party, or
(b) to benefit an affiliated entity.” Order ¶ 18. If caching is a
form of preferential traffic management—and I cannot see
why it is not—then paid access to broadband providers’
caching facilities violates the paid prioritization ban, or at any
rate would do so but for the Commission’s decision in ¶ 205
that it will evaluate such arrangements on a case-by-case basis
rather than condemn them root-and-branch.
Curiously, although the Commission seems to be
absolutely confident in its policy view on paid prioritization, it
recognizes that it actually lacks experience with the subject.
One objector argued that the Commission could not apply
§ 201(b) to paid prioritization because “no broadband
providers have entered into such arrangements or even have
plans to do so.” Order ¶ 291 n.748 (quoting NCTA
Comments at 29). Instead of contradicting the premise, the
Commission responded by noting that at oral argument in
Verizon a provider had said that but for the Commission’s
2010 rules it would be pursuing such arrangements. Id. So all
the claims about the harm threatened by paid prioritization are
at best projections. We saw earlier the irrelevance of the
studies on which the Commission relied to make those
projections. As to caching, with which it has plenty of
familiarity, the Commission uses the temperate wait-and-see
approach. See Order ¶ 203.
The Commission never seriously tries to reconcile its
hesitancy here with its claims that harms arising from paid
prioritization are so extreme as to call for an abandonment of
its longtime precedents interpreting §§ 202(a) and 201(b).
See Order ¶ 292.
48
The Commission does note that the disputes over caching
“are primarily between sophisticated entities.” Order ¶ 205.
But as it never says how that affects matters, we remain in the
dark on the distinction. Indeed, the size and sophistication of
the entities involved might exacerbate concerns that ISPs are
likely to create a fast lane for large edge providers.
The Commission also notes that deep packet inspection—
along with other similar types of network traffic management
that rely on packet characteristics—is the technical means
underlying the paid prioritization that it condemns. With that
technology, it says, an ISP can examine the content of packets
of data as they go by and prioritize some over others. See
Order ¶ 85. If the Commission believes that this technical
factor plays a role in justifying different treatment, it fails to
explain why. Insofar as it suggests that packet inspection
might be abused, id., it never explains why rules against such
abuse would not fit its historic understanding of unreasonable
or unjust discrimination (and that of the historic price
regulatory systems).
The oddity of the Commission’s view is nicely captured
in its treatment of a pro-competition argument submitted by
ADTRAN opposing the ban on paid prioritization. ADTRAN
argued that the ban (1) would hobble competition by disabling
some edge providers from securing the prioritization that
others obtain via Content Delivery Networks (“CDNs”) (the
premise is that some edge providers, perhaps because of
relatively low volume, do not have access to CDNs; the
Commission does not contest the premise), ADTRAN
Comment at 7, J.A. 275, and (2) would “cement the
advantages enjoyed by the largest edge providers that
presently obtain the functional equivalent of priority access by
constructing their own extensive networks that interconnect
directly with the ISPs.” Order ¶ 128 (quoting ADTRAN
Reply Comments at 18 (September 15, 2014)). The
49
Commission never answers the first objection (except insofar
as it is entangled with the second). As to the second it says
only that it does “not seek to disrupt the legitimate benefits
that may accrue to edge providers that have invested in
enhancing the delivery of their services to end users.” Order
¶ 128. That answer seems to confirm ADTRAN’s complaint:
the Commission’s split policy will “cement the advantages”
secured by those who invested in interconnecting networks.
Oddly, the Commission supports the ban on paid prioritization
as tending to prevent “the bifurcat[ion] of the Internet into a
‘fast’ lane for those willing and able to pay and a ‘slow’ lane
for everybody else,” and as protecting “‘user-generated video
and independent filmmakers’ that lack the resources of major
film studios to pay priority rates.” Order ¶ 126; see also id.
n.286 (quoting a commenter’s concern over advantages going
to “well-heeled incumbents”). In short, then, the Commission
is against slow lanes and fast lanes, and against advantages for
the established or well-heeled—except when it isn’t.
The Commission’s favored treatment of paid peering
(wait-and-see) over paid prioritization (banned) brings to
mind the Commission’s practice of sheltering the historic
AT&T monopoly from competition. See Nuechterlein &
Weiser, 11-12, 40. Contrary to the conventional notion that
only regulatees enjoy the benefits of unreasoned agency favor,
the Order here suggests a different selection of beneficiaries:
dominant edge providers such as Netflix and Google. See
Order ¶ 197 n.492.
Another question posed by the Order but never answered
is the Commission’s idea that if superior services are priced,
their usage will track the size and resources of the firms using
them. One would expect, instead, that firms would pay extra
for extra speed and quality to the extent that those transit
enhancements increased the value of goods and services to the
end user. Firms do not ship medical supplies by air rather
50
than rail or truck because the firms are rich and powerful
(though doubtless some are). They use air freight where
doing so enhances the effectiveness of their service enough to
justify the extra cost. This obvious point explains why
Berninger is a petitioner here.
The Commission’s disparate treatment of two types of
prioritization that appear economically indistinguishable
suggests either that it is ambivalent about the ban itself or that
it has not considered the economics of the various relevant
classes of transactions. Or perhaps the Commission is drawn
to its present stance because it enables it to revel in populist
rhetorical flourishes without a serious risk of disrupting the
net.
Whatever the explanation, the Order fails to offer a
reasoned basis for its view that paid prioritization is “unjust or
unreasonable” within the meaning of § 201, or a reasoned
explanation for why paid prioritization is problematic, or
answers to commenters’ critiques and alternatives. I note that
all these objections would be fully applicable even as applied
to ISPs with market power.
It is true that the Commission has asserted the conclusion
that the supposed beneficent effect of its new rules on edge
providers as a class will (pursuant to its virtuous cycle theory)
enhance demand for internet services and thus demand for
broadband access services. See Order ¶ 410.9 The
9
The Commission also makes several other claims about the
impact of the Order on investment. See Order ¶ 412 (on the
expected growth in Internet traffic driving investment); Order ¶ 414
(claiming a lack of the impact of Title II regulation in other
circumstances); Order ¶ 416 (on indications from a major
infrastructure provider that it would continue investing under Title
51
Commission’s predictions are due considerable deference, but
when its decision shows no sign that it has examined serious
countervailing contentions, that decision is arbitrary and
capricious.
Accordingly, its promulgation of the rules under § 201 is,
absent a better explanation, not in accordance with law.
5 U.S.C. § 706(2)(A) & (C).
B
Alamo-Berninger raise two objections to the
Commission’s reliance on § 706 of the 1996 Act, 47 U.S.C.
§ 1302, as support for its new rules, especially the bans on
paid prioritization, blocking and throttling (i.e., the statutory
theory offered by the Commission as an alternative to its
reliance on § 201). First, Alamo-Berninger develop a
comprehensive claim that § 706 grants the Commission no
power to issue rules. Alamo-Berninger Br. 9-16. On its face
the argument seems quite compelling, see also Pai Dissent, at
370-75, but I agree with the majority that the Verizon court’s
ruling on that issue was not mere dictum, but was necessary to
the court’s upholding of the transparency rules. Maj. Op. 95.
Second, Alamo-Berninger raise, albeit in rather
conclusory form, the argument that “the purpose of section
706 is to move away from exactly the kind of common-carrier
duties imposed by this Order. Thus . . . the rules [adopted in
the Order] frustrate the purpose of the statute and are therefore
unlawful.” Alamo-Berninger Br. 15.
II). None of these addresses the incremental effects of the specific
rules that the Commission adopted.
52
On this issue, the passages of Verizon giving § 706 a
broad reading—“virtually unlimited power to regulate the
Internet,” as Judge Silberman observed in dissent, 740 F.3d at
662—and endorsing the Commission’s applications of its
“virtuous cycle” theory, were dicta, as Alamo-Berninger
argue. Alamo-Berninger Br. 16. With the narrow exception
of the transparency rules, the Verizon court struck down the
rules at issue on the ground that they imposed common-carrier
duties on the broadband carriers, impermissibly so in light of
47 U.S.C. §§ 153(51) (providing that a telecommunications
carrier can be treated “as a common carrier under this [Act]
only to the extent that it is engaged in providing
telecommunications services”) & 332(c)(2) (similar limitation
as to persons engaged in providing “a private mobile
service”). 740 F.3d at 650. The sole rules not struck down
were the transparency rules. Although Judge Silberman
would have upheld them on the basis of 47 U.S.C. § 257, see
740 F.3d at 668 n.9, they are equally sustainable as ancillary
to a narrow reading of § 706, confining it, as Judge Silberman
would have, to remedying problems derived from market
power. See id. at 664-67. Of course, on no understanding
could Verizon provide direct support for the Commission’s
ban on paid prioritization, as that was not before the court.
Although the Alamo-Berninger argument here is
conclusory, the briefing that led to the Verizon dicta was
extensive, Brief for Appellant Verizon at 28, 31, Verizon, 740
F.3d; Reply Brief for Appellant Verizon at 14, Verizon, 740
F.3d, so concern for the Commission’s opportunity to reply is
no basis for disregarding the issue. The Commission’s
reliance on § 706 poses questions of both statutory
interpretation and arbitrary and capricious rulemaking.
Further, paralleling the inadequacies in the Commission’s
reliance on § 201(b), the reasonableness of the regulations
under § 706 is important not only on its own but also for its
53
relevance to the reasonableness of reclassification under Title
II.
There is an irony in the Commission’s coupling of its
decision to subject broadband to Title II and its reliance on
§ 706. As the Alamo-Berninger brief argues, § 706 points
away from the Commission’s classification of broadband
under Title II and its Order. Alamo-Berninger Br. 15. Title II
is legacy legislation from the era of monopoly telephone
service. It has no inherent provision for evolution to a
competitive market. It fits cases where all hope (of
competitive markets) is lost. Section 706, by contrast, as part
of the 1996 Act and by its terms, seeks to facilitate a shift
from regulated monopoly to competition. Indeed, the
Telecommunications Act of 1996 begins by describing itself
as
[a]n Act [t]o promote competition and reduce regulation
in order to secure lower prices and higher quality services
for American telecommunications consumers and
encourage the rapid deployment of new
telecommunications technologies.
Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56. Two central paradoxes of the majority’s position are
how an Act intended to “reduce regulation” is used instead to
increase regulation and how an Act intended to “promote
competition” is used at all in a context in which the
Commission specifically forswears any findings of a lack of
competition.
On top of the generally deregulatory pattern of the 1996
Act, a reading of § 706 as a mandate for virtually unlimited
regulation collides with the simultaneously enacted 47 U.S.C.
§ 230. That section is directed mainly at making sure that
internet service providers and others performing similar
54
functions are not liable for offensive materials that users may
encounter. But it also broadly states that it “is the policy of
the United States . . . to preserve the vibrant and competitive
free market that presently exists for the Internet and other
interactive computer services, unfettered by Federal or State
regulation.” Id. § 230(b)(2). The Commission’s use of § 706
to impose a complex array of regulation on all internet service
provision seems a distinctly bad fit with that declared policy.
Furthermore, consider the specific measures that § 706
encourages:
The Commission and each State commission with
regulatory jurisdiction over telecommunications services
shall encourage the deployment on a reasonable and
timely basis of advanced telecommunications capability
to all Americans . . . by utilizing, in a manner consistent
with the public interest, convenience, and necessity, price
cap regulation, regulatory forbearance, measures that
promote competition in the local telecommunications
market, or other regulating methods that remove barriers
to infrastructure investment.
Section 706(a), 47 U.S.C. § 1302(a) (emphasis added).
The two steps expressly favored are both deregulatory.
Forbearance is obvious; it presupposes statutory authority to
impose some burden on the regulated firms, coupled with
authority to relieve them from that burden—and encourages
the Commission to give relief.
Price cap regulation needs more explanation. It is
normally seen as a device for at least softening the deadening
effects of conventional cost-based rate regulation in natural
monopolies. Such regulation dulls incentives by telling the
regulated firm that if it makes some advance cutting its costs
55
of service, the regulator will promptly step in and snatch away
any profits above its normal allowed rate of return. Of course
there will be a “regulatory lag” between the innovation and
the regulator’s clutching hand, but the regulatory process
overall limits the incentive to innovate to a fraction of what it
would be under competitive conditions. See National Rural
Telecom Association v. FCC, 988 F.2d 174, 177-78 (D.C. Cir.
1993). Price cap regulation, by contrast, looks to general
trends in the cost inputs for providers, typically building in (if
trends support it) an assumption of steadily improving
efficiency. Firms benefit from their innovation except to the
extent that their successes may bring down average costs
across the industry. Id.; for some details of application, see
United States Telephone Association v. FCC, 188 F.3d 521(D.C. Cir. 1999). So it is easy to see how a shift to price cap
regulation might be a suitable transition move for a still
uncompetitive industry. Allowing the firms such benefits
would invite “advance[s]” in telecommunications capability
and would “remove barriers to infrastructure investment,”
which § 706 posits as the goals of agency actions thereunder.
Section 706’s broad language points in the same direction
as the two examples. It speaks of removing “barriers to
infrastructure investment.” Writing in 1996, before the
Commission developed its virtuous cycle theory, the drafters
most likely had in mind the well-known barriers erected by
conventional natural monopoly regulation—not only the bad
incentive effects of cost-based rate regulation but also hurdles
such as agency veto power over new entry into markets.
Section 706 also speaks of measures “that promote
competition.” But here the Commission saddles the
broadband industry with common-carrier obligation, which is
normally seen as a substitute for competition—as I mentioned
earlier, for markets where all hope is lost. Where a shipper or
passenger faces only one carrier, it makes some sense to
56
require that carrier to accept all comers, subject to reasonable
rules of eligibility. This is true even for historic innkeeper
duties, which seem to presuppose a desperate traveler
reaching an isolated inn in the dead of night.
In part II.A I reviewed the distortions likely to flow from
the Commission’s ban on paid prioritization, but here,
considering the Commission’s reliance on a statute that seems
the antithesis of common-carrier legislation, we should
consider the way the common-carrier mandate may thwart
competition and thus contradict the purposes of § 706.
In ordinary markets a firm can enter the field (or expand
its position) by preferential cooperation with one or more
vertically related firms. Antitrust law clearly recognizes this
avenue to enhanced competition. See XI Herbert
Hovenkamp, Antitrust Law: An Analysis of Antitrust
Principles and Their Application ¶ 1811a2 (2006). For
example, in Sewell Plastics v. Coca-Cola, 720 F. Supp. 1196(W.D.N.C. 1989), aff’d per curiam, 1990-2 Trade Cas.
¶ 69,165, 912 F.2d 463 (4th Cir. 1990) (unpublished), the
court considered under § 1 of the Sherman Act an
arrangement among Coca-Cola bottlers to buy at least 80% of
their plastic bottles from a new entrant—a joint venture of the
bottlers themselves. The object was to circumvent the
steadily rising prices charged by plaintiff Sewall Plastics, the
largest supplier of plastic bottles in the country; the joint
venturers saw the agreement as necessary to assure a steady
market for their bottle-making operation and thus justify the
investment, which Sewall could readily have undercut by
dropping its prices. The court found the agreement pro-
competitive because it enabled the new entry, which in turn
lowered prices—just as ordinary economic understanding
would predict. Speaking of requirements contracts but in
terms that seem to match other exclusive vertical
arrangements in workably competitive markets more
57
generally, the Supreme Court has said that they are “of
particular advantage to a newcomer to the field to whom it is
important to know what capital expenditures are justified.”
Standard Oil Co. of California v. United States, 337 U.S. 293,
306-07 (1949). Hovenkamp makes the extension explicitly,
seeing such cases as examples of “the procompetitive use of
exclusive dealing to facilitate market entry where it might not
otherwise occur at all.” Hovenkamp ¶ 1811a2, at 153.
The Commission’s common-carrier mandate, however,
especially as implemented by the Order’s Internet Conduct
Standard, poses serious obstacles to comparable efforts by
ISPs. It prohibits internet providers from “unreasonably
interfer[ing] with or disadvantag[ing] . . . (1) end users’ ability
to select, access, and use . . . the lawful Internet content,
applications, services, or devices of their choice, or (2) edge
providers’ ability to make lawful content, applications,
services, or devices available to end users,” Order ¶ 136, and
is coupled with a multi-factor test, Order ¶¶ 138-145.
Although the Commission for the moment purports to keep an
open mind as to a variant of such preferential arrangements
(“structured data plans”), Order ¶ 152, the Order at minimum
casts a shadow over such arrangements.
Of course the Commission is not an antitrust enforcement
agency. But consider exclusive deals of this sort in relation to
its virtuous cycle theory. Special deals facilitating new entry
among ISPs (or expansion of existing small firms) would
enable investment and growth in broadband, which the
Commission says is its goal (linked, of course, to the
flourishing of edge providers). Yet the Commission says,
without analytical support, that the new rules, generally
requiring all broadband providers to follow a single business
model, are just the ticket for broadband growth and
investment. This seems antithetical to § 706, not to mention
the post-DARPA decades in which innovative individuals and
58
firms spontaneously developed the internet, creating new
businesses and entirely new types of competition. This model
of spontaneous creation is, interestingly, the very model of the
internet sketched out in compelling terms by the FCC’s
current General Counsel before he assumed that post. See
Jonathan Sallet, The Creation of Value: The Broadband Value
Circle and Evolving Market Structures (2011).
In light of this textual analysis of § 706 and its relation to
common carriage, and of Judge Silberman’s arguments in
Verizon, see especially 740 F.3d at 662, and considering the
rules’ antithetical relation to the goals set forth in § 706, I
believe that a threshold to application of § 706 is either (1) a
finding that the regulated firms possess market power or (2) at
least a regulatory history treating the firms as possessing
market power (classically as natural monopolies). Under this
reading of § 706, then, the Commission’s refusal to take a
position on market power wholly undercuts its application of
§ 706.
I must now consider the role of § 706 even if we were to
assume the view taken by the Verizon majority in dicta. Here
all the problems I discussed as to paid prioritization in part
II.A come into play, with the record full of highly plausible
arguments—never so much as acknowledged by the
Commission—as to the distortions that a ban on paid
prioritization would generate (especially if made relatively
coherent by removing the Commission’s puzzling exception
for caching and other paid peering). The Order fails to give
any reasoned support for the notion that the ban on paid
prioritization (or the affiliated and ancillary bans on blocking
and throttling) would spin the virtuous cycle along and
thereby promote investment. It does not respond to arguments
that the ban on paid prioritization would result in increased
network congestion, less innovation, less investment, and
worse service, nor explain why alternatives offered in the
59
rulemaking would not address the supposed problems with
less collateral damage.
In short, the Commission has not taken the initial step of
showing that its reading of § 706 as a virtually limitless
mandate to make the internet “better” is a reasonable reading
to which we owe deference. Entergy Corp. v. Riverkeeper,
Inc., 556 U.S. 208, 218 & n.4 (2009). Without such an
interpretation, the Commission’s rules cannot be sustained
under § 706, even without regard to the reasoning gaps that
were a primary subject of part II.A.
III
Full Service Network challenges the Commission’s
decision to forbear from applying a host of Title II’s
provisions, most particularly 47 U.S.C. §§ 251-52, on the
ground (among others) that forbearance, in the absence of a
showing of competition between local exchange carriers (see
47 U.S.C. §§ 153(32), 153(54)), is arbitrary, capricious, and
contrary to law. I agree to this extent: The Commission’s
forbearance decision highlights the dodgy character of the
Commission’s refusal, in choosing to reclassify broadband
under Title II, to take any position on the question whether the
affected firms have market power. The upshot is to leave the
Commission in a state of hopeless self-contradiction.
In part II I noted that one reason for the Commission’s
evasion of the market-power question may well have been its
intuition that the question might (unlike its handwaving about
the virtuous cycle) be susceptible of a clear answer and that
that answer would be fatal to its expansive mission. The issue
raised by Full Service exposes another flaw in the
Commission’s non-decision. While a finding that the
broadband market was generally competitive would, under
Commission precedent, amply justify its forbearance
60
decisions, here again the Commission refuses to take that
position. Doing so would obviously undermine its decision to
reclassify broadband under Title II. Strategic ambiguity best
fits its policy dispositions. But strategic ambiguity on key
propositions underlying its regulatory choices is just a polite
name for arbitrary and capricious decisionmaking.
* * *
Full Service points out that in justifying application of
Title II the Commission broadly repudiated its 2005 reliance
on the emergence of “competitive and potentially competitive
providers and offerings,” see Order ¶ 330 n.864, saying
instead that “the predictive judgments on which the
Commission relied in the Cable Modem Declaratory Ruling
anticipating vibrant intermodal competition for fixed
broadband cannot be reconciled with current marketplace
realities.” Order ¶ 330; in support of this reading of the Cable
Modem Declaratory Ruling, the Order cites the Wireline
Broadband Classification Order, 20 F.C.C. Rcd. 14853 ¶ 50
(2005). Order ¶ 330 n.864; FSN Br. 18. Besides invoking the
Commission’s conclusory repudiation of its former view, Full
Service stresses § 251’s pro-competitive purposes, points to
data accumulated by the Commission that it contends show
widespread lack of competition among local distribution
facilities, and argues that the state of competition is highly
relevant to the Commission’s exercise of forbearance under
47 U.S.C. § 160, at least with respect to provisions aimed at
stimulating competition. FSN Br. 15, 18-20; 47 U.S.C.
§ 160(b) (requiring Commission to consider whether
forbearance “will promote competitive market conditions”);
cf. Maj. Op. 93-94. Moreover, Full Service specifically ties
its argument to the statutory requirements, noting that, in 47
U.S.C. § 160(b), “Congress directed that the FCC evaluate the
effect of forbearance on competition,” FSN Br. 15, and that
unbundling requirements were intended to promote
61
competition, id. at 20. Full Service dedicates a subsection to
this argument in its brief, id. at 18-20, concluding that
Congress’s intent to promote competition, together with
evidence of a lack of competition nationwide, means that “47
U.S.C. § 160 surely requires more to support forbearance than
an assertion by the F.C.C. that ‘other authorities’ are adequate
and the public interest will be better served by enhancing the
agency’s discretion.” Full Service pursued the same angle in
oral argument, asserting that “you can’t say that waiving
Section 251 is about anything but competition, that’s the
whole purpose of that section.” Oral Arg. Tr. 142.
47 U.S.C. § 251 requires local exchange carriers to
provide competitors with various advantages, mostly notably
“access to network elements on an unbundled basis.” 47
U.S.C. § 251(c)(3); cf. Order ¶ 417 (referring to such access
as “last-mile unbundling”). Full Service seeks such access to
broadband providers’ facilities (governed by the procedures
set out in § 252 for negotiating these agreements), asserting
that such access is necessary to its ability to compete in local
markets for broadband internet. FSN Br. 13; see U.S.
Telecom Ass’n v. FCC, 359 F.3d 554, 561 (D.C. Cir. 2004)
(“The [1996 Act] sought to foster a competitive market in
telecommunications. To enable new firms to enter the field
despite the advantages of the incumbent local exchange
carriers (“ILECS”), the Act gave the Federal Communications
Commission broad powers to require ILECs to make ‘network
elements’ available to other telecommunications carriers.”).
As we shall see, the Commission’s reasoning in the Order
resembles that of the Environmental Protection Agency in
Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014)
(“UARG”). There the Agency interpreted certain permitting
requirements under the Clean Air Act to apply to greenhouse
gases, but acknowledged that applying the thresholds that
Congress specified in the relevant sections would regulate too
62
many firms and create unacceptable costs. The agency
therefore relied on its power to interpret ambiguous statutory
terms to “tailor” the requirements, increasing the permitting
thresholds from 100 or 250 tons to 100,000 tons (i.e., three
orders of magnitude). Id. at 2444-45. The Court held that the
agency’s combined choice—construing an ambiguous
statutory provision to apply while dramatically reducing its
substantive application—was unreasonable. In so holding, it
“reaffirm[ed] the core administrative-law principle that an
agency may not rewrite clear statutory terms to suit its own
sense of how the statute should operate.” Id. at 2446.
The Commission violates that core principle here, where
it seeks to apply Title II to broadband internet providers while
forbearing from the vast majority of Title II’s statutory
requirements. As did EPA in UARG, though perhaps with
less candor, the Commission recognizes that the statutory
provisions naturally flowing from reclassification of
broadband under Title II do not fit the issues posed by
broadband access service. “This is Title II tailored for the
21st Century. Unlike the application of Title II to incumbent
wireline companies in the 20th Century, a swath of utility-
style provisions (including tariffing) will not be applied. . . . In
fact, Title II has never been applied in such a focused way.”
Order ¶ 38.
Although the 1996 Act requires the Commission to
forbear from application of any of the provisions of Title 47’s
Chapter 5 when the conditions of 47 U.S.C. § 160(a) are met,
Pub. L. 104-104, Title IV, § 401 (Feb. 8, 1996), the
Commission’s massive forbearance, without findings that the
forbearance is justified by competitive conditions,
demonstrates its unwillingness to apply the statutory scheme.
Even if the Commission’s forbearance itself were reasonable
standing alone, that forbearance, paired with the
reclassification decision, was arbitrary and capricious. Or, to
63
note the reverse implication, the massive, insufficiently
justified forbearance infects the decision to apply (or purport
to apply) Title II. The logical inconsistency is fatal to both.
(The Commission offers no opposition to USTA’s contention
that reclassification and forbearance are intertwined and
therefore stand or fall together. USTA Intervenor Br. 21.)
While the statute explicitly envisions forbearance, it does
so only under enumerated conditions. To forbear, the
Commission must determine that enforcement of a provision
is not necessary to ensure just, reasonable, and
nondiscriminatory charges and practices or to protect
consumers, 47 U.S.C. § 160(a)(1)-(2), and that forbearance “is
consistent with the public interest,” id. § 160(a)(3). In making
these determinations, “the Commission shall consider whether
forbearance from enforcing the provision or regulation will
promote competitive market conditions, including the extent
to which such forbearance will enhance competition among
providers of telecommunications services.” Id. § 160(b).
These conditions are broadly framed, but the emphasis on
consumer protection, competition, and reasonable,
nondiscriminatory rates is plainly intended to implement the
1996 Act’s policy goal of promoting competition in a context
that had historically been dominated by firms with market
power, while assuring that consumers are protected.
The Commission relied in part on the idea that
enforcement of unbundling rules would unduly deter
investment, specifically that such enforcement would collide
with its “duty to encourage advanced services deployment.”
Order ¶ 514. But, perhaps recognizing that this concern
would apply universally to compulsory unbundling, the
Commission also confronted claims that broadband providers
often have local market power. But it responded to these
claims not with factual refutation but with an assertion that
“persuasive evidence of competition” is unnecessary as a
64
predicate to forbearance. Order ¶ 439. This assertion is in
line with the Commission’s view that, “although there is some
amount of competition for broadband Internet access service,
it is limited in key respects.” Order ¶ 444. The language is
sufficiently vague to cover any state of competition between
outright monopoly and perfect competition.
The Commission claimed that its current forbearance
matches its past practice, offering a list of orders in which it
forbore while giving competition little or no consideration.
Id. ¶ 439 n.1305 (listing cases). But the cited orders do not
vindicate the Commission. They fall into three groups: (1)
orders forbearing from provisions not directly involving
economic issues at all, such as reporting requirements, (2)
orders of clear economic import but with no evident
relationship to competition, and (3) orders evidently related to
competition where the Commission analyzed competition
intensely.
The first group is easily addressed. The Commission’s
grant of forbearance from seemingly noneconomic
requirements is irrelevant to the arbitrariness of its
forbearance from a provision aimed precisely at fostering
competition.
The second set of orders posed economic concerns but no
evident link to competition. In In re Iowa
Telecommunications Services, Inc., 17 F.C.C. Rcd. 24319
¶¶ 17-18 (2002), the Commission granted forbearance to
replace one set of rates with a different set of rates based on
forward-looking cost estimates that it believed better reflected
the petitioner’s operating costs; no finding of competition was
necessary to guide that replacement. In In re Petition for
Forbearance from Application of the Communications Act of
1934, As Amended, to Previously Authorized Servs., 12 F.C.C.
Rcd. 8408 (1997), the Commission forbore from § 203(c),
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allowing the petitioner to refund excess charges to consumers.
As the Commission pointed out in that brief order,
forbearance served consumers and the public interest, since
consumers would receive the refund. Id. ¶ 10.
The Commission’s use of the third group suggests that its
opinion-writing staff was asleep at the switch. The group
comprises three rulings, In re Implementation of Sections 3(n)
& 332 of the Communications Act, 9 F.C.C. Rcd. 1411
(1994),10 In re Petition of Qwest Corp. for Forbearance
Pursuant to 47 U.S.C. § 160(c) in the Omaha Metro.
Statistical Area, 20 F.C.C. Rcd. 19415 (2005), and In re
Petition of Qwest Corp. for Forbearance Pursuant to 47
U.S.C. § 160(c) in the Phoenix, Arizona Metro. Statistical
Area, 25 F.C.C. Rcd. 8622 (2010). Yet in each decision the
Commission conducted a detailed analysis of the state of
competition. See 9 F.C.C. Rcd. 1411 ¶¶ 135-54 (considering
numbers of competitors, falling price trends, etc., and
concluding that “all CMRS service providers, other than
cellular service licensees, currently lack market power,” id. at
¶ 137, and, after an extensive recounting of factors, making a
cautious finding that it could not find cellular “fully
competitive,” id. at ¶ 154); 20 F.C.C. Rcd. 19415 ¶¶ 28-38
(analyzing market shares, supply and demand elasticity, and
firm cost, size and resources to assess competition); 25 F.C.C.
Rcd. 8622 ¶¶ 41-91 (assessing whether incumbent firm had
market power by careful consideration of market definition,
10
This order was later quashed by another order, In re Petition of
Arizona Corp. Comm’n, to Extend State Authority Over Rate and
Entry Regulation of All Commercial Mobile Radio Services & In re
Implementation of Sections 3(N) & 332 of the Communications Act,
10 F.C.C. Rcd. 7824 (1995). Unsurprisingly, that order also
contains a detailed market analysis. See, e.g., id. at ¶¶ 42-68.
66
factors affecting competition, assessment of the effects of
SSNIPs).
I am in no position to assess the quality of these analyses,
but the entire batch of decisions cited in Order ¶ 439 n.1305
provides no support for the idea (indeed, undermines the idea)
that the Commission has an established practice of neglecting
market power in deciding whether to forbear from a provision
such as § 251. (I discuss below an interesting exception, the
order reviewed in EarthLink v. FCC, 462 F.3d 1 (D.C. Cir.
2006).)
Given the Commission’s assertions elsewhere that
competition is limited, and its lack of economic analysis on
either the forbearance issue or the Title II classification, the
combined decisions to reclassify and forbear—and to assume
sufficient competition as well as a lack of it—are arbitrary and
capricious. The Commission acts like a bicyclist who rides
now on the sidewalk, now the street, as personal convenience
dictates.
The inaptness of the Order’s ¶ 439 n.1305 citations of its
prior decisions is confirmed by forbearance decisions that
have reached this court. In U.S. Telecom, 359 F.3d at 578-83,
for example, we considered the Commission’s decision to
forbear from unbundling requirements for the high-frequency
portion of copper and hybrid loops for broadband (but not
from unbundling requirements for the narrowband portion of
hybrid loops). In reviewing that forbearance decision, which
was far narrower than the forbearance before us today, we
gave detailed consideration to the Commission’s analysis of
the likely effects of more limited unbundling on both
investment and competition. We concluded that this
forbearance was not arbitrary and capricious partly because
the Commission had offered “very strong record evidence” of
“robust intermodal competition from cable [broadband]
67
providers,” who maintained a market share of about 60%. Id.
at 582. Both we and the Commission took for granted that
findings of competition were central to any such forbearance
decision. The Commission justified its forbearance in terms
of competition: “A primary benefit of unbundling hybrid
loops—that is, to spur competitive deployment of broadband
services to the mass market—appears to be obviated by the
existence of a broadband service competitor with a leading
position in the marketplace.” In re Review of the Section 251
Unbundling Obligations of Incumbent Local Exch. Carriers,
18 F.C.C. Rcd. 16978 ¶ 292 (2003). Now, when forbearing
from unbundling requirements far more broadly, the
Commission asserts that no findings of competition are
necessary. Rather than justifying its change in position, it
denies having made any change.
It is unnecessary, in concluding that the Commission has
failed to meet its State Farm obligation to reconcile its
reclassification and forbearance decisions, to resolve whether
the Commission has adequately considered competition for
purposes of 47 U.S.C. § 160(b). See Order ¶¶ 501-02. The
Commission’s difficulty, in its mentions of competition, lies
in its attempts to have it both ways. It asserts that there is too
little competition to maintain the classification of broadband
as an information service (remember, that is the sole function
of its discussion of switching costs), but (implicitly) that there
is enough competition for broad forbearance to be appropriate.
This sweet spot, assuming the statute allows the Commission
to find it, is never defined.
In responding to Full Service’s narrow claim—that the
Commission was required to do a competition analysis market
by market—the Commission relies on our decision in
EarthLink v. F.C.C., 462 F.3d 1, 8 (D.C. Cir. 2006), where
indeed we rejected a claim that forbearance from unbundling
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under 47 U.S.C. § 271 required such an analysis. On that
narrow issue, EarthLink fully supports the Commission.
But there are considerable ironies in the Commission’s
supporting its Order here by pointing to Earthlink and the
order reviewed there. The current Order manifests a double
repudiation of the one under review in EarthLink: first, it now
rejects its former interpretation of § 706, and second, it
reflects the Commission’s complete abandonment of its views
on the force of intermodal competition.
In the Earthlink order, the Commission invoked § 706 for
the proposition that relieving local distribution companies
from regulation would encourage investment, and thus would
let competition bloom, sufficiently to offset any loss to
competition from refusing to order unbundling. Now, of
course, the Commission invokes § 706 for the idea that
saddling such firms with regulation will encourage
investment.
And in the Earthlink order the Commission relied on its
now repudiated idea that intermodal competition would play a
big role in assuring adequate competition. See 462 F.3d at 7,
citing Petition for Forbearance of the Verizon Telephone
Companies Pursuant to 47 U.S.C. § 160(c), 19 F.C.C. Rcd.
21,496 ¶¶ 21-23. Now, without undertaking the
inconvenience of a market power analysis, the Commission
has rendered its confidence in intermodal competition
“inoperative” (to borrow a phrase from the Watergate
proceedings) for purposes of reclassification, but (perhaps)
not for unbundling.
In sum, the Commission chose to regulate under a Title
designed to temper the effects of market power by close
agency supervision of firm conduct, but forbore from
provisions aimed at constraining market power by compelling
69
firms to share their facilities, all with no effort to perform a
market power analysis. The Order’s combined
reclassification-forbearance decision is arbitrary and
capricious.
* * *
The ultimate irony of the Commission’s unreasoned
patchwork is that, refusing to inquire into competitive
conditions, it shunts broadband service onto the legal track
suited to natural monopolies. Because that track provides
little economic space for new firms seeking market entry or
relatively small firms seeking expansion through innovations
in business models or in technology, the Commission’s
decision has a decent chance of bringing about the conditions
under which some (but by no means all) of its actions could
be grounded—the prevalence of incurable monopoly.
I would vacate the Order.