Verizon v. FCC ( 2014 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 9, 2013 Decided January 14, 2014
No. 11-1355
VERIZON,
APPELLANT
v.
FEDERAL COMMUNICATIONS COMMISSION,
APPELLEE
INDEPENDENT TELEPHONE & TELECOMMUNICATIONS
ALLIANCE, ET AL.,
INTERVENORS
Consolidated with 11-1356
On Petition For Review and Notice of Appeal
of an Order of the Federal Communications Commission
Helgi C. Walker argued the cause for appellant/petitioner
Verizon. With her on the briefs were Eve Klindera Reed,
William S. Consovoy, Brett A. Shumate, Walter E. Dellinger,
Anton Metlitsky, Samir C. Jain, Carl W. Northrup, Michael
Lazarus, Andrew Morentz, Michael E. Glover, William H.
Johnson, Stephen B. Kinnaird, and Mark A. Stachiw. John T.
Scott III and Edward Shakin entered appearances.
2
Stephen B. Kinnaird, Carl W. Northrup, Michael Lazarus,
Andrew Morentz, and Mark A. Stachiw were on the briefs for
appellants/petitioners MetroPCS Communications, Inc., et al.
John P. Elwood, Sam Kazman, Randolph May, and Ilya
Shapiro were on the brief for amici curiae The Competitive
Enterprise Institute, et al. in support of appellant/petitioner.
Russell P. Hanser, Bryan N. Tramont, and Quentin Riegel
were on the brief for amicus curiae National Association of
Manufacturers in support of appellant/petitioner.
Kenneth T. Cuccinelli, II, Attorney General, Office of the
Attorney General for the Commonwealth of Virginia, E.
Duncan Getchell, Jr., Solicitor General, and Wesley G. Russell,
Jr., Deputy Attorney General, were on the brief for amici
curiae The Commonwealth of Virginia, et al. in support of
appellant/petitioner.
Sean A. Lev, General Counsel, Federal Communications
Commission, argued the cause for appellee/respondent. With
him on the briefs were Catherine G. O’Sullivan and Nickolai
G. Levin, Attorneys, U.S. Department of Justice, Peter
Karanjia, Deputy General Counsel, Federal Communications
Commission, Jacob M. Lewis, Associate General Counsel, and
Joel Marcus and Matthew J. Dunne, Counsel. Robert J.
Wiggers, Attorney, U.S. Department of Justice, R. Craig
Lawrence, Assistant U.S. Attorney, and Richard K. Welch,
Deputy Associate General Counsel, Federal Communications
Commission, entered appearances.
Pantelis Michalopoulos argued the cause for intervenors.
With him on the brief were Stephanie A. Roy, Andrew W. Guhr,
Henry Goldberg, David C. Bergmann, Kurt Matthew Rogers,
and Brendan Daniel Kasper. Markham C. Erickson, Jeffrey J.
3
Binder, Harold J. Feld and James B. Ramsay entered
appearances.
Sean H. Donahue and David T. Goldberg were on the brief
for amici curiae Reed Hundt, et al. in support of
appellee/respondent.
E. Joshua Rosenkranz, Gabriel M. Ramsey, Thomas J.
Gray, and Christina Von der Ahe were on the brief for amici
curiae Venture Capital Investors in support of
appellee/respondent.
Andrew Jay Schwartzman was on the brief for amicus
curiae Tim Wu in support of appellee/respondent.
John Blevins was on the brief for amici curiae Internet
Engineers and Technologists in support of
appellee/respondent.
Kevin S. Bankston and Emma J. Llansó were on the brief
for amici curiae The Center for Democracy and Technology, et
al. in support of appellee/respondent.
Before: ROGERS and TATEL, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge TATEL.
Opinion concurring in part and dissenting in part filed by
Senior Circuit Judge SILBERMAN.
TATEL, Circuit Judge: For the second time in four years,
we are confronted with a Federal Communications
Commission effort to compel broadband providers to treat all
Internet traffic the same regardless of source—or to require, as
4
it is popularly known, “net neutrality.” In 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 open network management practices. After Comcast,
the Commission issued the order challenged here—In re
Preserving the Open Internet, 25 F.C.C.R. 17905 (2010) (“the
Open Internet Order”)—which imposes disclosure,
anti-blocking, and anti-discrimination requirements on
broadband providers. As we explain in this opinion, the
Commission has established that section 706 of the
Telecommunications Act of 1996 vests it with affirmative
authority to enact measures encouraging the deployment of
broadband infrastructure. The Commission, we further hold,
has reasonably interpreted section 706 to empower it to
promulgate rules governing broadband providers’ treatment of
Internet traffic, and its justification for the specific rules at
issue here—that they will preserve and facilitate the “virtuous
circle” of innovation that has driven the explosive growth of
the Internet—is reasonable and supported by substantial
evidence. That said, even though the Commission has general
authority to regulate in this arena, it may not impose
requirements that contravene express statutory mandates.
Given that the Commission has chosen to classify broadband
providers in a manner that exempts them from treatment as
common carriers, the Communications Act expressly prohibits
the Commission from nonetheless regulating them as such.
Because the Commission has failed to establish that the
anti-discrimination and anti-blocking rules do not impose per
se common carrier obligations, we vacate those portions of the
Open Internet Order.
5
I.
Understanding this case requires an understanding of the
Internet, the Internet marketplace, and the history of the
Commission’s regulation of that marketplace.
Four major participants in the Internet marketplace are
relevant to the issues before us: backbone networks, broadband
providers, edge providers, and end users. Backbone networks
are interconnected, long-haul fiber-optic links and high-speed
routers capable of transmitting vast amounts of data. See In re
Verizon Communications Inc. and MCI, Inc. Applications for
Approval of Transfer of Control, 20 F.C.C.R. 18433, 18493
¶ 110 (2005). Internet users generally connect to these
networks—and, ultimately, to one another—through local
access providers like petitioner Verizon, who operate the
“last-mile” transmission lines. See Open Internet Order, 25
F.C.C.R. at 17908, 17915 ¶¶ 7, 20. In the Internet’s early days,
most users connected to the Internet through dial-up
connections over local telephone lines. See In re Inquiry
Concerning High-Speed Access to the Internet Over Cable and
Other Facilities, 17 F.C.C.R. 4798, 4802–03 ¶ 9 (2002)
(“Cable Broadband Order”). Today, access is generally
furnished through “broadband,” i.e., high-speed
communications technologies, such as cable modem service.
See In re Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans in a
Reasonable and Timely Fashion, 25 F.C.C.R. 9556, 9557,
9558–59 ¶¶ 1, 4 (2010) (“Sixth Broadband Deployment
Report”); 47 U.S.C. § 1302(d)(1). Edge providers are those
who, like Amazon or Google, provide content, services, and
applications over the Internet, while end users are those who
consume edge providers’ content, services, and applications.
See Open Internet Order, 25 F.C.C.R. at 17910 ¶ 13. To pull
the whole picture together with a slightly oversimplified
6
example: when an edge provider such as YouTube transmits
some sort of content—say, a video of a cat—to an end user,
that content is broken down into packets of information, which
are carried by the edge provider’s local access provider to the
backbone network, which transmits these packets to the end
user’s local access provider, which, in turn, transmits the
information to the end user, who then views and hopefully
enjoys the cat.
These categories of entities are not necessarily mutually
exclusive. For example, end users may often act as edge
providers by creating and sharing content that is consumed by
other end users, for instance by posting photos on Facebook.
Similarly, broadband providers may offer content,
applications, and services that compete with those furnished by
edge providers. See Open Internet Order, 25 F.C.C.R. at 17915
¶ 20.
Proponents of net neutrality—or, to use the Commission’s
preferred term, “Internet openness”—worry about the
relationship between broadband providers and edge providers.
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. 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.
7
Since the advent of the Internet, the Commission has
confronted the questions of whether and how it should regulate
this communications network, which, generally speaking, falls
comfortably within the Commission’s jurisdiction over “all
interstate and foreign communications by wire or radio.” 47
U.S.C. § 152(a). One of the Commission’s early efforts
occurred in 1980, when it adopted what is known as the
Computer II regime. The Computer II rules drew a line
between “basic” services, which were subject to regulation
under Title II of the Communications Act of 1934 as common
carrier services, see 47 U.S.C. §§ 201 et seq., and “enhanced”
services, which were not. See In re Amendment of Section
64.702 of the Commission’s Rules and Regulations, 77
F.C.C.2d 384, 387 ¶¶ 5–7 (1980) (“Second Computer
Inquiry”). What distinguished “enhanced” services from
“basic” services was the extent to which they involved the
processing of information rather than simply its transmission.
Id. at 420–21 ¶¶ 96–97. For example, the Commission
characterized telephone service as a “basic” service, see id. at
419 ¶ 94, because it involved a “pure” transmission that was
“virtually transparent in terms of its interaction with customer
supplied information,” id. at 420 ¶ 96. Services that involved
“computer processing applications . . . used to act on the
content, code, protocol, and other aspects of the subscriber’s
information”—a definition that encompassed the services
needed to connect an end user to the Internet—constituted
enhanced services. Id. at 420 ¶ 97.
By virtue of their designation as common carriers,
providers of basic services were subject to the duties that apply
to such entities, including that they “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.
8
§ 201(b). Although the Commission applied no such
restrictions to purveyors of enhanced services, it imposed
limitations on certain entities, like AT&T, which owned the
transmission facilities over which enhanced services would be
provided. Second Computer Inquiry, 77 F.C.C.2d at 473–74
¶¶ 228–29. These restrictions included, most significantly,
requirements that such entities offer enhanced services only
through a completely separate corporate entity and that they
offer their transmissions facilities to other enhanced service
providers on a common carrier basis. Id.
For more than twenty years, the Commission applied some
form of the Computer II regime to Internet services offered
over telephone lines, then the predominant way in which most
end users connected to the Internet. See, e.g., In re Appropriate
Framework for Broadband Access to the Internet Over
Wireline Facilities, 17 F.C.C.R. 3019, 3037–40 ¶¶ 36–42
(2002). Telephone companies that provided the actual wireline
facilities over which information was transmitted were limited
in the manner in which they could provide the enhanced
services necessary to permit end users to access the Internet. Id.
at 3040 ¶ 42. They were also required to permit third-party
Internet Service Providers (ISPs), such as America Online, to
access their wireline transmission facilities on a common
carrier basis. Id.
It was against this background that Congress passed the
Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56. Tracking the Computer II distinction between basic
and enhanced services, the Act defines two categories of
entities: telecommunications carriers, which provide the
equivalent of basic services, and information-service
providers, which provide the equivalent of enhanced services.
47 U.S.C. § 153(24), (50), (51), (53); see National Cable &
Telecommunications Ass’n v. Brand X Internet Services, 545
9
U.S. 967, 976–77 (2005). The Act subjects
telecommunications carriers, but not information-service
providers, to Title II common carrier regulation. 47 U.S.C.
§ 153(53); Brand X, 545 U.S. at 975–76.
Pursuant to the Act, and paralleling its prior practice under
the Computer II regime, the Commission then classified
Digital Subscriber Line (DSL) services—broadband Internet
service furnished over telephone lines—as
“telecommunications services.” See In re Deployment of
Wireline Services Offering Advanced Telecommunications
Capability, 13 F.C.C.R. 24012, 24014, 24029–30 ¶¶ 3, 35–36
(1998) (“Advanced Services Order”). DSL services, the
Commission concluded, involved pure transmission
technologies, and so were subject to Title II regulation. Id. at
24030–31 ¶ 35. A DSL provider could exempt its Internet
access services, but not its transmission facilities themselves,
from Title II common carrier restrictions only by operating
them through a separate affiliate (i.e., a quasi-independent
ISP). Id. at 24018 ¶ 13.
Four years later, however, the Commission took a
different approach when determining how to regulate
broadband service provided by cable companies. Instead of
viewing cable broadband providers’ transmission and
processing of information as distinct services, the Commission
determined that cable broadband providers—even those that
own and operate the underlying last-mile transmission
facilities—provide a “single, integrated information service.”
Cable Broadband Order, 17 F.C.C.R. at 4824 ¶ 41. Because
cable broadband providers were thus not telecommunications
carriers at all, they were entirely exempt from Title II
regulation. Id. at 4802 ¶ 7.
10
In National Cable & Telecommunications Ass’n v. Brand
X Internet Services, 545 U.S. 967 (2005), the Supreme Court
upheld the Commission’s classification of cable broadband
providers. The Court concluded that the Commission’s ruling
represented a reasonable interpretation of the 1996
Telecommunications Act’s ambiguous provision defining
telecommunications service, see id. at 991–92, and that the
Commission’s determination was entitled to deference
notwithstanding its apparent inconsistency with the agency’s
prior interpretation of that statute, see id. at 981, 1000–01.
Following Brand X, the Commission classified other types
of broadband providers, such as DSL and wireless, which
includes those offering broadband Internet service for cellular
telephones, as information service providers exempt from Title
II’s common carrier requirements. See In re Appropriate
Framework for Broadband Access to the Internet Over
Wireline Facilities, 20 F.C.C.R. 14853, 14862 ¶ 12 (2005)
(“2005 Wireline Broadband Order”); In re Appropriate
Regulatory Treatment for Broadband Access to the Internet
Over Wireless Networks, 22 F.C.C.R. 5901, 5901–02 ¶ 1
(2007) (“Wireless Broadband Order”); In re United Power
Line Council’s Petition for Declaratory Ruling Regarding the
Classification of Broadband over Power Line Internet Access
Service as an Information Service, 21 F.C.C.R. 13281, 13281
¶ 1 (2006). Despite calls to revisit these classification orders,
see, e.g., Open Internet Order, 25 F.C.C.R. at 18046
(concurring statement of Commissioner Copps), the
Commission has yet to overrule them.
But even as the Commission exempted broadband
providers from Title II common carrier obligations, it left open
the possibility that it would nonetheless regulate these entities.
In the Cable Broadband Order, for example, the Commission
sought comment on whether and to what extent it should utilize
11
the powers granted it under Title I of the Communications Act
to impose restrictions on cable broadband providers. Cable
Broadband Order, 17 F.C.C.R. at 4842 ¶ 77. Subsequently, in
conjunction with the 2005 Wireline Broadband Order, the
Commission issued a Policy Statement in which it signaled 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 F.C.C.R. 14986, 14988 ¶ 4 (2005). 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 F.C.C.R. at 14904 ¶ 96.
The Commission did just that when, two years later,
several subscribers to Comcast’s cable broadband service
complained that the company had interfered with their use of
certain peer-to-peer networking applications. See In re Formal
Complaint of Free Press and Public Knowledge Against
Comcast Corp. for Secretly Degrading Peer-to-Peer
Applications, 23 F.C.C.R. 13028 (2008) (“Comcast Order”).
Finding that Comcast’s impairment of these applications had
“contravene[d] . . . federal policy,” id. at 13052 ¶ 43, the
Commission ordered the company to adhere to a new approach
for managing bandwidth demand and to disclose the details of
that approach, id. at 13059–60 ¶ 54. The Commission justified
its order as an exercise of what courts term its “ancillary
jurisdiction,” see id. at 13034–41 ¶¶ 14–22, a power that flows
from the broad language of Communications Act section 4(i).
See 47 U.S.C. § 154(i) (“The Commission may 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.”); see generally American
Library Ass’n v. FCC, 406 F.3d 689, 700–03 (D.C. Cir. 2005).
12
We have held that the Commission may exercise such ancillary
jurisdiction where two conditions are met: “(1) the
Commission’s general jurisdictional grant under Title I covers
the regulated subject and (2) the regulations are reasonably
ancillary to the Commission’s effective performance of its
statutorily mandated responsibilities.” American Library
Ass’n, 406 F.3d at 691–92.
In Comcast, we vacated the Commission’s order, holding
that the agency failed to demonstrate that it possessed authority
to regulate broadband providers’ network management
practices. 600 F.3d at 644. Specifically, we held that the
Commission had identified no grant of statutory authority to
which the Comcast Order was reasonably ancillary. Id. at 661.
The Commission had principally invoked statutory provisions
that, though setting forth congressional policy, delegated no
actual regulatory authority. Id. at 651–58. These provisions, we
concluded, were insufficient because permitting the agency to
ground its exercise of ancillary jurisdiction in policy
statements alone would contravene the “‘axiomatic’ principle
that ‘administrative agencies may [act] only pursuant to
authority delegated to them by Congress.’” Id. at 654
(alteration in original) (quoting American Library Ass’n, 406
F.3d at 691). We went on to reject the Commission’s
invocation of a handful of other statutory provisions that,
although they could “arguably be read to delegate regulatory
authority,” id. at 658, provided no support for the precise order
at issue, id. at 658–61.
While the Comcast matter was pending, the Commission
sought comment on a set of proposed rules that, with some
modifications, eventually became the rules at issue here. See In
re Preserving the Open Internet, 24 F.C.C.R. 13064 (2009). In
support, it relied on the same theory of ancillary jurisdiction it
had asserted in the Comcast Order. See id. at 13099 ¶¶ 83–85.
13
But after our decision in Comcast undermined that theory, the
Commission sought comment on whether and to what extent it
should reclassify broadband Internet services as
telecommunications services. See In re Framework for
Broadband Internet Service, 25 F.C.C.R. 7866, 7867 ¶ 2
(2010). Ultimately, however, rather than reclassifying
broadband, the Commission adopted the Open Internet Order
that Verizon challenges here. See 25 F.C.C.R. 17905.
The Open Internet Order establishes two sets of
“prophylactic rules” designed to “incorporate longstanding
openness principles that are generally in line with current
practices.” 25 F.C.C.R. at 17907 ¶ 4. One set of rules applies to
“fixed” broadband providers—i.e., those furnishing residential
broadband service and, more generally, Internet access to end
users “primarily at fixed end points using stationary
equipment.” Id. at 17934 ¶ 49. The other set of requirements
applies to “mobile” broadband providers—i.e., those
“serv[ing] end users primarily using mobile stations,” such as
smart phones. Id.
The Order first imposes a transparency requirement on
both fixed and mobile broadband providers. Id. at 17938 ¶ 56.
They must “publicly disclose accurate information regarding
the network management practices, performance, and
commercial terms of [their] broadband Internet access
services.” Id. at 17937 ¶ 54 (fixed providers); see also id. at
17959 ¶ 98 (mobile providers).
Second, the Order imposes anti-blocking requirements on
both types of broadband providers. It prohibits fixed
broadband providers from “block[ing] lawful content,
applications, services, or non-harmful devices, subject to
reasonable network management.” Id. at 17942 ¶ 63. Similarly,
the Order forbids mobile providers from “block[ing]
14
consumers from accessing lawful websites” and from
“block[ing] applications that compete with the provider’s
voice or video telephony services, subject to reasonable
network management.” Id. at 17959 ¶ 99. The Order defines
“reasonable network management” as practices designed to
“ensur[e] network security and integrity,” “address[] traffic
that is unwanted by end users,” “and reduc[e] or mitigat[e] the
effects of congestion on the network.” Id. at 17952 ¶ 82. The
anti-blocking rules, the Order explains, not only prohibit
broadband providers from preventing their end-user
subscribers from accessing a particular edge provider
altogether, but also prohibit them “from impairing or
degrading particular content, applications, services, or
non-harmful devices so as to render them effectively
unusable.” Id. at 17943 ¶ 66.
Third, the Order imposes an anti-discrimination
requirement on fixed broadband providers only. Under this
rule, such providers “shall not unreasonably discriminate in
transmitting lawful network traffic over a consumer’s
broadband Internet access service. Reasonable network
management shall not constitute unreasonable discrimination.”
Id. at 17944 ¶ 68. The Commission explained that
“[u]se-agnostic discrimination”—that is, discrimination based
not on the nature of the particular traffic involved, but rather,
for example, on network management needs during periods of
congestion—would generally comport with this requirement.
Id. at 17945–46 ¶ 73. Although the Commission never
expressly said that the rule forbids broadband providers from
granting preferred status or services to edge providers who pay
for such benefits, it warned that “as a general matter, it is
unlikely that pay for priority would satisfy the ‘no
unreasonable discrimination’ standard.” Id. at 17947 ¶ 76.
Declining to impose the same anti-discrimination requirement
on mobile providers, the Commission explained that
15
differential treatment of such providers was warranted because
the mobile broadband market was more competitive and more
rapidly evolving than the fixed broadband market, network
speeds and penetration were lower, and operational constraints
were higher. See id. at 17956–57 ¶¶ 94–95.
As authority for the adoption of these rules, the
Commission invoked a plethora of statutory provisions. See id.
at 17966–81 ¶¶ 115–37. In particular, the Commission relied
on section 706 of the 1996 Telecommunications Act, which
directs it to encourage the deployment of broadband
telecommunications capability. See 47 U.S.C. § 1302(a), (b).
According to the Commission, the rules furthered this statutory
mandate by preserving unhindered the “virtuous circle of
innovation” that had long driven the growth of the Internet.
Open Internet Order, 25 F.C.C.R. at 17910–11 ¶ 14; see id. at
17968, 17972 ¶¶ 117, 123. Internet openness, it reasoned, 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 turn leads to further innovation and
development by edge providers. Id. at 17910–11 ¶ 14. If, the
Commission continued, broadband providers were to disrupt
this “virtuous circle” by “[r]estricting edge providers’ ability to
reach end users, and limiting end users’ ability to choose which
edge providers to patronize,” they would “reduce the rate of
innovation at the edge and, in turn, the likely rate of
improvements to network infrastructure.” Id. at 17911 ¶ 14.
Two members of the Commission dissented. As they saw
it, the Open Internet Order rules not only exceeded the
Commission’s lawful authority, but would also stifle rather
than encourage innovation. See Open Internet Order, 25
F.C.C.R. at 18049–81 (Dissenting Statement of Commissioner
16
McDowell); id. at 18084–98 (Dissenting Statement of
Commissioner Baker).
Verizon filed a petition for review of the Open Internet
Order pursuant to 47 U.S.C. § 402(a) as well as a notice of
appeal pursuant to 47 U.S.C. § 402(b). Because “we plainly
have jurisdiction by the one procedural route or the other,” “we
need not decide which is the more appropriate vehicle for our
review.” Cellco Partnership v. FCC, 700 F.3d 534, 541 (D.C.
Cir. 2012) (internal quotation marks omitted).
Verizon challenges the Open Internet Order on several
grounds, including that the Commission lacked affirmative
statutory authority to promulgate the rules, that its decision to
impose the rules was arbitrary and capricious, and that the rules
contravene statutory provisions prohibiting the Commission
from treating broadband providers as common carriers. In Part
II, we consider Verizon’s attacks on the Commission’s
affirmative statutory authority and its justification for
imposing these rules. We consider the common carrier issue in
Part III. Given our disposition of the latter issue, we have no
need to address Verizon’s additional contentions that the Order
violates the First Amendment and constitutes an
uncompensated taking.
Before beginning our analysis, we think it important to
emphasize that although the question of net neutrality
implicates serious policy questions, which have engaged
lawmakers, regulators, businesses, and other members of the
public for years, our inquiry here is relatively limited.
“Regardless of how serious the problem an administrative
agency seeks to address, . . . it may not exercise its authority in
a manner that is inconsistent with the administrative structure
that Congress enacted into law.” Ragsdale v. Wolverine World
Wide, Inc., 535 U.S. 81, 91 (2002) (internal quotation marks
17
omitted). Accordingly, our task as a reviewing court is not to
assess the wisdom of the Open Internet Order regulations, but
rather to determine whether the Commission has demonstrated
that the regulations fall within the scope of its statutory grant of
authority.
II.
The Commission cites numerous statutory provisions it
claims grant it the power to promulgate the Open Internet
Order rules. But we start and end our analysis with section 706
of the 1996 Telecommunications Act, which, as we shall
explain, furnishes the Commission with the requisite
affirmative authority to adopt the regulations.
Section 706(a) provides:
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
(including, in particular, elementary and secondary
schools and classrooms) 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.
47 U.S.C. § 1302(a). Section 706(b), in turn, requires the
Commission to conduct a regular inquiry “concerning the
availability of advanced telecommunications capability.” Id.
§ 1302(b). It further provides that should the Commission find
that “advanced telecommunications capability is [not] being
18
deployed to all Americans in a reasonable and timely fashion,”
it “shall take immediate action to accelerate deployment of
such capability by removing barriers to infrastructure
investment and by promoting competition in the
telecommunications market.” Id. The statute defines
“advanced telecommunications capability” to include
“broadband telecommunications capability.” Id. § 1302(d)(1).
Verizon contends that neither subsection (a) nor (b) of
section 706 confers any regulatory authority on the
Commission. As Verizon sees it, the two subsections amount
to nothing more than congressional statements of policy.
Verizon further contends that even if either provision grants
the Commission substantive authority, the scope of that grant is
not so expansive as to permit the Commission to regulate
broadband providers in the manner that the Open Internet
Order rules do. In addressing these questions, we apply the
familiar two-step analysis of Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984). As the
Supreme Court has recently made clear, Chevron deference is
warranted even if the Commission has interpreted a statutory
provision that could be said to delineate the scope of the
agency’s jurisdiction. See City of Arlington v. FCC, 133 S. Ct.
1863, 1874 (2013). Thus, if we determine that the
Commission’s interpretation of section 706 represents a
reasonable resolution of a statutory ambiguity, we must defer
to that interpretation. See Chevron, 467 U.S. at 842–43. The
Chevron inquiry overlaps substantially with that required by
the Administrative Procedure Act (APA), pursuant to which
we must also determine whether the Commission’s actions
were “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A);
see National Ass’n of Regulatory Utility Commissioners v.
Interstate Commerce Commission, 41 F.3d 721, 726–27 (D.C.
Cir. 1994).
19
A.
This is not the first time the Commission has asserted that
section 706(a) grants it authority to regulate broadband
providers. Advancing a similar argument in Comcast, the
Commission contended that section 706(a) provided a
statutory hook for its exercise of ancillary jurisdiction.
Although we thought that section 706(a) might “arguably be
read to delegate regulatory authority to the Commission,” we
concluded that the Commission could not rely on this provision
to justify the Comcast Order because it had previously
determined, in the still-binding Advanced Services Order, that
the provision “‘does not constitute an independent grant of
authority.’” Comcast, 600 F.3d at 658 (quoting Advanced
Services Order, 13 F.C.C.R. at 24047 ¶ 77). We rejected the
Commission’s claim that the Advanced Services Order
concluded only that section 706(a) granted it no forbearance
authority—authority to relieve regulated entities of statutory
obligations to which they would otherwise be subject, see 47
U.S.C. § 160—over and above that given it elsewhere in the
Communications Act. Comcast, 600 F.3d at 658. Indeed, the
Advanced Services Order was clearly far broader, explicitly
declaring: “section 706(a) does not constitute an independent
grant of forbearance authority or of authority to employ other
regulating methods.” Advanced Services Order, 13 F.C.C.R. at
24044 ¶ 69 (emphasis added). Because the Commission had
“never questioned, let alone overruled, that understanding of
section 706,” we held that it “remain[ed] bound” by its prior
interpretation. Comcast, 600 F.3d at 659.
But the Commission need not remain forever bound by the
Advanced Services Order’s restrictive reading of section
706(a). “An initial agency interpretation is not instantly carved
in stone.” Chevron, 467 U.S. at 863. The APA’s requirement of
reasoned decision-making ordinarily demands that an agency
20
acknowledge and explain the reasons for a changed
interpretation. See FCC v. Fox Television Stations, Inc., 556
U.S. 502, 515 (2009) (“An agency may not . . . depart from a
prior policy sub silentio or simply disregard rules that are still
on the books.”); Brand X, 545 U.S. at 981 (“Unexplained
inconsistency is, at most, a reason for holding an interpretation
to be an arbitrary and capricious change from agency practice
under the Administrative Procedure Act.”). But so long as an
agency “adequately explains the reasons for a reversal of
policy,” its new interpretation of a statute cannot be rejected
simply because it is new. Brand X, 545 U.S. at 981. At the time
we issued our Comcast opinion, the Commission failed to
satisfy this requirement, as its assertion that section 706(a)
gave it regulatory authority represented, at that point, an
attempt to “‘depart from a prior policy sub silentio.’” Comcast,
600 F.3d at 659 (quoting Fox, 556 U.S. at 515).
In the Open Internet Order, however, the Commission has
offered a reasoned explanation for its changed understanding
of section 706(a). To be sure, the Open Internet Order evinces
a palpable reluctance to accept this court’s interpretation of the
Advanced Services Order, as the Commission again attempts
to reconcile its current understanding of section 706(a) with its
prior interpretation. See Open Internet Order, 25 F.C.C.R. at
17969 ¶ 119 (characterizing the Advanced Services Order as
being “consistent with [the Commission’s] present
understanding”). Of course, such reluctance hardly makes the
Commission’s decision unreasonable, as it is free to express its
disagreement with this court’s holdings. After all, even a
federal agency is entitled to a little pride. Moreover, although
the Open Internet Order inaccurately describes the Advanced
Services Order’s actual conclusion, it does describe what the
Order likely should have concluded. Specifically, the
Advanced Services Order’s rejection of section 706(a) as a
source of substantive authority rested almost entirely on the
21
notion that a contrary interpretation would somehow permit the
Commission to evade express statutory commands forbidding
it from using its forbearance authority in certain circumstances.
See Advanced Services Order, 13 F.C.C.R. at 24045–46 ¶¶ 72–
73. This makes little sense. By the same reasoning, one might
say that Article I of the Constitution gives Congress no
substantive authority because Congress might otherwise be
able to use that authority in a way that violates the Ex Post
Facto Clause. The Open Internet Order characterizes the
Advanced Services Order as simply “disavowing a reading of
Section 706(a) that would allow the agency to trump specific
mandates of the Communications Act,” thus honoring “the
interpretive canon that ‘[a] specific provision . . . controls one[]
of more general application.’” Open Internet Order, 25
F.C.C.R. at 17969 ¶¶ 118–119 (quoting Bloate v. United
States, 559 U.S. 196, 207 (2010)). Perhaps the Commission
should have more openly acknowledged that it was not actually
describing the Advanced Services Order, but instead rewriting
it in a more logical manner. In this latter task, however, the
Commission succeeded: its reinterpretation of the Advanced
Services Order was more reasonable than the Advanced
Services Order itself.
In any event—and more important for our purposes—the
Commission expressly declared: “To the extent that the
Advanced Services Order can be construed as having read
Section 706(a) differently, we reject that reading of the statute
for the reasons discussed in the text.” Open Internet Order, 25
F.C.C.R. at 17969 ¶ 119 n.370. Setting forth those “reasons” at
some length, the Commission analyzed the statute’s text, its
legislative history, and the resultant scope of the Commission’s
authority, concluding that each of these considerations
supports the view that section 706(a) constitutes an affirmative
grant of regulatory authority. Id. at 17969–70 ¶¶ 119–121. In
these circumstances, and contrary to Verizon’s contentions, we
22
have no basis for saying that the Commission “casually
ignored prior policies and interpretations or otherwise failed to
provide a reasoned explanation” for its changed interpretation.
Cablevision Systems Corp. v. FCC, 649 F.3d 695, 710 (D.C.
Cir. 2011) (internal quotation marks omitted).
The question, then, is this: Does the Commission’s current
understanding of section 706(a) as a grant of regulatory
authority represent a reasonable interpretation of an ambiguous
statute? We believe it does.
Recall that the provision directs the Commission
to “encourage the deployment . . . of advanced
telecommunications capability . . . by utilizing . . . price cap
regulation, regulatory forbearance, measures that promote
competition in the local telecommunications market, or other
regulating methods that remove barriers to infrastructure
investment.” 47 U.S.C. § 1302(a). As Verizon argues, this
language could certainly be read as simply setting forth a
statement of congressional policy, directing the Commission to
employ “regulating methods” already at the Commission’s
disposal in order to achieve the stated goal of promoting
“advanced telecommunications” technology. But the language
can just as easily be read to vest the Commission with actual
authority to utilize such “regulating methods” to meet this
stated goal. As the Commission put it in the Open Internet
Order, one might reasonably think that Congress, in directing
the Commission to undertake certain acts, “necessarily
invested the Commission with the statutory authority to carry
out those acts.” Open Internet Order, 25 F.C.C.R. at 17969
¶ 120.
Section 706(a)’s reference to state commissions does not
foreclose such a reading. Observing that the statute applies to
both “[t]he Commission and each State commission with
23
regulatory jurisdiction over telecommunications services,” 47
U.S.C. § 1302(a) (emphasis added), Verizon contends that
Congress would not be expected to grant both the FCC and
state commissions the regulatory authority to encourage the
deployment of advanced telecommunications capabilities. But
Congress has granted regulatory authority to state
telecommunications commissions on other occasions, and we
see no reason to think that it could not have done the same here.
See, e.g., id. § 251(f) (granting state commissions the authority
to exempt rural local exchange carriers from certain
obligations imposed on other incumbents); id. § 252(e)
(requiring all interconnection agreements between incumbent
local exchange carriers and entrant carriers to be approved by a
state commission); see also AT & T Corp. v. Iowa Utilities
Board, 525 U.S. 366, 385–86 (1999) (describing the
Commission’s power and responsibility to dictate the manner
in which state commissions exercise such authority). Thus,
Congress has not “directly spoken” to the question of whether
section 706(a) is a grant of regulatory authority simply by
mentioning state commissions in that grant. Chevron, 467 U.S.
at 842.
This case, moreover, is a far cry from FDA v. Brown &
Williamson Tobacco Corp., 529 U.S. 120 (2000), on which
Verizon principally relies. There, the Supreme Court held that
“Congress ha[d] clearly precluded the [Food and Drug
Administration] from asserting jurisdiction to regulate tobacco
products.” Id. at 126. The Court emphasized that the FDA had
not only completely disclaimed any authority to regulate
tobacco products, but had done so for more than eighty years,
and that Congress had repeatedly legislated against this
background. See id. at 143–59. The Court also observed that
the FDA’s newly adopted conclusion that it did in fact have
authority to regulate this industry would, given its findings
regarding the effects of tobacco products and its authorizing
24
statute, logically require the agency to ban such products
altogether, a result clearly contrary to congressional policy. See
id. at 135–43. Furthermore, the Court reasoned, if Congress
had intended to “delegate a decision of such economic and
political significance” to the agency, it would have done so far
more clearly. Id. at 160.
The circumstances here are entirely different. Although
the Commission once disclaimed authority to regulate under
section 706(a), it never disclaimed authority to regulate the
Internet or Internet providers altogether, nor is there any
similar history of congressional reliance on such a disclaimer.
To the contrary, as recounted above, see supra at 7–9, when
Congress passed section 706(a) in 1996, it did so against the
backdrop of the Commission’s long history of subjecting to
common carrier regulation the entities that controlled the
last-mile facilities over which end users accessed the Internet.
See, e.g., Second Computer Inquiry, 77 F.C.C.2d at 473–74
¶¶ 228–29. Indeed, one might have thought, as the
Commission originally concluded, see Advanced Services
Order, 13 F.C.C.R. at 24029–30 ¶ 35, that Congress clearly
contemplated that the Commission would continue regulating
Internet providers in the manner it had previously. Cf. Brand X,
545 U.S. at 1003 (Breyer, J., concurring) (concluding that the
Commission’s decision to exempt cable broadband providers
from Title II regulation was “perhaps just barely” within the
scope of the agency’s “statutorily delegated authority”); id. at
1005 (Scalia, J., dissenting) (arguing that Commission’s
decision “exceeded the authority given it by Congress”). In
fact, section 706(a)’s legislative history suggests that Congress
may have, somewhat presciently, viewed that provision as an
affirmative grant of authority to the Commission whose
existence would become necessary if other contemplated
grants of statutory authority were for some reason unavailable.
The Senate Report describes section 706 as a “necessary
25
fail-safe” “intended to ensure that one of the primary
objectives of the [Act]—to accelerate deployment of advanced
telecommunications capability—is achieved.” S. Rep. No.
104-23 at 50–51. As the Commission observed in the Open
Internet Order, it would be “odd . . . to characterize Section
706(a) as a ‘fail-safe’ that ‘ensures’ the Commission’s ability
to promote advanced services if it conferred no actual
authority.” 25 F.C.C.R. at 17970 ¶ 120.
Verizon directs our attention to a number of bills
introduced in Congress subsequent to the passage of the 1996
Act that, if enacted, would have imposed requirements on
broadband providers similar to those embodied in the
Commission’s Open Internet Order. See, e.g., Internet
Non-Discrimination Act of 2006, S. 2360, 109th Cong. (2006).
Such subsequent legislative history, however, provides “‘an
unreliable guide to legislative intent.’” North Broward
Hospital District v. Shalala, 172 F.3d 90, 98 (D.C. Cir. 1999)
(quoting Chapman v. United States, 500 U.S. 453, 464 n.4
(1991)). Moreover, even assuming that Congress’s failure to
impose such restrictions would itself cast light on Congress’s
understanding of the Commission’s power to do so, any such
inferences would be largely countered by Congress’s similar
failure to adopt a proposed resolution that would have
specifically disapproved of the Commission’s promulgation of
the Open Internet Order. See H.J. Res. 37, 112th Cong. (2011).
These conflicting pieces of subsequent failed legislation tell us
little if anything about the original meaning of the
Telecommunications Act of 1996.
Thus, although regulation of broadband Internet
providers certainly involves decisions of great “economic and
political significance,” Brown & Williamson, 529 U.S. at 160,
we have little reason given this history to think that Congress
could not have delegated some of these decisions to the
26
Commission. To be sure, Congress does not, as Verizon
reminds us, “hide elephants in mouseholes.” Whitman v.
American Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001). But
FCC regulation of broadband providers is no elephant, and
section 706(a) is no mousehole.
Of course, we might well hesitate to conclude that
Congress intended to grant the Commission substantive
authority in section 706(a) if that authority would have no
limiting principle. See Comcast, 600 F.3d at 655 (rejecting
Commission’s understanding of its authority that “if accepted
. . . would virtually free the Commission from its congressional
tether”); cf. Whitman, 531 U.S. at 472–73 (discussing the
nondelegation doctrine). But we are satisfied that the scope of
authority granted to the Commission by section 706(a) is not so
boundless as to compel the conclusion that Congress could
never have intended the provision to set forth anything other
than a general statement of policy. The Commission has
identified at least two limiting principles inherent in section
706(a). See Open Internet Order, 25 F.C.C.R. at 17970 ¶ 121.
First, the section must be read in conjunction with other
provisions of the Communications Act, including, most
importantly, those limiting the Commission’s subject matter
jurisdiction to “interstate and foreign communication by wire
and radio.” 47 U.S.C. § 152(a). Any regulatory action
authorized by section 706(a) would thus have to fall within the
Commission’s subject matter jurisdiction over such
communications—a limitation whose importance this court
has recognized in delineating the reach of the Commission’s
ancillary jurisdiction. See American Library Ass’n, 406 F.3d at
703–04. Second, any regulations must be designed to achieve a
particular purpose: to “encourage the deployment on a
reasonable and timely basis of advanced telecommunications
capability to all Americans.” 47 U.S.C. § 1302(a). Section
706(a) thus gives the Commission authority to promulgate only
27
those regulations that it establishes will fulfill this specific
statutory goal—a burden that, as we trust our searching
analysis below will demonstrate, is far from “meaningless.”
Dissenting Op. at 7.
B.
Section 706(b) has a less tortured history. Until shortly
before the Commission issued the Open Internet Order, it had
never considered whether the provision vested it with any
regulatory authority. The Commission had no need to do so
because prior to that time it had made no determination that
advanced telecommunications technologies, including
broadband Internet access, were not “being deployed to all
Americans in a reasonable and timely fashion,” the
prerequisite for any purported invocation of authority to “take
immediate action to accelerate deployment of such capability”
under section 706(b). 47 U.S.C. § 1302(b).
In July 2010, however, the Commission concluded that
“broadband deployment to all Americans is not reasonable and
timely.” Sixth Broadband Deployment Report, 25 F.C.C.R. at
9558 ¶ 2. This conclusion, the Commission recognized,
represented a deviation from its five prior assessments. Id. at
9558 ¶ 2 & n.8. According to the Commission, the change was
driven by its decision to raise the minimum speed threshold
qualifying as broadband. Id. at 9558 ¶ 4. “Broadband,” as
defined in the 1996 Telecommunications Act, is Internet
service furnished at speeds that “enable[] users to originate and
receive high-quality voice, data, graphics, and video
telecommunications using any technology.” 47 U.S.C.
§ 1302(d)(1). In 1999, the Commission found this requirement
satisfied by services “having the capability of supporting . . . a
speed . . . in excess of 200 kilobits per second (kbps) in the last
mile.” In re Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans in a
28
Reasonable and Timely Fashion, 14 F.C.C.R. 2398, 2406 ¶ 20
(1999). The Commission chose this threshold because it was
“enough to provide the most popular forms of broadband—to
change web pages as fast as one can flip through the pages of a
book and to transmit full-motion video.” Id. That said, the
Commission recognized that technological developments
might someday require it to reassess the 200 kbps threshold. Id.
at 2407–08 ¶ 25.
In the Sixth Broadband Deployment Report, the
Commission decided that day had finally arrived. The
Commission explained that consumers now regularly use their
Internet connections to access high-quality video and expect to
be able at the same time to check their email and browse the
web. Sixth Broadband Deployment Report, 25 F.C.C.R. at
9562–64 ¶¶ 10–11. Two hundred kbps, the Commission
determined, “simply is not enough bandwidth” to permit such
uses. Id. at 9562 ¶ 10. The Commission thus adopted a new
threshold more appropriate to current consumer behavior and
expectations: four megabytes per second (mbps) for end users
to download content from the Internet—twenty times as fast as
the prior threshold—and one mbps for end users to upload
content. Id. at 9563 ¶ 11.
Applying this new benchmark, the Commission found that
“roughly 80 million American adults do not subscribe to
broadband at home, and approximately 14 to 24 million
Americans do not have access to broadband today.” Sixth
Broadband Deployment Report, 25 F.C.C.R. at 9574 ¶ 28.
Given these figures and the “ever-growing importance of
broadband to our society,” the Commission was unable to find
“that broadband is being reasonably and timely deployed”
within the meaning of section 706(b). Id. This conclusion, it
explained, triggered section 706(b)’s mandate that the
Commission “take immediate action to accelerate
29
deployment.” Id. at 9558 ¶ 3 (quoting 47 U.S.C. § 1302(b))
(internal quotation marks omitted).
Subsequently, in the Open Internet Order the Commission
made clear that this statutory provision does not limit the
Commission to using other regulatory authority already at its
disposal, but instead grants it the power necessary to fulfill the
statute’s mandate. See Open Internet Order, 25 F.C.C.R. at
17972 ¶ 123. Emphasizing the provision’s “shall take
immediate action” directive, the Commission concluded that
section 706(b) “provides express authority” for the rules it
adopted. Id.
Contrary to Verizon’s arguments, we believe the
Commission has reasonably interpreted section 706(b) to
empower it to take steps to accelerate broadband deployment if
and when it determines that such deployment is not
“reasonable and timely.” To be sure, as with section 706(a), it
is unclear whether section 706(b), in providing that the
Commission “shall take immediate action to accelerate
deployment of such capability by removing barriers to
infrastructure investment and by promoting competition in the
telecommunications market,” vested the Commission with
authority to remove such barriers to infrastructure investment
and promote competition. 47 U.S.C. § 1302(b). But the
provision may certainly be read to accomplish as much, and
given such ambiguity we have no basis for rejecting the
Commission’s determination that it should be so understood.
See Chevron, 467 U.S. at 842–43. Moreover, as discussed
above with respect to section 706(a), see supra at 24–27,
nothing in the regulatory background or the legislative history
either before or after passage of the 1996 Telecommunications
Act forecloses such an understanding. We think it quite
reasonable to believe that Congress contemplated that the
Commission would regulate this industry, as the agency had in
30
the past, and the scope of any authority granted to it by section
706(b)—limited, as it is, both by the boundaries of the
Commission’s subject matter jurisdiction and the requirement
that any regulation be tailored to the specific statutory goal of
accelerating broadband deployment—is not so broad that we
might hesitate to think that Congress could have intended such
a delegation.
Verizon makes two additional arguments regarding the
Commission’s interpretation of section 706(b), both of which
we can dispose of in relatively short order.
First, Verizon contends that if section 706(b) gives the
Commission any regulatory authority, that authority must be
understood in conjunction with section 706(c), which directs
the Commission to “compile a list of geographical areas that
are not served by any provider of advanced
telecommunications capability.” 47 U.S.C. § 1302(c). Thus,
Verizon claims, any regulations that the Commission might
adopt pursuant to section 706(b) may not “reach beyond any
particular ‘geographical areas that are not served’ by any
broadband provider and apply throughout the country.”
Verizon’s Br. 33 (emphasis omitted). By its own terms,
however, section 706(c) describes simply “part of the inquiry”
that section 706(b) requires the Commission to conduct
concerning broadband deployment. 47 U.S.C. § 1302(c)
(emphasis added). It nowhere purports to delineate all aspects
of that inquiry. Nor does it limit the actions that the
Commission may take if, in the course of that inquiry, it
determines that broadband deployment has not been
“reasonable and timely.”
Second, Verizon asserts that the Sixth Broadband
Deployment Report’s finding that triggered section 706(b)’s
grant of regulatory authority “arbitrarily contravened five prior
31
agency determinations of reasonable and timely deployment.”
Verizon’s Br. 33. The timing of the Commission’s
determination is certainly suspicious, coming as it did closely
on the heels of our rejection in Comcast of the legal theory on
which the Commission had until then relied to establish its
authority over broadband providers. But questionable timing,
by itself, gives us no basis to reject an otherwise reasonable
finding. Beyond its general assertion that the Commission’s
finding was “arbitrar[y],” Verizon offers no specific reason for
thinking that the Commission’s logical and carefully reasoned
determination was illegitimate. We can see none.
C.
This brings us, then, to Verizon’s alternative argument
that even if, as we have held, sections 706(a) and 706(b) grant
the Commission affirmative authority to promulgate rules
governing broadband providers, the specific rules imposed by
the Open Internet Order fall outside the scope of that authority.
The Commission’s theory, to reiterate, is that its regulations
protect and promote edge-provider investment and
development, which in turn drives end-user demand for more
and better broadband technologies, which in turn stimulates
competition among broadband providers to further invest in
broadband. See Open Internet Order, 25 F.C.C.R. at 17910–
11, 17970 ¶¶ 14, 120. Thus, the Commission claims, by
preventing broadband providers from blocking or
discriminating against edge providers, the rules “encourage the
deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans,” 47 U.S.C.
§ 1302(a), and “accelerate deployment of such capability,” id.
§ 1302(b), by removing “barriers to infrastructure investment”
and promoting “competition,” id. § 1302(a), (b). See Open
Internet Order, 25 F.C.C.R. at 17968, 17972 ¶¶ 117, 123. That
is, contrary to the dissent, see Dissenting Op. at 2–7, the
Commission made clear—and Verizon appears to
32
recognize—that the Commission found broadband providers’
potential disruption of edge-provider traffic to be itself the sort
of “barrier” that has “the potential to stifle overall investment
in Internet infrastructure,” and could “limit competition in
telecommunications markets.” Open Internet Order, 25
F.C.C.R. at 17970 ¶ 120.
Verizon mounts a twofold challenge to this rationale. It
argues that the Open Internet Order regulations will not, as the
Commission claims, meaningfully promote broadband
deployment, and that even if they do advance this goal, the
manner in which they do so is too attenuated from this statutory
purpose to fall within the scope of authority granted by either
statutory provision.
We begin with the second, more strictly legal, question of
whether, assuming the Commission has accurately predicted
the effect of these regulations, it may utilize the authority
granted to it in sections 706(a) and 706(b) to impose
regulations of this sort on broadband providers. As we have
previously acknowledged, “in proscribing . . . practices with
the statutorily identified effect, an agency might stray so far
from the paradigm case as to render its interpretation
unreasonable, arbitrary, or capricious.” National Cable &
Telecommunications Ass’n v. FCC, 567 F.3d 659, 665 (D.C.
Cir. 2009). Here, Verizon has given us no reason to conclude
that the Open Internet Order’s requirements “stray” so far
beyond the “paradigm case” that Congress likely contemplated
as to render the Commission’s understanding of its authority
unreasonable. The rules not only apply directly to broadband
providers, the precise entities to which section 706 authority to
encourage broadband deployment presumably extends, but
also seek to promote the very goal that Congress explicitly
sought to promote. Because the rules advance this statutory
goal of broadband deployment by first promoting
33
edge-provider innovations and end-user demand, Verizon
derides the Commission’s justification as a “triple-cushion
shot.” Verizon’s Br. 28. In billiards, however, a triple-cushion
shot, although perhaps more difficult to complete, counts the
same as any other shot. The Commission could reasonably
have thought that its authority to promulgate regulations that
promote broadband deployment encompasses the power to
regulate broadband providers’ economic relationships with
edge providers if, in fact, the nature of those relationships
influences the rate and extent to which broadband providers
develop and expand their services for end users. See
Cablevision, 649 F.3d at 709 (holding that Commission had
not impermissibly “reached beyond the paradigm case” in
“interpreting a statute focused on the provision of satellite
programming to authorize terrestrial withholding regulations,”
because cable companies’ ability to withhold terrestrial
programming would, in turn, discourage potential competitors
from entering the market to provide satellite programming)
(internal quotation marks omitted).
Whether the Commission’s assessment of the likely
effects of the Open Internet Order deserves credence presents
a slightly more complex question. Verizon attacks the
reasoning and factual support underlying the Commission’s
“triple-cushion shot” theory, advancing these arguments both
as an attack on the Commission’s statutory interpretation and
as an APA arbitrary and capricious challenge. Given that these
two arguments involve similar considerations, we address
them together. In so doing, “we must uphold the Commission’s
factual determinations if on the record as a whole, there is such
relevant evidence as a reasonable mind might accept as
adequate to support [the] conclusion.” Secretary of Labor,
MSHA v. Federal Mine Safety & Health Review Comm’n, 111
F.3d 913, 918 (D.C. Cir. 1997) (internal quotation marks
omitted); see 5 U.S.C. § 706(2)(E). We evaluate the
34
Commission’s reasoning to ensure that it has “examine[d] the
relevant data and articulate[d] a satisfactory explanation for its
action including a rational connection between the facts found
and the choice made.” National Fuel Gas Supply Corp. v.
FERC, 468 F.3d 831, 839 (D.C. Cir. 2006) (quoting Motor
Vehicle Manufacturers Ass’n of U.S. v. State Farm Mutual
Auto Insurance Co., 463 U.S. 29, 43 (1983)) (internal
quotation marks omitted). When assessing the reasonableness
of the Commission’s conclusions, we must be careful not to
simply “‘substitute [our] judgment for that of the agency,’”
especially when the “agency’s predictive judgments about the
likely economic effects of a rule” are at issue. National
Telephone Cooperative Ass’n v. FCC, 563 F.3d 536, 541 (D.C.
Cir. 2009) (quoting State Farm, 463 U.S. at 43). Under these
standards, the Commission’s prediction that the Open Internet
Order regulations will encourage broadband deployment is, in
our view, both rational and supported by substantial evidence.
To begin with, the Commission has more than adequately
supported and explained its conclusion that edge-provider
innovation leads to the expansion and improvement of
broadband infrastructure. The Internet, the Commission
observed in the Open Internet Order, is, “[l]ike electricity and
the computer,” a “‘general purpose technology’ that enables
new methods of production that have a major impact on the
entire economy.” Open Internet Order, 25 F.C.C.R. at 17909
¶ 13. Certain innovations—the lightbulb, for example—create
a need for infrastructure investment, such as in power
generation facilities and distribution lines, that complement
and further drive the development of the initial innovation and
ultimately the growth of the economy as a whole. See Timothy
F. Bresnahan & M. Trajtenberg, General purpose
technologies: ‘Engines of Growth’? 65 J. ECONOMETRICS 83,
84 (1995), cited in Open Internet Order, 25 F.C.C.R. at 17909
¶ 13 n.12; see also Amicus Br. of Internet Engineers and
35
Technologists 17 (citing Hearing on Internet Security Before
the H. Comm. on Science, Space, and Technology, 103d Cong.
(Mar. 22, 1994) (written testimony of Dr. Vinton G. Cerf)).
The rise of streaming online video is perhaps the best and
clearest example the Commission used to illustrate that the
Internet constitutes one such technology: higher-speed
residential Internet connections in the late 1990s “stimulated”
the development of streaming video, a service that requires
particularly high bandwidth, “which in turn encouraged
broadband providers to increase network speeds.” Open
Internet Order, 25 F.C.C.R. at 17911 ¶ 14 n.23. The
Commission’s emphasis on this connection between
edge-provider innovation and infrastructure development is
uncontroversial. Indeed, in its comments to the Commission,
Verizon, executing a triple-cushion shot of its own,
acknowledged:
[T]he social and economic fruits of the Internet
economy are the result of a virtuous cycle of
innovation and growth between that ecosystem
and the underlying infrastructure—the
infrastructure enabling the development and
dissemination of Internet-based services and
applications, with the demand and use of those
services . . . driving improvements in the
infrastructure which, in turn, support further
innovations in services and applications.
Verizon Comments at 42, Docket No. 09-191 (Jan. 14, 2010)
(internal quotation marks omitted).
The Commission’s finding that Internet openness fosters
the edge-provider innovation that drives this “virtuous cycle”
was likewise reasonable and grounded in substantial evidence.
Continued innovation at the edge, the Commission explained,
36
“depends upon low barriers to innovation and entry by edge
providers,” and thus restrictions on edge providers’ “ability to
reach end users . . . reduce the rate of innovation.” Open
Internet Order, 25 F.C.C.R. at 17911 ¶ 14. This conclusion
finds ample support in the economic literature on which the
Commission relied, see, e.g., Joseph Farrell & Philip J. Weiser,
Modularity, Vertical Integration, and Open Access Policies:
Towards a Convergence of Antitrust and Regulation in the
Internet Age, 17 HARV. J. L. & TECH. 85, 95 (2003), cited in
Open Internet Order, 25 F.C.C.R. at 17911 ¶ 14 n.25, as well
as in history and the comments of several edge providers. For
one prominent illustration of the relationship between
openness and innovation, the Commission cited the invention
of the World Wide Web itself by Sir Tim Berners-Lee, who,
although not working for an entity that operated the underlying
network, was able to create and disseminate this enormously
successful innovation without needing to make any changes to
previously developed Internet protocols or securing “any
approval from network operators.” Open Internet Order, 25
F.C.C.R. at 17910 ¶ 13 (citing, inter alia, TIM BERNERS-LEE,
WEAVING THE WEB 16 (2000)). It also highlighted the
comments of Google and Vonage—both innovative edge
providers—who emphasized the importance of the Internet’s
open design to permitting new content and services to develop
at the edge. Id. at 17911 ¶ 14 n.24 & n.25. The record amassed
by the Commission contains many similar examples, and
Verizon has given us no basis for questioning the
Commission’s determination that the preservation of Internet
openness is integral to achieving the statutory objectives set
forth in Section 706. See id. at 17910–11, 17968, 17972 ¶¶ 14,
117, 123.
Equally important, the Commission has adequately
supported and explained its conclusion that, absent rules such
as those set forth in the Open Internet Order, broadband
37
providers represent a threat to Internet openness and could act
in ways that would ultimately inhibit the speed and extent of
future broadband deployment. First, nothing in the record gives
us any reason to doubt the Commission’s determination that
broadband providers may be motivated to discriminate against
and among edge providers. The Commission observed that
broadband providers—often the same entities that furnish end
users with telephone and television services—“have incentives
to interfere with the operation of third-party Internet-based
services that compete with the providers’ revenue-generating
telephone and/or pay-television services.” Open Internet
Order, 25 F.C.C.R. at 17916 ¶ 22. As the Commission noted,
Voice-over-Internet-Protocol (VoIP) services such as Vonage
increasingly serve as substitutes for traditional telephone
services, id., and 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. at 17917 ¶ 22 & n.54; see also
id. at 17918 ¶ 23 n.60 (finding that a study concluding that
cable companies had sought to exclude networks that
competed with the companies’ own affiliated channels, see
Austan Goolsbee, Vertical Integration and the Market for
Broadcast and Cable Television Programming, Paper for the
Federal Communications Commission 31–32 (Sept. 5, 2007),
“provides empirical evidence that cable providers have acted in
the past on anticompetitive incentives to foreclose rivals”).
Broadband providers also 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. See id. at 17918–19 ¶¶ 23–24. Indeed, at oral argument
Verizon’s counsel announced that “but for [the Open Internet
Order] rules we would be exploring those commercial
arrangements.” Oral Arg. Tr. 31. And although broadband
providers might not adopt pay-for-priority agreements or other
similar arrangements if, according to the Commission’s
38
analysis, such agreements would ultimately lead to a decrease
in end-user demand for broadband, the Commission explained
that the resultant harms to innovation and demand will largely
constitute “negative externalities”: any given broadband
provider will “receive the benefits of . . . fees but [is] unlikely
to fully account for the detrimental impact on edge providers’
ability and incentive to innovate and invest.” Open Internet
Order, 25 F.C.C.R. at 17919–20 ¶ 25 & n.68. Although
Verizon dismisses the Commission’s assertions regarding
broadband providers’ incentives as “pure speculation,”
Verizon’s Br. 52, see also Dissenting Op. at 15, those
assertions are, at the very least, speculation based firmly in
common sense and economic reality.
Moreover, as the Commission found, broadband providers
have the technical and economic ability to impose such
restrictions. Verizon does not seriously contend otherwise. In
fact, there appears little dispute that broadband providers have
the technological ability to distinguish between and
discriminate against certain types of Internet traffic. See Open
Internet Order, 25 F.C.C.R. at 17923 ¶ 31 (broadband
providers possess “increasingly sophisticated network
management tools” that enable them to “make fine-grained
distinction in their handling of network traffic”). The
Commission also convincingly detailed how broadband
providers’ position in the market gives them the economic
power to restrict edge-provider traffic and charge for the
services they furnish edge providers. Because all end users
generally access the Internet through a single broadband
provider, that provider functions as a “‘terminating
monopolist,’” id. at 17919 ¶ 24 n.66, with power to act as a
“gatekeeper” with respect to edge providers that might seek to
reach its end-user subscribers, id. at 17919 ¶ 24. As the
Commission reasonably explained, this ability to act as a
“gatekeeper” distinguishes broadband providers from other
39
participants in the Internet marketplace—including prominent
and potentially powerful edge providers such as Google and
Apple—who have no similar “control [over] access to the
Internet for their subscribers and for anyone wishing to reach
those subscribers.” Id. at 17935 ¶ 50.
To be sure, if end users could immediately respond to any
given broadband provider’s attempt to impose restrictions on
edge providers by switching broadband providers, this
gatekeeper power might well disappear. Cf. Open Internet
Order, 25 F.C.C.R. at 17935 ¶ 51 (declining to impose similar
rules on “dial-up Internet access service because telephone
service has historically provided the easy ability to switch
among competing dial-up Internet access services”). For
example, a broadband provider like Comcast would be unable
to threaten Netflix that it would slow Netflix traffic if all
Comcast subscribers would then immediately switch to a
competing broadband provider. But we see no basis for
questioning the Commission’s conclusion that end users are
unlikely to react in this fashion. According to the Commission,
“end users may not know whether charges or service levels
their broadband provider is imposing on edge providers vary
from those of alternative broadband providers, and even if they
do have this information may find it costly to switch.” Id. at
17921 ¶ 27. As described by numerous commenters, and
detailed more thoroughly in a Commission report compiling
the results of an extensive consumer survey, the costs of
switching include: “early termination fees; the inconvenience
of ordering, installation, and set-up, and associated deposits or
fees; possible difficulty returning the earlier broadband
provider’s equipment and the cost of replacing incompatible
customer-owned equipment; the risk of temporarily losing
service; the risk of problems learning how to use the new
service; and the possible loss of a provider-specific email
address or website.” Open Internet Order, 25 F.C.C.R. at
40
17924–25 ¶ 34 (footnotes omitted) (citing, inter alia, Federal
Communications Commission, Broadband Decisions: What
Drives Consumers to Switch—Or Stick With—Their
Broadband Internet Provider (FCC Working Paper, Dec.
2010), available at hraunfoss.fcc.gov/edocs_public/
attachmatch/DOC-303264A1.pdf). Moreover, the
Commission emphasized, many end users may have no option
to switch, or at least face very limited options: “[a]s of
December 2009, nearly 70 percent of households lived in
census tracts where only one or two wireline or fixed wireless
firms provided” broadband service. Id. at 17923 ¶ 32. As the
Commission concluded, any market power that such
broadband providers might have with respect to end users
would only increase their power with respect to edge providers.
Id.
The dissent focuses on this latter aspect of the
Commission’s reasoning, arguing at some length that the
Commission’s failure to expressly find that broadband
providers have market power with respect to end users is “fatal
to its attempt to regulate.” Dissenting Op. at 12. But Verizon
has never argued that the Commission’s failure to make a
market power finding somehow rendered its understanding of
its statutory authority unreasonable or its decision arbitrary and
capricious. Verizon does fleetingly mention the market power
issue once in its opening brief, asserting as part of its First
Amendment claim that Turner Broadcasting System, Inc. v.
FCC, 520 U.S. 180 (1997)—in which the Supreme Court,
applying intermediate scrutiny, upheld a congressional statute
compelling cable companies to carry local broadcast television
stations, id. at 185—is distinguishable in part because, unlike
the Commission here, Congress had found “evidence of
‘considerable and growing market power.’” Verizon Br. 46
(quoting Turner, 520 U.S. at 197). But to say, as Verizon does,
that an allegedly speech-infringing regulation violates the First
41
Amendment because of the absence of a market condition that
would increase the need for that regulation is hardly to say that
the absence of this market condition renders the regulation
wholly irrational. Verizon’s bare citation to a Justice
Department submission—relied upon by the dissent, see
Dissenting Op. at 11, 14–15—is even less on point, as that
submission simply advised the Commission to take care to
avoid stifling incentives for broadband investment; it never
asserted, as the dissent does, that such market power is required
for broadband providers to have the economic clout to restrict
edge-provider traffic in the first place. See Department of
Justice Comments at 28, Docket No. 09-51 (Jan. 14, 2010).
Indeed, when pressed at oral argument to embrace our
dissenting colleague’s position, Verizon’s counsel failed to do
so, stating only that it was “possible” that if the Commission
had made a market power finding, the Order could be justified.
Oral Arg. Tr. 10. As we “do not sit as [a] self-directed board[]
of legal inquiry and research,” and Verizon “has made no
attempt to address the issue,” the argument is clearly forfeited.
Carducci v. Regan, 714 F.2d 171, 177 (D.C. Cir. 1983).
In any event, it seems likely that the reason Verizon never
advanced this argument is that the Commission’s failure to find
market power is not “fatal” to its theory. Broadband providers’
ability to impose restrictions on edge providers does not
depend on their benefiting from the sort of market
concentration that would enable them to impose substantial
price increases on end users—which is all the Commission said
in declining to make a market power finding. See Open
Internet Order, 25 F.C.C.R. at 17923 ¶ 32 & n.87; see also
Department of Justice & Federal Trade Commission,
Horizontal Merger Guidelines § 4.1 (2010) (defining product
markets and market power in terms of a firm’s ability to raise
prices for consumers). Rather, broadband providers’ ability to
impose restrictions on edge providers simply depends on end
42
users not being fully responsive to the imposition of such
restrictions. See supra at 39. If the dissent believes that
broadband providers’ ability to restrict edge-provider traffic
without having their end users react would itself represent an
exercise of market power, then the dissent’s dispute with the
Commission’s reasoning appears to be largely semantic: the
Commission expressly found that end users are not responsive
in this fashion even if it never used the term “market power” in
doing so. See Open Internet Order, 25 F.C.C.R. at 17924–25
¶ 34.
Furthermore, the Commission established that the threat
that broadband providers would utilize their gatekeeper ability
to restrict edge-provider traffic is not, as the Commission put it,
“merely theoretical.” Open Internet Order, 25 F.C.C.R. at
17925 ¶ 35. In support of its conclusion that broadband
providers could and would act to limit Internet openness, the
Commission pointed to four prior instances in which they had
done just that. These involved a mobile broadband provider
blocking online payment services after entering into a contract
with a competing service; a mobile broadband provider
restricting the availability of competing VoIP and streaming
video services; a fixed broadband provider blocking VoIP
applications; and, of course, Comcast’s impairment of
peer-to-peer file sharing that was the subject of the Comcast
Order. See id. Although some of these incidents may not have
involved “adjudicated findings of misconduct,” as Verizon
asserts, Verizon’s Br. 50, that hardly means that no record
evidence supports the Commission’s conclusion that the
incidents had in fact occurred. Likewise, the fact that we
vacated the Comcast Order—rendering it, according to
Verizon, a “legal nullity,” Verizon’s Br. 51—did not require
the Commission to entirely disregard the underlying conduct
that produced that order. In Comcast, we held that the
Commission had failed to cite any statutory authority that
43
justified its order, not that Comcast had never impaired Internet
traffic. See Comcast, 600 F.3d at 644. Nor, finally, did the
Commission’s invocation of these examples demonstrate that
it was attempting to “impose an ‘industry-wide solution for a
problem that exists only in isolated pockets.’” Verizon’s Br. 51
(quoting Associated Gas Distributors v. FERC, 824 F.2d 981,
1019 (D.C. Cir. 1987)). Rather, as the Commission explained,
these incidents—which occurred “notwithstanding the
Commission’s adoption of open Internet principles,”
Commission enforcement proceedings against those who
violated those principles, and specific Commission orders
“requir[ing] certain broadband providers to adhere to open
Internet obligations,” Open Internet Order, 25 F.C.C.R. at
17926–27 ¶ 37—buttressed the agency’s conclusion that
broadband providers’ incentives and ability to restrict Internet
traffic could produce “[w]idespread interference with the
Internet’s openness” in the absence of Commission action, id.
at 17927 ¶ 38. Such a “problem” is doubtless “industry-wide.”
Associated Gas Distributors, 824 F.2d at 1019.
Finally, Verizon argues that the Open Internet Order rules
will necessarily have the opposite of their intended effect
because they will “harm innovation and deter investment by
increasing costs, foreclosing potential revenue streams, and
restricting providers’ ability to meet consumers’ evolving
needs.” Verizon’s Br. 52; see also Dissenting Op. at 14–16. In
essence, Verizon believes that any stimulus to edge-provider
innovation, as well as any consequent demand for broadband
infrastructure, produced by the Open Internet Order will be
outweighed by the diminished incentives for broadband
infrastructure investment caused by the new limitations on
business models broadband providers may employ to reap a
return on their investment. As Verizon points out, two
members of the Commission agreed that the rules would be
counterproductive, and several commenters contended that
44
certain regulations of broadband providers would run the risk
of stifling infrastructure investment. See Open Internet Order,
25 F.C.C.R. at 18054–56 (Dissenting Statement of
Commissioner McDowell); id. at 18088–91 (Dissenting
Statement of Commissioner Baker); Verizon Comments at 40–
86, Docket No. 09-191 (Jan. 14, 2010); MetroPCS Comments
at 24–35, Docket No. 09-191 (Jan 14, 2010); see also Open
Internet Order, 25 F.C.C.R. at 17931 ¶ 42 n.143 (discussing
the comments of the Department of Justice and Federal Trade
Commission).
The record, however, also contains much evidence
supporting the Commission’s conclusion that, “[b]y
comparison to the benefits of [its] prophylactic measures, the
costs associated with the open Internet rules . . . are likely
small.” Open Internet Order, 25 F.C.C.R. at 17928 ¶ 39. This
is, in other words, one of those cases—quite frequent in this
circuit—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.” State Farm, 463 U.S. at 52. Here the Commission
reached its “policy conclusion” by emphasizing, among other
things, (1) the absence of evidence that similar restrictions of
broadband providers had discouraged infrastructure
investment, and (2) the strength of the effect on broadband
investment that it anticipated from edge-provider innovation,
which would benefit both from the preservation of the
“virtuous circle of innovation” created by the Internet’s
openness and the increased certainty in that openness
engendered by the Commission’s rules. Open Internet Order,
at 17928–31 ¶¶ 40–42. In so doing, the Commission has
offered “a rational connection between the facts found and the
choice made,” State Farm, 463 U.S. at 52 (internal quotation
marks omitted), and Verizon has given us no persuasive reason
to question that judgment.
45
III.
Even though section 706 grants the Commission authority
to promote broadband deployment by regulating how
broadband providers treat edge providers, the Commission
may not, as it recognizes, utilize that power in a manner that
contravenes any specific prohibition contained in the
Communications Act. See Open Internet Order, 25 F.C.C.R. at
17969 ¶ 119 (reiterating the Commission’s disavowal of “a
reading of Section 706(a) that would allow the agency to trump
specific mandates of the Communications Act”); see also D.
Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204, 208 (1932)
(“General language of a statutory provision, although broad
enough to include it, will not be held to apply to a matter
specifically dealt with in another part of the same enactment.”).
According to Verizon, the Commission has done just that
because the anti-discrimination and anti-blocking rules
“subject[] broadband Internet access service . . . to common
carriage regulation, a result expressly prohibited by the Act.”
Verizon’s Br. 14.
We think it obvious that the Commission would violate
the Communications Act were it to regulate broadband
providers as common carriers. Given the Commission’s
still-binding decision to classify broadband providers not as
providers of “telecommunications services” but instead as
providers of “information services,” see supra at 9–10, such
treatment would run afoul of section 153(51): “A
telecommunications carrier shall be treated as a common
carrier under this [Act] only to the extent that it is engaged in
providing telecommunications services.” 47 U.S.C. § 153(51);
see also Wireless Broadband Order, 22 F.C.C.R. at 5919 ¶ 50
(concluding that a “service provider is to be treated as a
common carrier for the telecommunications services it
provides, but it cannot be treated as a common carrier with
46
respect to other, non-telecommunications services it may offer,
including information services”). Likewise, because the
Commission has classified mobile broadband service as a
“private” mobile service, and not a “commercial” mobile
service, see Wireless Broadband Order, 22 F.C.C.R. at 5921
¶ 56, treatment of mobile broadband providers as common
carriers would violate section 332: “A person engaged in the
provision of a service that is a private mobile service shall not,
insofar as such person is so engaged, be treated as a common
carrier for any purpose under this [Act].” 47 U.S.C.
§ 332(c)(2); see Cellco, 700 F.3d at 538 (“[M]obile-data
providers are statutorily immune, perhaps twice over, from
treatment as common carriers.”).
Insisting it has transgressed neither of these prohibitions,
the Commission begins with the rather half-hearted argument
that the Act referred to in sections 153(51) and 332 is the
Communications Act of 1934, and that when the Commission
utilizes the authority granted to it in section 706—enacted as
part of the 1996 Telecommunications Act—it is not acting
“under” the 1934 Act, and thus is “not subject to the statutory
limitations on common-carrier treatment.” Commission’s Br.
68. But section 153(51) was also part of the 1996
Telecommunications Act. And regardless, “Congress
expressly directed that the 1996 Act . . . be inserted into the
Communications Act of 1934.” AT & T Corp., 525 U.S. at 377
(citing Telecommunications Act of 1996 § 1(b)). The
Commission cannot now so easily escape the statutory
prohibitions on common carrier treatment.
Thus, we must determine whether the requirements
imposed by the Open Internet Order subject broadband
providers to common carrier treatment. If they do, then given
the manner in which the Commission has chosen to classify
broadband providers, the regulations cannot stand. We apply
47
Chevron’s deferential standard of review to the interpretation
and application of the statutory term “common carrier.” See
Cellco, 700 F.3d at 544. After first discussing the history and
use of that term, we turn to the issue of whether the
Commission’s interpretation of “common carrier”—and its
conclusion that the Open Internet Order’s rules do not
constitute common carrier obligations—was reasonable.
A.
Offering little guidance as to the meaning of the term
“common carrier,” the Communications Act defines that
phrase, somewhat circularly, as “any person engaged as a
common carrier for hire.” 47 U.S.C. § 153(11). Courts and the
Commission have therefore resorted to the common law to
come up with a satisfactory definition. See FCC v. Midwest
Video Corp., 440 U.S. 689, 701 n.10 (1979) (“Midwest Video
II”).
In the Nineteenth Century, American courts began
imposing certain obligations—conceptually derived from the
traditional legal duties of innkeepers, ferrymen, and others who
served the public—on companies in the transportation and
communications industries. See Cellco, 700 F.3d at 545. As the
Supreme Court explained in Interstate Commerce Commission
v. Baltimore & Ohio Railroad Co., 145 U.S. 263, 275 (1892),
“the principles of the common law applicable to common
carriers . . . demanded little more than that they should carry for
all persons who applied, in the order in which the goods were
delivered at the particular station, and that their charges for
transportation should be reasonable.” Congress subsequently
codified these duties, first in the 1887 Interstate Commerce
Act, ch. 104, 24 Stat. 379, then the Manns-Elkins Act of 1910,
ch. 309, 36 Stat. 539, and, most relevant here, the
Communications Act of 1934, ch. 652, 48 Stat. 1064. See
Cellco, 700 F.3d at 545–46.
48
Although the nature and scope of the duties imposed on
common carriers have evolved over the last century, see, e.g.,
Orloff v. FCC, 352 F.3d 415, 418–21 (D.C. Cir. 2003)
(discussing the implications of the relaxation of the tariff-filing
requirement), the core of the common law concept of common
carriage has remained intact. In National Association of
Regulatory Utility Commissioners v. FCC, 525 F.2d 630, 642
(D.C. Cir. 1976) (“NARUC I”), we identified the basic
characteristic that distinguishes common carriers from
“private” carriers—i.e., entities that are not common
carriers—as “[t]he common law requirement of holding
oneself out to serve the public indiscriminately.” “[A] carrier
will not be a common carrier,” we further explained, “where its
practice is to make individualized decisions, in particular
cases, whether and on what terms to deal.” Id. at 641.
Similarly, in National Association of Regulatory Utility
Commissioners v. FCC, 533 F.2d 601, 608 (1976) (“NARUC
II”), we concluded that “the primary sine qua non of common
carrier status is a quasi-public character, which arises out of the
undertaking to carry for all people indifferently.” (Internal
quotation marks omitted).
For our purposes, perhaps the seminal case applying this
notion of common carriage is Midwest Video II. At issue in
Midwest Video II was a set of regulations compelling cable
television systems to operate a minimum number of channels
and to hold certain channels open for specific users. 440 U.S. at
692–93. Cable operators were barred from exercising any
discretion over who could use those latter channels and what
those users could transmit. They were also forbidden from
charging users any fee for some of the channels and limited to
charging an “appropriate” fee for the remaining channels. Id. at
693–94. Because at that time the Commission had no express
statutory authority over cable systems, it sought to justify these
49
rules as ancillary to its authority to regulate broadcasting. Id. at
696–99.
Rejecting this argument, the Supreme Court held that the
Commission had no power to regulate cable operators in this
fashion. The Court reasoned that if the Commission sought to
exercise such ancillary jurisdiction over cable operators on the
basis of its authority over broadcasters, it must also respect the
specific statutory limits of that authority, as “without reference
to the provisions of the Act directly governing broadcasting,
the Commission’s jurisdiction . . . would be unbounded.”
Midwest Video II, 440 U.S. at 706. Congress had expressly
prohibited the Commission from regulating broadcasters as
common carriers, a limitation that must then, according to the
Court, also extend to cable operators. Id. at 707. And the
challenged regulations, the Court held, “plainly impose
common-carrier obligations on cable operators.” Id. at 701. In
explaining this conclusion, the Court largely reiterated the
nature of the obligations themselves: “Under the rules, cable
systems are required to hold out dedicated channels on a
first-come, nondiscriminatory basis. Operators are prohibited
from determining or influencing the content of access
programming. And the rules delimit what operators may
charge for access and use of equipment.” Id. at 701–02
(internal citations omitted).
In Cellco, we recently confronted the similar question of
whether a Commission regulation compelling mobile
telephone companies to offer data roaming agreements to one
another on “commercially reasonable” terms impermissibly
regulated these providers as common carriers. 700 F.3d at 537.
From the history and decisions surveyed above, we distilled
“several basic principles” that guide our analysis here. Id. at
547. First, “[i]f a carrier is forced to offer service
indiscriminately and on general terms, then that carrier is being
50
relegated to common carrier status.” Id. We also clarified,
however, that “there is an important distinction between the
question whether a given regulatory regime is consistent with
common carrier or private carrier status, and the Midwest
Video II question whether that regime necessarily confers
common carrier status.” Id. (internal citations omitted). Thus,
“common carriage is not all or nothing—there is a gray area in
which although a given regulation might be applied to common
carriers, the obligations imposed are not common carriage per
se.” Id. In this “space between per se common carriage and per
se private carriage,” we continued, “the Commission’s
determination that a regulation does or does not confer
common carrier status warrants deference.” Id.
Given these principles, we concluded that the data
roaming rule imposed no per se common carriage requirements
because it left “substantial room for individualized bargaining
and discrimination in terms.” Cellco, 700 F.3d at 548. The rule
“expressly permit[ted] providers to adapt roaming agreements
to ‘individualized circumstances without having to hold
themselves out to serve all comers indiscriminately on the
same or standardized terms.’” Id. That said, we cautioned that
were the Commission to apply the “commercially reasonable”
standard in a restrictive manner, essentially elevating it to the
traditional common carrier “just and reasonable” standard, see
47 U.S.C. § 201(b), the rule might impose obligations that
amounted to common carriage per se, a claim that could be
brought in an “as applied” challenge. Cellco, 700 F.3d at 548–
49.
B.
The Commission’s explanation in the Open Internet
Order for why the regulations do not constitute common
carrier obligations and its defense of those regulations here
largely rest on its belief that, with respect to edge providers,
51
broadband providers are not “carriers” at all. Stating that an
entity is not a common carrier if it may decide on an
individualized basis “‘whether and on what terms to deal’ with
potential customers,” the Commission asserted in the Order
that “[t]he customers at issue here are the end users who
subscribe to broadband Internet access services.” Open
Internet Order, 25 F.C.C.R. at 17950–51 ¶ 79 (quoting
NARUC I, 525 F.2d at 641) (emphasis added). It explained that
because broadband providers would remain able to make
“individualized decisions” in determining on what terms to
deal with end users, the Order permitted the providers the
“flexibility to customize service arrangements for a particular
customer [that] is the hallmark of private carriage.” Id. at
17951 ¶ 79. Here, the Commission reiterates that “as long as [a
broadband provider] is not required to serve end users
indiscriminately, rules regarding blocking or charging edge
providers do not create common carriage.” Commission’s
Br. 61. We disagree.
It is true, generally speaking, that the “customers” of
broadband providers are end users. But that hardly means that
broadband providers could not also be carriers with respect to
edge providers. “Since it is clearly possible for a given entity to
carry on many types of activities, it is at least logical to
conclude that one may be a common carrier with regard to
some activities but not others.” NARUC II, 533 F.2d at 608.
Because broadband providers furnish a service to edge
providers, thus undoubtedly functioning as edge providers’
“carriers,” the obligations that the Commission imposes on
broadband providers may well constitute common carriage per
se regardless of whether edge providers are broadband
providers’ principal customers. This is true whatever the nature
of the preexisting commercial relationship between broadband
providers and edge providers. In contending otherwise, the
Commission appears to misunderstand the nature of the inquiry
52
in which we must engage. The question is not whether, absent
the Open Internet Order, broadband providers would or did act
as common carriers with respect to edge providers; rather, the
question is whether, given the rules imposed by the Open
Internet Order, broadband providers are now obligated to act
as common carriers. See Midwest Video II, 440 U.S. at 701–02.
In support of its understanding of common carriage, the
Commission first invokes section 201(a), which provides that
it is the “duty of every common carrier . . . to furnish . . .
communication service upon reasonable request therefor.” 47
U.S.C. § 201(a). No one disputes that a broadband provider’s
transmission of edge-provider traffic to its end-user
subscribers represents a valuable service: an edge provider like
Amazon wants and needs a broadband provider like Comcast
to permit its subscribers to use Amazon.com. According to the
Commission, however, because edge providers generally do
not “request” service from broadband providers, and may have
no direct relationship with end users’ local access providers,
broadband providers cannot be common carriers with respect
to such edge providers. But section 201(a) describes a “duty”
of a common carrier, not a prerequisite for qualifying as a
common carrier in the first place. More important, the Open
Internet Order imposes this very duty on broadband providers:
given the Open Internet Order’s anti-blocking and
anti-discrimination requirements, if Amazon were now to
make a request for service, Comcast must comply. That is,
Comcast must now “furnish . . . communication service upon
reasonable request therefor.” 47 U.S.C. § 201(a).
Similarly flawed is the Commission’s argument that
because the Communications Act defines a “common carrier”
as a “common carrier for hire,” 47 U.S.C. § 153(11) (emphasis
added), a common carrier relationship may exist only with
respect to those customers who purchase service from the
53
carrier. As Verizon aptly puts it in response, the fact that
“broadband providers . . . generally have not charged edge
providers for access or offered them differentiated services . . .
has no legal significance because the avowed purpose of the
rules is to deny providers the discretion to do so now and in the
future.” Verizon’s Reply Br. 5 n.3. In other words, but for the
Open Internet Order, broadband providers could freely impose
conditions on the nature and quality of the service they furnish
edge providers, potentially turning certain edge
providers—currently able to “hire” their service for free—into
paying customers. The Commission may not claim that the
Open Internet Order imposes no common carrier obligations
simply because it compels an entity to continue furnishing
service at no cost.
Likewise, the Commission misses the point when it
contends that because the Communications Act “imposes
non-discrimination requirements on many entities that are not
common carriers,” the Order’s requirements cannot
“transform[] providers into common carriers.” Commission’s
Br. 66–67. In support, the Commission cites 47 U.S.C.
§ 315(b), which requires that broadcasters charge political
candidates nondiscriminatory rates if broadcasters permit them
to use their stations, as well as 47 U.S.C. § 548(c)(2)(B), which
prohibits satellite programming vendors owned in part or in
whole by a cable operator from discriminating against other
cable operators in the delivery of programming. Commission’s
Br. 66–67. But Congress has no statutory obligation to avoid
imposing common carrier obligations on those who might not
otherwise operate as common carriers, and thus the extent to
which the cited provisions might regulate those entities as such
is irrelevant. The Commission, on the other hand, has such an
obligation with respect to entities it has classified as statutorily
exempt from common carrier treatment, and the issue here is
whether it has nonetheless “relegated [those entities], pro
54
tanto, to common-carrier status.” Midwest Video II, 440 U.S. at
700–01.
In these respects, Midwest Video II is indistinguishable.
The Midwest Video II cable operators’ primary “customers”
were their subscribers, who paid to have programming
delivered to them in their homes. There, as here, the
Commission’s regulations required the regulated entities to
carry the content of third parties to these customers—content
the entities otherwise could have blocked at their discretion.
Moreover, much like the rules at issue here, the Midwest Video
II regulations compelled the operators to hold open certain
channels for use at no cost—thus permitting specified
programmers to “hire” the cable operators’ services for free.
Given that the cable operators in Midwest Video II were
carriers with respect to these third-party programmers, we see
no basis for concluding that broadband providers are not
similarly carriers with respect to third-party edge providers.
The Commission advances several grounds for
distinguishing Midwest Video II. None is convincing.
The Commission asserts that, unlike in Midwest Video II,
here the content is delivered to end users only when an end user
requests it—i.e., by clicking on a link to an edge provider’s
website. But the same was essentially true in Midwest Video II:
cable companies’ customers would not actually receive the
content on the dedicated public access channels unless they
chose to watch those channels. The access requested by the
programmers in Midwest Video II, like the access requested by
edge providers here, is the ability to have their communications
transmitted to end-user subscribers if those subscribers so
desire.
55
Nor, contrary to the Commission’s contention, is it at all
relevant that in Midwest Video II only a limited number of
cable channels were available, while in this case the number of
edge providers a broadband provider could serve is unlimited.
Whether an entity qualifies as a carrier does not turn on how
much content it is able to carry or the extent to which other
content might be crowded out. A short train is no more a carrier
than a long train, or even a train long enough to serve every
possible customer.
Finally, Midwest Video II cannot be distinguished on the
basis that the Court there emphasized the degree to which the
Commission’s rules impinged on cable operators’ “editorial
discretion,” and “transferred control” over the content
transmitted. Commission’s Br. 65. The Court made two related
points regarding editorial discretion, neither of which helps the
Commission. First, it observed that the need to protect editorial
discretion was one reason Congress forbade common carrier
treatment of broadcasters in the first place, a rationale that also
applied to cable operators, thus confirming the Court’s
decision to extend that statutory prohibition to the
Commission’s attempt to exercise its ancillary jurisdiction
over such entities. Midwest Video II, 440 U.S. at 700, 706–08.
Here, whatever might be the justifications for prohibiting
common carrier treatment of “information service” providers
and “commercial” mobile service providers, such treatment is
undoubtedly prohibited. See 47 U.S.C. §§ 153(51), 332(c)(2).
Second, the Court emphasized that, unlike the regulations
approved in United States v. Midwest Video Corp., 406 U.S.
649 (1972) (“Midwest Video I”)—which required certain cable
companies to create their own programming and maintain
facilities for local production, id. at 653–55—the regulations in
Midwest Video II “transferred control of the content of access
cable channels from cable operators to members of the public.”
Midwest Video II, 440 U.S. at 700. The Court’s point was
56
simply that the Midwest Video I regulations had created no
common carrier obligations because they had imposed no
obligation on cable operators to provide carriage to any third
party. By giving third parties “control” over the transmissions
that cable operators carried, however, the Midwest Video II
regulations did. The regulations here accomplish the very same
sort of transfer of control: whereas previously broadband
providers could have blocked or discriminated against the
content of certain edge providers, they must now carry the
content those edge providers desire to transmit. The only
remaining question, then, is whether the Open Internet Order’s
rules have so limited broadband providers’ control over edge
providers’ transmissions that the regulations constitute
common carriage per se. It is to that question that we now turn.
C.
We have little hesitation in concluding that the
anti-discrimination obligation imposed on fixed broadband
providers has “relegated [those providers], pro tanto, to
common carrier status.” Midwest Video II, 440 U.S. at 700–01.
In requiring broadband providers to serve all edge providers
without “unreasonable discrimination,” this rule by its very
terms compels those providers to hold themselves out “to serve
the public indiscriminately.” NARUC I, 525 F.2d at 642.
Having relied almost entirely on the flawed argument that
broadband providers are not carriers with respect to edge
providers, the Commission offers little response on this point.
In its briefs, the Commission contends only that if the Open
Internet Order imposes common carriage requirements, so too
would the regulations at issue in United States v. Southwestern
Cable Co., 392 U.S. 157 (1968), which the Supreme Court
declined to strike down. Southwestern Cable involved a
Commission rule that, among other things, compelled cable
operators to transmit the signals of local broadcasters when
57
cable operators imported the competing signals of other
broadcasters into the local service area. Id. at 161. Such a rule
is plainly distinguishable from the Open Internet Order’s
anti-discrimination rule because the Southwestern Cable
regulation imposed no obligation on cable operators to hold
their facilities open to the public generally, but only to certain
specific broadcasters if and when the cable operators acted in
ways that might harm those broadcasters. As the Court later
explained in Midwest Video II, the Southwestern Cable rule
“was limited to remedying a specific perceived evil,” and “did
not amount to a duty to hold out facilities indifferently for
public use.” 440 U.S. at 706 n.16. The Open Internet Order’s
anti-discrimination provision is not so limited, as the
compelled carriage obligation applies in all circumstances and
with respect to all edge providers.
Significantly for our purposes, the Commission never
argues that the Open Internet Order’s “no unreasonable
discrimination” standard somehow differs from the
nondiscrimination standard applied to common carriers
generally—the argument that salvaged the data roaming
requirements in Cellco. In a footnote in the Order itself, the
Commission suggested that it viewed the rule’s allowance for
“reasonable network management” as establishing treatment
that was somehow inconsistent with per se common carriage.
See Open Internet Order, 25 F.C.C.R. at 17951 ¶ 79 n.251. But
the Commission has forfeited this argument by failing to raise
it in its briefs here. See Comcast, 600 F.3d at 660; Roth v. U.S.
DOJ, 642 F.3d 1161, 1181 (D.C. Cir. 2011).
In any event, the argument is without merit. The Order
defines the “reasonable network management” concept as
follows: “A network management practice is reasonable if it is
appropriate and tailored to achieving a legitimate network
management purpose, taking into account the particular
58
network architecture and technology of the broadband Internet
access service.” Open Internet Order, 25 F.C.C.R. at 17952
¶ 82. This provision, the Commission explained, would permit
broadband providers to do two things, neither of which conflict
with per se common carriage. First, “the reasonable network
management” exception would permit broadband providers to
“address[] traffic that is unwanted by end users . . . such as by
providing services or capabilities consistent with an end user’s
choices regarding parental controls or security capabilities.”
Id. Because the relevant service broadband providers furnish to
edge providers is the ability to access end users if those end
users so desire, a limited exception permitting end users to
direct broadband providers to block certain traffic by no means
detracts from the common carrier nature of the obligations
imposed on broadband providers. Second, the Order defines
“reasonable network management” to include practices
designed to protect the network itself by “addressing traffic
that is harmful to the network” and “reducing or mitigating the
effects of congestion.” Id. at 17952 ¶ 82. As Verizon correctly
points out, however, this allowance “merely preserves a
common carrier’s traditional right to ‘turn[] away [business]
either because it is not of the type normally accepted or
because the carrier’s capacity has been exhausted.’” Verizon’s
Br. 20 (quoting NARUC I, 525 F.2d at 641). Railroads have no
obligation to allow passengers to carry bombs on board, nor
need they permit passengers to stand in the aisles if all seats are
taken. It is for this reason that the Communications Act bars
common carriers from engaging in “unjust or unreasonable
discrimination,” not all discrimination. 47 U.S.C. § 202
(emphasis added).
The Commission has provided no basis for concluding
that in permitting “reasonable” network management, and in
prohibiting merely “unreasonable” discrimination, the Order’s
standard of “reasonableness” might be more permissive than
59
the quintessential common carrier standard. See Cellco, 700
F.3d at 548 (characterizing the “just and reasonable” standard
as being that “applicable to common carriers”). To the extent
any ambiguity exists regarding how the Commission will apply
these rules in practice, we think it is best characterized as
ambiguity as to how the common carrier reasonableness
standard applies in this context, not whether the standard
applied is actually the same as the common carrier standard.
Unlike the data roaming requirement at issue in Cellco, which
set forth a “commercially reasonable” standard, see id. at 537,
the language of the Open Internet Order’s anti-discrimination
rule mirrors, almost precisely, section 202’s language
establishing the basic common carrier obligation not to “make
any unjust or unreasonable discrimination.” 47 U.S.C. § 202.
Indeed, confirming that the two standards are equivalent, the
Commission responded to commenters who argued that the
“no unreasonable discrimination” requirement was too vague
by quoting another commenter who observed that
“[s]eventy-five years of experience have shown [the
‘unreasonable’ qualifier in Section 202] to be both
administrable and indispensable to the sound administration of
the nation’s telecommunications laws.” Open Internet Order,
25 F.C.C.R. at 17949 ¶ 77 n.240. Moreover, unlike the data
roaming rule in Cellco—which spelled out “sixteen different
factors plus a catchall . . . that the Commission must take into
account in evaluating whether a proffered roaming agreement
is commercially reasonable,” thus building into the standard
“considerable flexibility,” Cellco, 700 F.3d at 548—the Open
Internet Order makes no attempt to ensure that its
reasonableness standard remains flexible. Instead, with respect
to broadband providers’ potential negotiations with edge
providers, the Order ominously declares: “it is unlikely that
pay for priority would satisfy the ‘no unreasonable
discrimination’ standard.” Open Internet Order, 25 F.C.C.R. at
17947 ¶ 76. If the Commission will likely bar broadband
60
providers from charging edge providers for using their service,
thus forcing them to sell this service to all who ask at a price of
$0, we see no room at all for “individualized bargaining.”
Cellco, 700 F.3d at 548.
Whether the Open Internet Order’s anti-blocking rules,
applicable to both fixed and mobile broadband providers,
likewise establish per se common carrier obligations is
somewhat less clear. According to Verizon, they do because
they deny “broadband providers discretion in deciding which
traffic from . . . edge providers to carry,” and deny them
“discretion over carriage terms by setting a uniform price of
zero.” Verizon’s Br. 16–17. This argument has some appeal.
The anti-blocking rules establish a minimum level of service
that broadband providers must furnish to all edge providers:
edge providers’ “content, applications [and] services” must be
“effectively []usable.” Open Internet Order, 25 F.C.C.R. at
17943 ¶ 66. The Order also expressly prohibits broadband
providers from charging edge providers any fees for this
minimum level of service. Id. at 17943–44 ¶ 67. In requiring
that all edge providers receive this minimum level of access for
free, these rules would appear on their face to impose per se
common carrier obligations with respect to that minimum level
of service. See Midwest Video II, 440 U.S. at 701 n.9 (a carrier
may “operate as a common carrier with respect to a portion of
its service only”).
At oral argument, however, Commission counsel asserted
that “[i]t’s not common carriage to simply have a basic level of
required service if you can negotiate different levels with
different people.” Oral Arg. Tr. 86. This contention rests on the
fact that under the anti-blocking rules broadband providers
have no obligation to actually provide any edge provider with
the minimum service necessary to satisfy the rules. If, for
example, all edge providers’ “content, applications [and]
61
services” are “effectively usable,” Open Internet Order, 25
F.C.C.R. at 17943 ¶ 66, at download speeds of, say, three
mbps, a broadband provider like Verizon could deliver all edge
providers’ traffic at speeds of at least four mbps. Viewed this
way, the relevant “carriage” broadband providers furnish
might be access to end users more generally, not the minimum
required service. In delivering this service, so defined, the
anti-blocking rules would permit broadband providers to
distinguish somewhat among edge providers, just as
Commission counsel contended at oral argument. For example,
Verizon might, consistent with the anti-blocking rule—and
again, absent the anti-discrimination rule—charge an edge
provider like Netflix for high-speed, priority access while
limiting all other edge providers to a more standard service. In
theory, moreover, not only could Verizon negotiate separate
agreements with each individual edge provider regarding the
level of service provided, but it could also charge
similarly-situated edge providers completely different prices
for the same service. Thus, if the relevant service that
broadband providers furnish is access to their subscribers
generally, as opposed to access to their subscribers at the
specific minimum speed necessary to satisfy the anti-blocking
rules, then these rules, while perhaps establishing a lower limit
on the forms that broadband providers’ arrangements with
edge providers could take, might nonetheless leave sufficient
“room for individualized bargaining and discrimination in
terms” so as not to run afoul of the statutory prohibitions on
common carrier treatment. Cellco, 700 F.3d at 548.
Whatever the merits of this view, the Commission
advanced nothing like it either in the underlying Order or in its
briefs before this court. Instead, it makes no distinction at all
between the anti-discrimination and anti-blocking rules,
seeking to justify both types of rules with explanations that, as
we have explained, are patently insufficient. We are unable to
62
sustain the Commission’s action on a ground upon which the
agency itself never relied. Lacson v. Department of Homeland
Security, 726 F.3d 170, 177 (D.C. Cir. 2013); see also United
States v. Southerland, 486 F.3d 1355, 1360 (D.C. Cir. 2007)
(“argument[s] . . . raised for the first time at oral argument [are]
forfeited”). Nor may we defer to a reading of a statutory term
that the Commission never offered. Shieldalloy Metallurgical
Corp. v. Nuclear Regulatory Comm’n, 624 F.3d 489, 495 (D.C.
Cir. 2010).
The disclosure rules are another matter. Verizon does not
contend that these rules, on their own, constitute per se
common carrier obligations, nor do we see any way in which
they would. Also, because Verizon does not direct its First
Amendment or Takings Clause claims against the disclosure
obligations, we have no need to address those contentions here.
Verizon does argue that the disclosure rules are not
severable, insisting that if the anti-discrimination and
anti-blocking rules fall so too must the disclosure
requirements. We disagree. “Whether the offending portion of
a regulation is severable depends upon the intent of the agency
and upon whether the remainder of the regulation could
function sensibly without the stricken provision.” MD/DC/DE
Broadcasters Ass’n v. FCC, 236 F.3d 13, 22 (D.C. Cir. 2001)
(emphasis omitted). At oral argument, Commission counsel
explained that the rules function separately, Oral Arg. Tr. 81–
82, and we are satisfied that the Commission would have
adopted the disclosure rules absent the rules we now vacate,
which, we agree, operate independently. See Davis County
Solid Waste Management v. EPA, 108 F.3d 1454, 1457–59
(D.C. Cir. 1997) (finding promulgated standard to be severable
where EPA asserted in rehearing petition that, contrary to its
position at oral argument, the standards could stand alone).
63
IV.
For the forgoing reasons, although we reject Verizon’s
challenge to the Open Internet Order’s disclosure rules, we
vacate both the anti-discrimination and the anti-blocking rules.
See Northern Air Cargo v. U.S. Postal Service, 674 F.3d 852,
860–61 (D.C. Cir. 2012) (appropriateness of vacatur dependent
on whether “(1) the agency’s decision is so deficient as to raise
serious doubts whether the agency can adequately justify its
decision at all; and (2) vacatur would be seriously disruptive or
costly”); Comcast, 600 F.3d at 661 (vacating the Comcast
Order). We remand the case to the Commission for further
proceedings consistent with this opinion.
So ordered.
SILBERMAN, Senior Circuit Judge, concurring in part and
dissenting in part: I am in general agreement with the majority’s
conclusion that the Open Internet Order impermissibly subjects
broadband providers to treatment as common carriers, but I
disagree with the majority’s conclusion that § 706 otherwise
provides the FCC with affirmative statutory authority to
promulgate these rules. I also think the Commission’s reasoning
violates the Administrative Procedure Act. These differences are
important since the majority opinion suggests possible
regulatory modifications that might circumvent the prohibition
against common carrier treatment.
I.
The Commission’s net neutrality regulation is purportedly
designed to promote innovation among edge providers who, in
turn, provide Internet user experience, thereby increasing user
demand for broadband service and, ultimately, encouraging
broadband providers to invest in infrastructure development to
meet that demand. Open Internet Order, 25 F.C.C.R. 17905,
17907 ¶ 13 (2010). Verizon describes this theory as a “triple
cushion shot.” As I will show, whatever its logic, it is based on
a faulty factual premise. But my first disagreement with the
Commission, and the majority, is to the claimed statutory
authority.
I quite agree with the majority that the relevant statutory
language is § 706 of the Communications Act. 47 U.S.C. §
1302. Although the FCC purports to rely on a scatter shot of
other provisions of the statute, as well as § 706, none of those
other provisions truly bear on the issue. “Emanations from the
penumbra” may once have served to justify constitutional
interpretation, but it hasn’t caught on as legitimate statutory
interpretation. I also agree with the majority – and disagree with
Verizon – that § 706 is a grant of positive regulatory authority,
but it doesn’t come close to sanctioning the Commission’s
regulation.
2
The statute directs the Commission to “encourage the
deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans . . . by utilizing
. . . price cap regulation, regulatory forbearance, measures that
promote competition in the local telecommunications market, or
other regulating methods that remove barriers to infrastructure
investment.” 47 U.S.C. § 1302(a).1
The FCC contends for, and the majority grants, Chevron
deference as to the interpretation of this language. I don’t
disagree that Chevron is called for, but Chevron “is not a wand
by which courts can turn an unlawful frog into a legitimate
prince.” Associated Gas Distributors v. F.E.R.C., 824 F.2d 981,
1001 (D.C. Cir. 1987).
The key words obviously are “measures that promote
competition in the local telecommunications market or other
regulating methods that remove barriers to infrastructure
investment.” Those are the words that grant actual authority. Yet
the Commission does not ground its regulation on this language.
Indeed, both the Commission and the majority conflate these
two clauses, though they have distinct functions. “Promoting
competition in the telecommunications market” implies a
regulation that encourages broadband providers to compete with
each other, head-to-head, on price and quality. Removing
“barriers to infrastructure investment,” on the other hand, does
not necessarily require any increased competition in the
1
Because § 706(b) contains almost the same language, it is
unnecessary to discuss these two provisions separately. See 47 U.S.C.
§ 1302(b) (The Commission “shall take immediate action . . . by
removing barriers to infrastructure investment and by promoting
competition in the telecommunications market.”).
3
telecommunications market.2 For example, if a particular
broadband provider were a monopolist, then by regulating its
prices, the Commission might encourage it to expand supply to
increase profits, rather than artificially restrict supply so as to
charge supracompetitive rates. Such a regulation would not
increase competition, but it would at least potentially remove a
barrier to investment. This is, essentially, the theory that the
Commission purportedly relies on: If the Commission
theoretically could spur demand for broadband, the Commission
would encourage further infrastructure investment regardless of
head-to-head competition. Thus, it is on the “removing barriers”
clause, primarily,3 that the Order must stand or fall. Yet, the
Commission never actually identifies any practices of the
broadband providers as “barriers to investment” – not once in
over 100 pages – probably because it would be so far fetched an
interpretation of those words.
Nor does the Commission state (or argue in its brief),
contrary to the majority’s opinion, that the “triple cushion shot”
– the means by which the Commission hopes to stimulate
demand for better broadband – is designed to increase
competition in the broadband market. See Majority Op. at 31-32
(citing 25 F.C.C.R. at 17910-11, 17970 ¶¶ 14, 120). Paragraph
2
An example of a paradigmatic barrier to infrastructure investment
would be state laws that prohibit municipalities from creating their
own broadband infrastructure to compete against private companies.
See Klint Finley, Why Your City Should Compete With Google’s
Super-Speed Internet, WIRED, May 28, 2013,
http://www.wired.com/wiredenterprise/2013/05/community-fiber/.
3
The transparency rules at least have the added benefit of
facilitating consumer choice by providing information, which could
lead to greater competition in the broadband market.
4
14 makes no reference to competition,4 and paragraph 120 does
not refer to competition between broadband providers in the
local telecommunications market – which is the statutory
objective. Indeed, paragraph 120 indicates that the
Commission’s objective is to protect the edge providers (not in
4
The Internet’s openness is critical to these outcomes,
because it enables a virtuous circle of innovation in which
new uses of the network – including new content,
applications, services, and devices – lead to increased end-
user demand for broadband, which drives network
improvements, which in turn lead to further innovative
network uses. Novel, improved, or lower-cost offerings
introduced by content, application, service, and device
providers spur end-user demand and encourage broadband
providers to expand their networks and invest in new
broadband technologies. Streaming video and e-commerce
applications, for instance, have led to major network
improvements such as fiber to the premises, VDSL, and
DOCSIS 3.0. These network improvements generate new
opportunities for edge providers, spurring them to innovate
further. Each round of innovation increases the value of the
Internet for broadband providers, edge providers, online
businesses, and consumers. Continued operation of this
virtuous circle, however, depends upon low barriers to
innovation and entry by edge providers, which drive end-
user demand. Restricting edge providers’ ability to reach end
users, and limiting end users’ ability to choose which edge
providers to patronize, would reduce the rate of innovation
at the edge and, in turn, the likely rate of improvements to
network infrastructure. Similarly, restricting the ability of
broadband providers to put the network to innovative uses
may reduce the rate of improvements to network
infrastructure.
25 F.C.C.R. at 17910-11 ¶ 14.
5
the telecommunications market) from content competition with
the broadband providers.5
Indeed, the Commission frankly admits its purpose is much
wider than the statutory objectives. It claims it must regulate
broadly, so as to “protect[] consumer choice, free expression,
end-user control, and the ability to innovate without
permission,” 25 F.C.C.R. at 17949 ¶ 78, which certainly
5
In directing the Commission to “encourage the deployment
on a reasonable and timely basis of advanced
telecommunications capability to all Americans . . . by
utilizing . . . price cap regulation, regulatory forbearance,
measures that promote competition in the local
telecommunications market, or other regulating methods
that remove barriers to infrastructure investment,” Congress
necessarily invested the Commission with the statutory
authority to carry out those acts. Indeed, the relevant Senate
Report explained that the provisions of Section 706 are
“intended to ensure that one of the primary objectives of the
[1996 Act] – to accelerate deployment of advanced
telecommunications capability – is achieved,” and stressed
that these provisions are “a necessary fail-safe” to guarantee
that Congress’s objective is reached. It would be odd indeed
to characterize Section 706(a) as a “fail-safe” that “ensures”
the Commission’s ability to promote advanced services if it
conferred no actual authority. Here, under our reading,
Section 706(a) authorizes the Commission to address
practices, such as blocking VoIP communications,
degrading or raising the cost of online video, or denying end
users material information about their broadband service,
that have the potential to stifle overall investment in Internet
infrastructure and limit competition in telecommunications
markets.
25 F.C.C.R. at 17970 ¶ 120 (emphasis added).
6
indicates a Commission objective that exceeds the statutory
authority granted in § 706.
The majority takes the statutory language even further; it
states that the Commission’s
authority to promulgate regulations that promote
broadband deployment encompasses the power to
regulate broadband providers’ economic relationships
with edge providers if, in fact, the nature of those
relationships influences the rate and extent to which
broadband providers develop and expand services for
end users.
Majority Op. at 33. So much for the terms “promote competition
in the local telecommunications market” or “remove barriers to
infrastructure investment.” Presto, we have a new statute
granting the FCC virtually unlimited power to regulate the
Internet. This reading of § 706, as we said in Comcast Corp. v.
FCC, “would virtually free the Commission from its
congressional tether.” 600 F.3d 642, 655 (D.C. Cir. 2010). The
limiting principles the majority relies on are illusory.
The majority claims that the Commission cannot exceed its
subject-matter jurisdiction over “interstate and foreign
communication by wire and radio.” 25 F.C.C.R. at 17970 ¶ 121
(citing 47 U.S.C. § 152(a)). This is obviously true, but it is not
a limitation on the Commission's interpretation of this specific
statutory provision. The question is not whether the statute
permits the Commission to do absolutely anything – of course
it does not – but, rather, whether § 706 contains any intrinsic
limitations. If the Commission’s subject matter jurisdiction is a
“limiting principle,” then we might as well call the First
Amendment a limiting principle, for surely the Commission
could not censor the Internet, even if doing so did somehow
increase broadband deployment.
7
According to the majority, the Commission is also
restrained because it may only regulate pursuant to § 706 if it
does so to achieve a particular purpose: to “encourage the
deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans.” 25 F.C.C.R.
at 17970 ¶ 121 (citing 47 U.S.C. § 1302(a)). This is an almost
meaningless limitation, as demonstrated by the Open Internet
Order itself. The Commission’s theory is that an open Internet
will spur demand for broadband infrastructure. Id. at 17907 ¶ 3.
But any regulation that, in the FCC’s judgment might arguably
make the Internet “better,” could increase demand. I do not see
how this “limitation” prevents § 706 from being carte blanche
to issue any regulation that the Commission might believe to be
in the public interest.
To sum up, § 706 requires the Commission to identify a
“barrier[] to infrastructure investment” or a measure that
“promote[s] competition” in the broadband market – which it
has not.
II.
Verizon alternatively argues that, even assuming that §
706 grants the Commission its claimed authority, the regulation
is arbitrary and capricious because its findings – such as they are
– lack substantial evidence. I agree. Although we are not faced
with a formal adjudication which would be judged by substantial
evidence on a closed record, factual determinations that underly
regulations must still be premised on demonstrated – and
reasonable – evidential support. See Motor Vehicle Mfrs. Ass'n
of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983).
The Commission purports to fear that broadband providers
might discriminate against, or even block, the Internet traffic of
specific edge providers or classes of edge providers, perhaps
8
because broadband providers offer some competing services or
because they might charge certain edge providers for premium
services. The majority puts it even more starkly, asserting that
the Commission found that “broadband providers have the
technical and economic ability to impose . . . restrictions” on
edge providers. Majority Op. at 38 (emphasis added). But the
Commission never actually made such a finding. Its conclusions
are littered with “may,” “if,” and “might.” For example,
according to the Commission, a broadband provider:
• “may have economic incentives to block or
otherwise disadvantage specific edge providers”
• “might use this power to benefit its own or
affiliated offerings at the expense of unaffiliated
offerings”
• “may act to benefit edge providers that have paid
it to exclude rivals”
• “may have incentives to increase revenues by
charging edge providers”6
• “might withhold or decline to expand capacity in
order to ‘squeeze’ non-prioritized traffic”
25 F.C.C.R. at 17915-22 ¶¶ 21-29. To be sure, the majority
correctly observes that we should defer to an agency’s
“predictive judgments as to the economic effect of a rule,”
National Telephone Cooperative Ass’n v. FCC, 563 F.3d 536,
541 (D.C. Cir. 2009), but deference to such a judgment must be
based on some logic and evidence, not sheer speculation. That
6
In this case, Verizon has indicated it does wish to explore two-
sided pricing (charging both edge providers and consumers).
9
a party “may” do something is hardly a finding – at least in
American law – that a party has done or will do something.
Moreover, whether or not the “triple cushion shot” theory is
rational economics (and I have my doubts), it rests, as I have
noted, on a false factual premise – that the evidence supports a
finding that broadband providers across the board, in all
markets, enjoy sufficient economic clout to take the above
actions.
The Commission asserts – and the majority accepts – that
broadband providers act as “gatekeepers” because each one has
a so-called “terminating monopoly” over access to particular end
users. These are terms, largely invented,7 the economic
significance of which the Commission does not explain. All
7
My research has not revealed any use of the phrase “terminating
monopoly” outside of the context of these proceedings before the
FCC. It does not appear to be an accepted economic term. A
“gatekeeper,” on the other hand, is an intermediary between a
consumer and an upstream seller. And a consumer’s willingness to
switch to another available supplier depends on the prospective benefit
measured against the transaction costs (how many blocks am I willing
to walk, or how many phone calls am I willing to make?).
Recent literature suggests that gatekeepers may sometimes
exercise market power against upstream suppliers even when the
gatekeeper does not have enough market share to exercise downstream
market power against consumers. See, e.g., Grimes, Warren S., Buyer
Power and Retail Gatekeeper Power: Protecting Competition and the
Atomistic Seller, 72 ANTITRUST L. J. 563, 580 (2005). One example
would be if I purchase my groceries at a particular store, any food
supplier who wishes to sell to me probably must do so through that
particular store because I am unlikely to switch grocery stores over a
single product. Regardless of any contemporary debates over the
differences between buyer power and seller power, one thing is clear:
The gatekeeper effect is a tool that facilitates the exercise of market
power over sellers; it is not market power itself.
10
retail stores, for instance, are “gatekeepers.” The term is thus
meaningful only insofar as the gatekeeper by means of a
powerful economic position vis-a-vis consumers gains leverage
over suppliers.8 The Commission made no effort to construct an
analytic framework to measure this supposed gateway advantage
– it is a rather slippery concept – nor did it adduce evidence to
establish the economic power it would supposedly afford all
broadband providers against all edge providers.
Without broadband provider market power, consumers, of
course, have options; they can go to another broadband provider
if they want to reach particular edge providers or if their
connections to particular edge providers have been degraded.
The Commission implicitly recognizes this, because it justifies
exempting dial-up Internet providers from the Order by noting
that “telephone service has historically provided the easy ability
to switch among competing dial-up Internet access services.” 25
F.C.C.R. at 17935 ¶ 51. The Commission also exempts
“backbone” Internet providers – which interconnect between
broadband providers – obviously for the same reason. On the
other hand, the Commission asserts that broadband customers
may have few alternatives or they may be locked into long-term
8
The Commission treats each individual edge provider as
analogous to an upstream seller in a retail context. But it seems more
plausible that consumers consider “Internet access” to be the product
that they are buying, and that large product creates greater incentives
to switch to another provider. Although the Commission has argued
that consumers will perceive a slow connection to a particular edge
provider as indicative of a problem with that edge provider, rather than
as a problem with the quality of Internet access provided by the
broadband provider, 25 F.C.C.R. at 17921 ¶ 27, the Commission
presents no evidence to support that conclusion. Indeed, edge
providers have a strong incentive to inform consumers if their
connections are being degraded. Moreover, the transparency rule,
which we uphold, makes this outcome almost impossible.
11
contracts with early-termination fees. To be sure, some difficulty
switching broadband providers is certainly a factor that might
contribute to a firm’s having market power, but that itself is not
market power. There are many industries in which switching
between competitors is not instantly achieved, but those
industries may still be heavily disciplined by competitive forces
because consumers will switch unless there are real barriers. By
pointing to potential difficulties consumers may encounter
switching broadband providers, the Commission is simply
implying that broadband providers have market power (market
power lite?), without actually examining if and where they do.
Although Verizon was reluctant to concede that even if a
broadband provider had market power that would authorize the
Commission to take action under § 706 – presumably because
it challenged any regulatory authority under § 706 – it did bring
to our attention a Justice Department submission, discussed
infra, that emphasized the necessity of the Commission limiting
its regulatory initiatives to the control of broadband market
power. Ex Parte Submission of the U.S. DOJ at 28, Docket No.
09-51 (Jan. 4, 2010). My discussion of market power reflects my
view (and apparently the Justice Department’s) of what evidence
would be adequate to support the Commission’s rule. In any
event, Verizon certainly challenged the factual basis of the
Commission’s “gateway” conclusion, so I don’t think the
existence vel non of market power is really a different
consideration. See Majority Op. at 40-41.
The majority does contend that four possible instances of
broadband providers restricting users’ access to certain edge
providers are sufficient evidence of broadband providers’
“incentives and ability to restrict Internet traffic.” Majority Op.
at 43. 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
12
year, one would think there should be ample examples of just
about any type of conduct. But even if examples of such conduct
were more numerous, it would still not be evidence that
broadband providers are economically capable of restricting
consumer choice. And, as the Commission noted, there are
potentially efficient, pro-consumer reasons that an individual
broadband provider might wish to restrict access to some edge
providers. See 25 F.C.C.R. at 17921 ¶ 28 n.80 (“Economics
literature recognizes that access charges could be harmful under
some circumstances and beneficial under others. . . . [T]he
economic literature on two-sided markets is at an early stage of
development.”). The Commission’s anecdotes then do not show
that any broadband providers are capable of actually causing the
harm about which the Commission is concerned.
My view, then, is that the Commission’s failure to conduct
a market power analysis is fatal to its attempt to regulate,
because it means that there is inadequate evidence to support the
lynchpin of the Commission’s economic theory. The
Commission actually recognized that a finding of market power
would enhance its theory. 25 F.C.C.R. at 17923 ¶ 32. Indeed!
But such a finding would, of course, have to be made market to
market (indeed the statute specifically references local
telecommunications markets), and if so, it would be a finding of
a barrier to broadband investment without the mental gymnastics
of the triple cushion shot. If one (or two) broadband providers
have market power in any particular market and thereby could
raise prices while restricting supply, the Commission could well
conclude that was a barrier to broadband investment.
Of course, before the Commission could determine whether
a particular broadband provider possesses market power, it
would have to first define the relevant market. Instead, the
Commission, in this case, simply cited a 2009 study that found
that “nearly 70 percent of households lived in census tracts
where only one or two wireline or fixed wireless firms provided
13
advertised download speeds of at least 3 Mbps and upload
speeds of at least 768 Kbps.” 25 F.C.C.R. at 17923 ¶ 32. Why
are these speeds relevant? Because the Commission has
previously, as part of its statutory duty to assess the state of
broadband deployment, defined “broadband” to mean download
speeds of at least 4 Mbps and upload speeds of at least 1 Mbps.
Sixth Broadband Deployment Report, 25 F.C.C.R. 9556, 9559
¶ 5 (2010). According to the Commission, it is the minimum
speed necessary to stream high quality video while
simultaneously browsing the Internet and using email. Id. I don’t
dispute the legitimacy of that definition. Yet, while the
Commission is free to rely on technical considerations in
defining the statutory term “broadband,” such considerations are
irrelevant when it comes to defining the market in economic
terms. A broadband provider offering a 2 Mbps connection is
not, according to the FCC, really offering broadband. But it is
quite likely that consumers, in deciding which Internet service
to purchase, will compare products at varying speeds and price
points. Slower service providers can still exert competitive
pressure on faster service providers. So, too, can mobile
broadband providers. Before the Commission can conclude that
a market is concentrated, it must first define that market. It has
made no effort to do so.
The Commission, moreover, does not address whether the
trend in the broadband market is towards more or less
competition. Obviously the deployment of broadband
infrastructure is a capital-intensive process, and it should not be
surprising if, during a period of expansion, some areas are
served by fewer competitors than others. But there is no
evidence in the record suggesting that broadband providers are
carving up territory or avoiding head-to-head competition. At
least anecdotally, the opposite seems to be true. Google has now
entered the broadband market as a direct competitor:
14
Google’s ultra-high-speed Internet service may finally
be scaring the big Internet providers into action.
Following Google’s announcement that it will expand
into Austin, Texas, AT&T announced it will offer fiber
Internet in the city, and Time Warner Cable announced
it would offer citywide wireless Internet service.
But smaller companies are also trying to head off
Google before the company even makes an
announcement in their communities. This week, for
example, the Lawrence, Kansas-based Internet
provider Wicked Broadband began taking pre-orders
for a residential fiber Internet service with speeds to
rival Google Fiber’s.
Klint Finley, Google Fiber Spurs Mom-and-Pop Net Providers
T o o , W I R E D , A p r . 2 6 , 2 0 1 3 ,
http://www.wired.com/wiredenterprise/2013/04/google-fiber-
wicked/.
The Commission apparently wanted to avoid a disciplined
inquiry focused on market power, notwithstanding the warning
it received from the Justice Department less than a year before
the regulation issued – which, as I noted, Verizon cited – a
warning that unless the FCC’s focus was on market power, any
regulation could actually discourage broadband development,
thus frustrating the statutory objective:
Although enacting some form of regulation to prevent
certain providers from exercising monopoly power
may be tempting with regard to . . . areas [served by
only one or two broadband providers], care must be
taken to avoid stifling the infrastructure investments
needed to expand broadband access. In particular, price
regulation would be appropriate only where necessary
to protect consumers from the exercise of monopoly
15
power and where such regulation would not stifle
incentives to invest in infrastructure deployment.
Ex Parte Submission of the U.S. DOJ at 28, Docket No. 09-51
(Jan. 4, 2010).
The Commission did postulate one other economic theory
supposedly establishing a “barrier to infrastructure investment”
that does not depend on the broadband providers possessing
market power. It argued, essentially, that innovation among edge
providers is a public good in that every broadband provider
benefits from an open Internet, but each broadband provider has
an individual incentive to charge edge providers for service
because, if broadband providers were to forego that revenue
stream, they would be unable to internalize all of the supposed
benefits to innovation. 25 F.C.C.R. at 17919 ¶ 25. In short, the
Commission speculates that the Open Internet Order prevents
a classic “tragedy of the commons”– a situation in which each
economic actor, behaving in his own self-interest, contributes to
the destruction of a public good. See Garrett Hardin, The
Tragedy of the Commons, 162 SCIENCE 1243 (1968). In such a
situation, each actor would be better off if a central regulator
prevented them from doing what would be in their private
interest if they were acting unilaterally. Again, however, the
Commission fails to make any real economic findings regarding
whether these rules are actually necessary to prevent such a
situation. As such, it is the sheerest of fanciful speculation.
Indeed, if a tragedy of the commons were likely in the
broadband market, then one would expect Verizon and other
broadband providers to support the Open Internet Order,
because such a situation would be economically harmful to them
in the long run. By the same token, when firms oppose, on
antitrust grounds, the merger of competing firms, it is generally
a reliable indicator that the merger is pro-competitive. See Frank
H. Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1, 18
16
(1984) (“When a business rival brings suit, it is often safe to
infer that the arrangement is beneficial to consumers.”). Firms
can generally be relied upon to know their own best interest.
Perhaps most troubling, the Commission fails to appreciate
the long-term impact of its own regulations. An unwarranted
government interference in a functioning market is likely to
persist indefinitely, whereas a failure to intervene, even when
regulation would be helpful, is likely to be only temporarily
harmful because new innovations are constantly undermining
entrenched industrial powers. See id. at 3 (“[J]udicial errors that
tolerate baleful practices are self-correcting while erroneous
condemnations are not.”); Tim Wu, THE MASTER SWITCH 11
(2010) (“But as we have said, that which is centralized also
eventually becomes a target for assault[.]”).
Nevertheless, the Commission justifies its aggressive,
prophylactic regulation by asserting that the negative
consequences of regulation (preserving the status quo) are likely
to be minor, while the consequences of allowing the broadband
market to evolve without regulation could be drastic and
permanent. 25 F.C.C.R. at 17909 ¶ 12. I think this is quite
wrong, but in any event, the agency’s judgment about the
propriety of leaping before looking cannot displace the judgment
of Congress which, in enacting § 706, did not so broadly
empower the Commission. Rather, Congress required the
agency to identify an actual barrier to infrastructure investment
or a threat to competition, and the agency must have evidence
that the barrier or threat exists.
III.
Because the Open Internet Order obviously imposes
common carrier obligations on broadband providers, I join
generally the opinion of the Court with respect to Part III.
Indeed, even noted proponents of “net neutrality” acknowledge
17
as much: “[N]et neutrality is the twenty-first century’s version
of common carriage. . . . In the case of the Internet, common
carriage under the name of net neutrality amounts to an FCC
rule that bans any degree of blocking individual sites, [or]
transmission of data.” Tim Wu, THE MASTER SWITCH 236
(2010).
I have, however, one quibble with the majority’s analysis of
the anti-blocking rules. Although ultimately concluding that the
anti-blocking rules are unlawful, the majority says that whether
those rules “likewise establish per se common carrier
obligations is somewhat less clear.” Majority Op. at 60.
Although the Order states that, under the anti-blocking rules,
broadband providers may not degrade content so as to make it
“effectively unusable,” the majority supposes that a broadband
provider might voluntarily choose to offer service that is faster
than the anti-blocking rules require, i.e., faster than the
minimum speed necessary to make each edge provider
effectively usable by consumers. By exceeding the minimum
level of service, the majority suggests, the broadband providers
would have wide latitude to engage in individualized bargaining,
which might take this rule outside of common carriage per se.
My concern with this hypothesis is that the phrase “effectively
unusable” is subject to manipulation. I think it should mean that
whatever speed is generally offered to most edge providers is the
minimum necessary to be effectively usable. After all, it is
artificial to distinguish between what is “effective” and what
consumers expect. If a faster speed were to become standard, we
would likely consider a slower speed to be effectively unusable.
Thus, while there is a possibility that a “fast lane” Internet
service might be offered on a non-common carriage basis, the
service that most users receive under this rule would still have
to be offered as common carriage, at a regulated price of zero.
In any event, as the majority recognizes, the Commission did not
18
make this argument, so the anti-blocking rules must fall.9
***
This regulation essentially provides an economic preference
to a politically powerful constituency, a constituency that, as is
true of typical rent seekers, wishes protection against market
forces. The Commission does not have authority to grant such
a favor.
9
I do think that the transparency rules rest on firmer ground. The
Commission is required to make triennial reports to Congress on
“market entry barriers” in information services, 47 U.S.C. § 257, and
requiring disclosure of network management practices appears to be
reasonably ancillary to that duty. I also agree with the majority’s
conclusion that the disclosure rules are severable from the anti-
discrimination and anti-blocking rules.