In our September 26, 2014 blog we noted sadly that the FCC was apparently going to give in to the immense political pressure it is facing over Internet regulation and was close to adopting a proposal offered by Mozilla. In this so-called “hybrid” approach, the FCC would reclassify the portion of a broadband provider’s network that interfaces with so-called edge providers as a Title II telecommunications service, while regulating the remaining portion that interfaces with end users as a Title I information service. In this approach, the Internet would be divided into two types of users:

Edge Provider - Any individual or entity that provides any content, application, or service over the Internet, and any individual or entity that provides a device used for accessing any content, application, or service over the Internet.

End User - Any individual or entity that uses a broadband Internet access service.

While agreements between carriers to prioritize traffic would still be permitted in this hybrid approach, there would be a key change from the Commission’s last net neutrality proposal. Originally, the Commission proposed that carriers could negotiate commercially reasonable agreements that would be assumed lawful unless challenged at the FCC by a specific party. If a party filed a complaint about a specific agreement, the companies that signed the agreement would have to demonstrate that the met the Commission’s criteria of “commercially reasonable.” 

In the hybrid proposal, however, no priority agreement would be presumed lawful. Parties signing agreements would have to demonstrate that the agreement would benefit consumers and is available to similarly situated customers. Thus every agreement would have to face a burdensome and time-consuming review.

The hybrid proposal would have certain benefits to the FCC:

• It would “demonstrate” to concerned politicians and consumers that the Commission was standing up to Internet Service Providers (ISPs).
• It would preserve the veneer that paid priority deals are permitted, although based on past industry precedent, almost all could be blocked by competitors.
• And perhaps the most attractive feature of the hybrid proposal for the Commission is that by dividing the Internet into two piece parts, it would not required to reverse its original decision to classify broadband Internet access as an information service.  The Commission would be classifying this “new” two-part service for the first time.

Unfortunately for the FCC and its hapless Chairman, there are many things wrong with this hybrid service proposal:

First, dividing the Internet into edge providers and end users and regulating them differently makes no sense. As law professor Brent Frischmann notes:

What is the point of the provider/user distinction? It appears to draw a line between (commercial) entities that generate a lot of traffic (and revenue) and those who don’t, but that is confused. In truth, traffic is generated jointly by many actors communicating with each other. Besides, that line ignores the fact that the Internet provides a smooth, scalable path that allows all end users to grow businesses and become future YouTubes, Amazons and Googles. The provider/user distinction is not only false, but misleading and not a helpful foundation upon which to build a regulatory regime for Internet communications (See, The Volokh Conspiracy, Washington Post Online, 10-31-14, quoting Brent Frischmann).

Second, the Commission has already attempted to use legal slight-of-hand on two occasions to convince the Court that they have common carrier authority over the Internet. Both attempts were rejected by the DC Circuit Court of Appeals precisely because the Commission attempted to apply Title II regulation when it was not legally justified. Almost all legal observers believe this novel hybrid legal theory will fail also.  Nevertheless, if the Commission proceeds, the legal appeals would tie up the industry for years leading to uncertainty which could harm broadband investment and employment.

Third, the DC Circuit has already acknowledged that the FCC’s control over the Internet is lawful under Section 706 of the Telecommunications Act. Why continue to seek novel legal remedies when legal regulatory authority already exists?

If the Commission leaked this hybrid alternative to judge industry reaction, it has received the message in spades. Almost all parties on both sides of the Internet regulation divide are against it. If the Commission decides to proceed, it will probably adopt this proposal at its December 11, 2014 meeting and will set off an industry firestorm that will last years.

By Andrew Regitsky, President, Regitsky & Associates

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