Oral Argument held on Verizon's Appeal of FCC's Net Neutrality Order

By Andrew Regitsky, President, Regitsky & Associates

On September 9, 2013, the D.C. Circuit Court of Appeals finally conducted its oral argument on Verizon’s July 2012 appeal of the FCC‘s October 23, 2010 Net Neutrality Order. In that Order, the FCC did the following:

A.   Created a new transparency rule requiring Internet providers to disclose their network management practices, performance and commercial terms of their broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service and device providers to develop, market and maintain Internet offerings.

B.   Instituted a no blocking rule in which an Internet provider cannot block lawful content, applications, services or non-harmful devices, subject to reasonable network management.

C.   Mandated a no unreasonable discrimination permitted rule in which an Internet provider engaged in the provision of fixed broadband Internet access service cannot reasonably discriminate in transmitting lawful network management over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.

The Net Neutrality Order was quickly attacked by parties inside and outside the industry.  Proponents of maximum government regulation claimed that the Order primarily failed because the Commission did not reclassify broadband as a telecommunications service. Such reclassification would have permitted the Commission unfettered legal control over Internet prices, terms and conditions. Instead, by maintaining broadband as an information service the Commission is only permitted to maintain ancillary control over broadband and has much less direct control over the Internet.

Proponents of an unregulated Internet offered more vehement criticism. These opponents of the Order, which included the ILECs, claimed that the Internet is not broken and does not need fixing. Moreover, they argued that the Commission does not have the legal authority to issue these rules. The Commission’s decision to assert its ancillary control over the Internet by relying on Section 706 of the Telecommunications Act, which permits Commission control over advanced telecommunications services, provides no additional regulatory authority over an information service such as broadband. Finally, the proposed rules will cause irreparable harm.  The uncertainty about the rules will dampen Internet investment and innovation, increase business costs and raise prices for consumers.

Verizon made the arguments in the above paragraph in its Appeal. The carrier claims that the Commission acted in an arbitrary and capricious manner in mandating net neutrality. The Commission could not describe specific problems with the Internet that the Order was solving, only hypothetical ones. Most importantly, as shown in previous Court decisions, Section 706 was intended to foster deregulatory authority on the Commission. Here, however, it is used to justify more regulation. 

Almost all industry observers believed that the Court would repeal the Net Neutrality Order.  As expected, during the oral argument the three judge panel was very skeptical of the Commission's claim that it could regulate broadband as if it were a common carrier service despite its classification as an information service. Nor did the judges appear to buy the FCC's argument that it could use its ancillary power under Section 706 to regulate broadband because it is an "advanced" service. Thus, the Order is likely to be vacated and remanded back to the Commission by early next year. After the Court’s decision, we will have to see if the government appeals the decision to the Supreme Court, which apears to be likely.

Learn more about the FCC's Net Neutrality Decision in this free, 60-minute webinar: