Genachowski’s ‘Third Way’ on Broadband Regulation Just Reclassification, FCC Republicans Say

Genachowski said in a written statement he was not comfortable with either fully classifying broadband as a Title II information service or leaving the post-Comcast status quo in place. Under a plan developed by General Counsel Austin Schlick, the commission will recognize that the transmission component of broadband service “and only this component” will be classified as a Title II service. The FCC will seek comment on the proposal through a notice of inquiry separate from the net neutrality proceeding, Schlick said.

"This proposal is disappointing and deeply concerns us. It is neither a light-touch approach, nor a third way,” the Republicans said. “Instead, it is a stark departure from the long-established bipartisan framework for addressing broadband regulation that has led to billions in investment and untold consumer opportunities. It also poses serious ramifications across the globe.” The Republicans warned that the proposal may not survive legal challenge. “After several government investigations, no evidence of systemic failure in the broadband market has been presented to justify this new, more onerous regulatory regime,” McDowell and Baker said. “Without a specific mandate from Congress, the appellate courts are likely to hand the Commission another stinging rebuke for attempting to shatter the boundaries of its statutory authority."

"The court in the Comcast decision left the commission with plenty of legal tools to implement parts of the broadband plan including comprehensive universal service reform, so I think that it has less to do with the overall agenda and everything to do with trying to fashion a legal authority to support net neutrality regulations,” McDowell said in an interview. “Elections matter and there appear to be three votes to go forward with this agenda as proposed. That means the appellate courts become all the more important."

Commissioner Michael Copps preferred a “plain and simple Title II reclassification through a declaratory ruling and limited, targeted forbearance -- wiping the slate clean of all question marks,” he said. Nonetheless, he said, he was pleased with the proposal. “The quicker we can bring some sense of surety and stability to the present confusion emanating from the Comcast court decision, the better off consumers -- and industry, too -- will be.” Making broadband a Title I service was “a travesty … in the first place,” he said.

Commissioner Mignon Clyburn said she also supports the proposal. “If we truly support universal access to broadband, if we are serious about transparency in broadband speeds and billing, if our aim is to strengthen our nation’s cybersecurity, and if we care about ensuring meaningful access to communications technologies by people with disabilities, then Title II authority is essential,” she said.

The FCC will apply only a “handful of provisions of Title II” to broadband -- specifically Sections 201, 202, 208, 222, 254 and 255 -- that “prior to the Comcast decision, were widely believed to be within the Commission’s purview for broadband,” Genachowski said in the written statement. The agency will “simultaneously renounce -- that is, forbear” from applying other sections of the Communications Act. Sections 201 and 202 of the Act prohibit unjust and unreasonable practices, and section 208 gives the FCC authority to enforce the prohibition. Section 222 provides for protection of customer privacy and 255 requires access to services for those with disabilities. Section 254 is the universal service provision of the act.

"This approach has important virtues,” Genachowski said. “First, it will place federal policy regarding broadband communications services, including the policies recommended in the National Broadband Plan, on the soundest legal foundation, thereby eliminating as much of the current uncertainty as possible. … Second, the approach is narrow. It will treat only the transmission component of broadband access service as a telecommunications service while preserving the longstanding consensus that the FCC should not regulate the Internet, including web-based services and applications, e-commerce sites, and online content."

Genachowski said the approach would effectively “restore the status quo” before Comcast, would “establish meaningful boundaries and constraints to prevent regulatory overreach” and would “allow the Commission to move forward on broadband initiatives that are vital for global competitiveness and job creation, even as it explores with Congress and stakeholders the possibility of legislative clarification of the Communications Act.” Genachowski also said the approach is close to the one the commission has taken in its regulation of wireless.

Genachowski did not meet with reporters to take questions, but instead Schlick and senior advisor Bruce Gottlieb held a news conference Thursday afternoon. They stressed that the FCC was following a minimalist approach. “The legal foundation needs to change” but the FCC does not intend to “change policy,” Gottlieb said. The commission’s stance provides a “foundation to make sure the agency is able to achieve” the goals of various broadband proceedings, he said. It represents a “pared down” approach and not a “full-blown” change to Title II regulation, he said. “We're moving ahead and doing what we have to do right now.” The commission will seek comment on the regulatory treatment of wireless broadband as part of the notice, Gottlieb clarified.

Asked about the Republican criticisms and the likelihood of a legal challenge, Schlick said by issuing a single order the FCC addresses any legal questions in a single challenge. “The commission will know where it stands,” he said. “The chairman’s point is that the period of uncertainty is already on us” and started with the Comcast oral arguments, Schlick said. “If we don’t take some steps to rebuild the legal foundation, then it will continue for years.” Schlick published a notice explaining the legal justification for reclassification, providing the likely blue print for arguments the FCC will make if the order is appealed.

Industry and other comments were largely predictable, based on past comments since reclassification became a strong possibility earlier this year. Public Knowledge President Gigi Sohn said she was generally pleased with Genachowski’s statement. “We have said for months that the right path for the Commission to take would be to examine all the possibilities for the best way to protect consumers and guarantee the expansion of broadband,” she said. “The method the FCC is expected to propose should be on the table, and we are glad it is.” But Sohn said she’s not happy that the chairman wants to foreclose the possibility of requiring line sharing. As the Berkman report for the FCC found, “line sharing is a crucial method to ensuring the long-term vibrancy of the broadband market and to providing more choices for consumers,” Sohn said.

Thirteen “Internet companies” sent Genachowski a letter of support. “We applaud the middle ground approach that you have proposed,” they said. “We share your belief that this course will create a legally sound, light touch regulatory framework that benefits consumers, technology companies, and broadband Internet access providers.” Signing the letter were Amazon.com, Dish Network, eBay, EarthLink, Sony Electronics, IAC, Skype, XO Communications, Google, Data Foundry, EchoStar, Netflix and Sling Media.

"From a consumer perspective, the chairman is taking a sound, sensible approach to a serious challenge,” said Joel Kelsey, policy analyst for Consumers Union. “This is a reasonable, common-sense way to maintain the status quo and preserve the ability of consumers to make their own choices over which websites to visit, which software to download and which online services to use."

Verizon Executive Vice President Tom Tauke said the proposal raises significant concerns. “In enacting the 1996 Telecommunications Act, Congress intentionally excluded Internet services, like broadband Internet access, from the scope of Title II’s regulatory burdens,” he said. “Those regulations were designed for different services delivered by different networks in different times. We believe that the chairman’s stated approach is legally unsupported."

AT&T Senior Executive Vice President Jim Cicconi said the decision is “without legal basis,” also hinting at a court challenge. “Make no mistake -- when it regulates the networks that comprise the Internet, the FCC is in fact, and for the first time, regulating the Internet itself,” he said. “There is no statutory basis for doing so. Indeed it is directly contrary to Congress’s stated intentions, and is being done without any compelling evidence that would justify a reversal of the FCC’s prior decisions on this issue."

Cable operators were unhappy with reclassification plans. “We've kept an active dialog with the FCC and legislators focused on our view that new laws and regulations may stifle investment, particularly in Internet infrastructure,” Charter CEO Michael Lovett said on a Q1 teleconference before Genachowski’s statement. Reclassification would be “disappointing, if it does in fact happen,” said Cablevision Chief Operating Officer Tom Rutledge. “We don’t think there’s a real problem but we do have some sympathy for the objectives that Chairman Genachowski and the FCC have in ensuring the Internet continues to function well."

Genachowski’s statement seems to leave room for the kinds of reasonable network management practices operators will need to employ, said Rick Wadsworth, director of regulatory affairs for Sandvine. “It’s quite clear this whole argument has taken a positive step forward in that reasonable network management, new business models and managed services are important and that wireless and wired networks have to be managed differently” are acknowledged by Genachowski, he said. “We're in a way better place in the debate today because of the acceptance of all those points."

NCTA “firmly” believes “the case for new regulation of the Internet has not been made,” President Kyle McSlarrow said. “We will continue to make the case that the better course is to develop a solution that reflects the longstanding and bipartisan view that all components of the Internet should be subject at most to limited regulation under Title I.” Reclassification “could create regulatory uncertainty that could dampen investment and innovation and ultimately, damage the consumer experience,” Time Warner Cable said. Comcast hopes to work with the FCC to find if there’s a third-way approach that doesn’t “cast the kind of regulatory cloud that would chill investment and innovation by ISPs,” a spokeswoman said.

"TIA’s member companies have historically been negatively affected by application of many of the Title II requirements and, after years of deregulation, we would greatly regret to see the trend reverse, especially in these times of economic distress,” said TIA President Grant Seiffert. On its face, the proposal “is almost laughable -- jamming broadband into an archaic structure designed to regulate a communications structure of yesteryear,” said Bartlett Cleland, director of the Institute for Policy Innovation Center for Technology Freedom. The Competitive Enterprise Institute said the proposal shows “an agency out of control.”

The “third way” Genachowski outlined, despite claims to the contrary, is “regulating the Internet as well as a sharp departure from the status quo,” said President Thomas Lenard of the Technology Policy Institute. “The status quo is the light-handed regulatory approach under which the Internet has grown and thrived over the past decade. Maintaining the status quo requires doing nothing. The FCC’s proposal is a large step toward turning the Internet infrastructure into a public utility."

Genachowski in effect invoked the nuclear option, though dressed up as a “third way” option, said Bernstein Research analyst Craig Moffett. “Reclassification would make all broadband service providers, for the first time, ‘common carriers,’ potentially subjecting them to myriad regulations, including ‘fair and reasonable pricing’ and Open Access requirements,” Moffett wrote investors. “At this point, there are more questions than answers. The legal basis for reclassification remains uncertain, as does the permissibility of the FCC’s plans to forbear from exercising power under Title II on the vast majority of regulations."

Cable, wireline and wireless carriers likely will focus their comments on the proposal on ensuring that the regulatory environment is conducive to capturing a reasonable return on capital, said Citigroup analyst Michael Rollins. UBS’s Michael Hodulik said the FCC is going to need evidence showing things have changed. Building a record of evidence would be key for the agency to ensure the reclassification holds up in court, he said. The question of which rules that apply to common carriers the FCC would waive is likely to be ironed out through a separate yet simultaneous proceeding, Hodulik predicted.