Genachowski Says Net Neutrality to Move Under Title I, With ‘No Blocking’ Rules

Genachowski and his staff told reporters that the item will proceed under Title I and have broad “no blocking” rules that will apply to wireline and wireless companies. It also will have “transparency” requirements, condemn but not ban paid prioritization, include “a clear definition” of “public Internet,” forbid “unreasonable discrimination” and say the commission is willing to let the market sort out questions of usage-based pricing, said Genachowski and senior staff Wednesday. Such provisions had been expected (CD Dec 1 p1).

Genachowski speaking from prepared remarks said the neutrality item represents “a common ground” compromise that “is not designed or intended to preclude action by Congress.” Hill Republicans earlier had condemned the effort, U.S. Rep. Lee Terry, R-Neb., calling it “an act of war” (CD Nov 22 p1).

Proceeding under Title I would be the easiest way to uphold net neutrality, senior commission staff said at a briefing with reporters after Genachowski’s speech, speaking on the condition they not be named. After the Comcast decision, the chairman’s staff had said a Title I approach would create “prolonged uncertainty.” Officials said Wednesday that after a closer inspection of Title I, Genachowski and aides became convinced they had both direct and ancillary authority to create neutrality rules. “We feel like we have sound arguments,” a senior FCC official said.

Officials said that they have not abandoned discussions on whether broadband should be reclassified under Title II. But it was clear that reclassification isn’t a high priority near-term. Genachowski has not given up on a Universal Service Fund revamp, originally thought to be on December’s agenda, senior officials said. USF will likely be taken up at the February meeting (CD Nov 26 p1). Senior staff confirmed Wednesday that the USF will come up “early next year.”

Genachowski still has a lot of work in front of him. Republican Commissioners Robert McDowell and Meredith Baker issued statements condemning the item before Genachowski finished his speech. McDowell said the item was the result “of coercion” of industry players and “has been extracted in defiance of not only the courts, but a large, bipartisan majority of Congress as well.” Baker said the item is “a mistake,” and “we do not have authority to act. … Just because Title II is even more destructive to investment does not transform Title I into a middle ground.”

Democratic Commissioners Mignon Clyburn and Michael Copps, longtime supporters of a Title II approach, said they were taking a wait and see stance. Clyburn said “clear rules of the road are absolutely necessary” and she’s “anxious to begin my review” of the item. Copps said, “It’s no secret that I am looking for the strongest protections we can get to preserve an open Internet, built on the most secure legal foundation so we don’t find ourselves in court every other month.” Wednesday is “the beginning of an important discussion and not the end,” he said. “We have a historic opportunity to make sure this dynamic Internet technology reaches its full potential to create opportunity for every citizen. I hope we will make the most of it."

Title I Tradeoff

Genachowski is making a tradeoff in deciding to stick with Title I while enforcing net neutrality, said commission officials and industry executives, some privy to discussions that Chief of Staff Eddie Lazarus had held in recent days with proponents and opponents of rules. Some officials said they think the FCC will have a harder time defending net neutrality rules under Title I if they're challenged in court. That’s because the commission is thought to have less authority to require net neutrality under Title I than under Title II, a point that some industry and commission officials had said was underscored by the Comcast decision.

What Genachowski gains from not reclassifying is some assurance, though unstated, that major ISPs likely won’t sue the commission over the net neutrality rules, industry and commission officials said. The FCC didn’t solicit or receive commitments from any party not to sue the agency over the rules, a senior agency official said. And someone probably will sue over the final rules, another agency official said.

Cable operators would be less likely to challenge any net neutrality rules under Title I, an industry official said. A decision will depend on what the FCC’s order says, the official noted. Cable operators have been asking the commission to stick with Title I, and it would be good news for the industry if the order is approved, because Genachowski seemed to have the votes of Clyburn and Copps for reclassification, the person said. Spokesmen for the NCTA, AT&T and Verizon -- the ISP representatives at several meetings with Lazarus -- had no comment.

The chairman gains in the court of public opinion by having implicit consensus behind the approach he announced Wednesday from some major players in net neutrality, a commission official said. That would help give weight to Genachowski’s statements about why he decided to take the approach he did, the official said. And it helps the move be seen as a compromise among policy makers outside the commission, the FCC official said.

"We expect Verizon, AT&T, and other wireless providers to push back hard against any toughening of the wireless requirements, and we believe the Bells have substantial leverage, given an FCC desire for political cover from major players (and preferably a commitment not to challenge an order in court),” Stifel Nicolaus analysts wrote to investors. “But the FCC will also face countervailing pressure from net neutrality advocates such as Skype, not to let wireless off the hook -- and even from midsize/rural wireline telcos” such as Qwest and CenturyLink, which are combining, and Frontier Communications and Windstream, the analysts added. Cable operators may also seek “to minimize wireless/wireline differences in regulatory treatment,” Stifel said.

Some industry lawyers think the FCC is safer sticking with Title I when it comes to dealing with any lawsuits over net neutrality rules. Industry lawyer and consultant Steve Effros has “always thought they had a better shot in court defending a reasonable Title I argument than trying to switch to Title II,” he said. “I may be in the minority here, but I think they get much more ‘deference’ with a good Title I explanation, which they did not give the first time around” in the Comcast case, he continued. “And that case was poisoned by the procedural stuff -- consideration of fines, for instance, for a ‘rule’ that did not exist."

Industry Guardedly Supportive

Industry opinions were guardedly supportive. CTIA is pleased that the proposed rules have moved away from broad Title II regulation and toward a more tailored approach that recognizes the nature of wireless services, said President Steve Largent. USTelecom is pleased that the proposed framework was based on an earlier proposal by outgoing House Commerce Committee Chairman Henry Waxman, D-Calif., but the proposal was for temporary rules, President Walter McCormick said. AT&T’s strong preference would be for the FCC to refrain from any regulation concerning the Internet, said Senior Executive Vice President Jim Cicconi. Still, the company is pleased that the agency appears to be embracing a compromise solution, he said. Verizon was less favorable. The FCC should recognize the limitations of the Communications Act and the rapidly changing conditions in the market and make any rules it adopts temporary, said Executive Vice President Tom Tauke. He also urged the FCC to consider the framework of Waxman’s proposal, including its sunset provision.

The order appears to reflect Genachowski’s previously stated position that neutrality rules shouldn’t and won’t result in price regulation and to recognize the value of business models like usage based pricing, said NCTA President Kyle McSlarrow. Internet Innovation Alliance co-Chairman Bruce Mehlman called the proposal “the most effective option” for reducing regulatory uncertainty. While the Information Technology Industry Council’s members cover a range of the views commonly held in the debate, “we recognize that we can’t make the perfect the enemy of the good,” President Dean Garfield said, calling the FCC’s policy position a fair middle ground. The Minority Media and Telecom Council, never a fan of rigid net neutrality rules, said the FCC has found a reasonable path forward. Jonathan Spalter, chairman of the Mobile Future Coalition, praised the FCC for supporting “a measured, forward-looking policy framework.”

But the industry players continued to urge input from Congress and said they will wait to review the specific language in the text. The FCC’s authority to act in this area is uncertain and Congress has indicated a strong interest in addressing this issue, Tauke said. Interim rules would encourage congressional action, while showing appropriate deference to Congress, he said.

Tech companies seemed more welcoming. The framework hits the right balance between encouraging investment and protecting consumers, said Rey Ramsey, head of TechNet, a network of tech industry CEOs. Peter Pitsch, associate general counsel of Intel, told us the proposal appears to balance competing interests and offer a way forward. Cisco supports the FCC’s completing the policy debate in a way that maintains an open Internet, allows reasonable network management and preserves incentives for investment, CEO John Chambers said.

The proposed order disappointed public interest groups. The FCC must do better than previous failed proposals, Free Press President Josh Silver said. Early reports indicated that the proposal looks like “the fake net neutrality” and retreats from the real consumer protections outlined by the chairman earlier, he said, saying the current proposal creates loopholes that he could “drive a Verizon-Google-sized truck through.” The chairman doesn’t seem to foresee invoking Title II authority to ensure that the rules will withstand judicial review, said Tyrone Brown, president of Media Access Project. Public Knowledge President Gigi Sohn urged the agency to adopt the previously proposed “Third Way” approach at a future meeting. But the Open Internet Coalition, whose members include MAP, Free Press and Public Knowledge, supports the proposed order, and it’s the first step at the commission toward achieving President Barack Obama’s promise to adopt net neutrality rules, the group’s executive director, Markham Erickson, said.

Free market backers like the Free State Foundation and Competitive Enterprise Institute urged the FCC to reject the proposal, saying mandating net neutrality would harm consumers and stifle investment. Consumer groups welcomed the announcement. Ultimately, the devil will be in the details of the final order, but the FCC appears headed toward the right goal, said the Consumers Union and the Consumer Federation of America. The Communications Workers of America supports the initiative to sustain open Internet principles, President Larry Cohen said. The National Association of Regulatory Utility Commissioners urged the FCC to “clearly define” what constitutes unfair discrimination while ensuring reasonable network management, said President Tony Clark and Telecom Committee Chairman Ray Baum. The group also urged the agency to recognize the role state commissions play in the initiatives.