DC Circuit Grants FCC Wide Leeway in Upholding Net Neutrality, Title II Order

Both opinions were released Tuesday in a court document (see USTelecom v. FCC, No. 15-1063) and were the subject of earlier Communications Daily bulletins (see 1606140012) and 1606140010). An appeal is likely (see 1606140040). Some had forecast a split ruling (see 1606100050).

Tatel and Srinivasan called their review “limited” under the Supreme Court's 1984 Chevron precedent. "Our job is to ensure that an agency has acted 'within the limits of [Congress’s] delegation' of authority ... and that its action is not 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’” they wrote in their 109-page opinion. "Critically, we do not 'inquire as to whether the agency’s decision is wise as a policy matter; indeed, we are forbidden from substituting our judgment for that of the agency.’”

The judges upheld the FCC determination that broadband internet access service (BIAS) is a Title II telecom service. Citing the Supreme Court's 2005 Brand X ruling on the importance of the end user's perspective, the judges noted FCC reasoning that consumers see BIAS as sufficiently independent of internet applications, content and other information services that it constitutes a separate offering. "The Commission pointed to record evidence demonstrating that consumers use broadband principally to access third-party content, not email and other add-on applications," they wrote. The FCC found the internet service market had flourished as consumers gained broadband access, with the number of websites rising from about 36 million in 2003 to 900 million in 2015. "By one estimate, two edge providers, Netflix and YouTube, 'account for 50 percent of peak Internet download traffic in North America,’” the judges wrote, citing the order. The FCC found consumers preferred independent online content and applications to the add-on internet services offered by broadband providers, they wrote.

The majority said a telecom system management exception allowed the FCC to find BIAS wasn't an integrated information service even though broadband providers often rely on certain information services to transmit content to users. "The Commission focused on two such services," they wrote. "The first, DNS, routes end users who input the name of a website to its numerical IP address, allowing users to reach the website without having to remember its multidigit address. The second, caching, refers to the process of storing copies of web content at network locations closer to users so that they can access it more quickly. The Commission found that DNS and caching fit within the statute’s telecommunications management exception because both services are ‘simply used to facilitate the transmission of information so that users can access other services.’”

USTelecom Rejected

Tatel and Srinivasan rejected USTelecom procedural arguments that the FCC violated the Administrative Procedure Act because its NPRM proposed relying on Section 706 of the 1996 Telecom Act instead of Title II for its broadband authority; didn't explain it would justify its reclassification based on consumer perceptions; and failed to signal its intended reliance on the telecom management exception. The NPRM satisfied a "logical outgrowth test" because it did seek comment on related issues, the judges wrote.

The judges also rejected petitioner substantive arguments. USTelecom said broadband is unambiguously an information service. The judges noted the Supreme Court in Brand X said whether a carrier provides a telecom service depends on whether it makes an "offering" of telecommunications. "The term 'offering,' the Court held, is ambiguous," Tatel and Srinivasan wrote. They cast aside USTelecom arguments that the Brand X ruling was limited to "last mile" transmission, and explained why they were unpersuaded by its further arguments in favor of a mandatory information service finding. They also rejected arguments by intervenor TechFreedom regarding a 2000 high court decision on Food and Drug Administration authority (Brown & Williamson) as ignoring Brand X. "The Supreme Court expressly recognized that Congress, by leaving a statutory ambiguity, had delegated to the Commission the power to regulate broadband service. By contrast, in Brown & Williamson the Court held that Congress had 'precluded' the FDA from regulating cigarettes," they wrote.

The jurists rejected arguments the FCC classification was unreasonable because broadband providers offer information services such as email with internet access. The commission concluded BIAS was a separate offering. "US Telecom nowhere challenges that conclusion, and for good reason: the record contains extensive evidence that consumers perceive a standalone offering of transmission, separate from the offering of information services like email and cloud storage," the jurists wrote.

Tatel and Srinivasan accepted FCC explanations for why it reclassified broadband from an information service to a telecom service. They noted Tatel's 2014 Verizon ruling upholding FCC broadband authority under Section 706 of the Telecom Act while reversing certain net neutrality rules as prohibited common carrier regulation. Absent broadband reclassification as a telecom service, the FCC said it "could only rely on section 706 to put in place open Internet protections that steered clear of regulating broadband providers as common carriers per se,” they wrote. "This, in our view, represents a perfectly 'good reason' for the Commission’s change in position." They also rejected other petitioner arguments, including that the FCC failed to satisfy a heightened standard of review for changing policy and couldn't abandon its information service policy "without accounting for reliance interests that its prior policy engendered." They said the agency met that standard and did account for those interests.

The majority upheld regulation of broadband provider interconnection with internet backbone and edge providers. They quickly dispensed with petitioner arguments and said the FCC overcame a potential problem by reclassifying broadband -- and its interconnection arrangements -- as a telecom service.

Mobile Broadband Focus

The D.C. Circuit went to great lengths to justify FCC mobile broadband reclassification as a commercial mobile service in the face of challenges from CTIA and AT&T, which argued mobile broadband was a private mobile service not subject to common-carrier regulation. Tatel and Srinivasan said there was no dispute that mobile broadband met three of the four parts of the statutory definition of a commercial mobile service: it's a mobile service, is provided for profit and is available to the public.

The only question is whether mobile broadband "makes interconnected service available," Tatel and Srinivasan wrote. The statute defined "interconnected service" as "service that is interconnected with the public switched network" as defined by the FCC, they wrote. Previously, the commission defined the "public switched network" as a set of cellular and landline phone networks, and had found mobile broadband users couldn't interconnect with that network because mobile broadband used IP addresses not phone numbers. Mobile broadband thus wasn't an "interconnected service" or a "commercial mobile service," they noted.

The FCC in 2015 sought to expand its "public switched network" definition in light of the mobile broadband marketplace explosion, the judges noted. "The upshot is that, just as mobile voice (i.e., cellular telephone) service in 1994 provided 'ubiquitous access' for members of the public to communicate with one another 'from anywhere in the nation,' mobile broadband by 2015 had come to provide the same sort of ubiquitous access." The FCC moved to reclassify mobile broadband as a commercial mobile service "in recognition of the similarity of mobile broadband to mobile voice as a universal medium of communication for the general public -- and the dissimilarity of mobile broadband to closed private networks such as those used by taxi companies or local police and fire departments," they wrote.

"Because the public switched network now includes IP addresses, the Commission found that mobile broadband qualifies as an 'interconnected service,' i.e., 'service that is interconnected with the public switched network' as redefined," Tatel and Srinivasan wrote. In light of the changes and detailed evidence, the commission could reclassify mobile broadband, they concluded.

The majority noted petitioner arguments for why mobile broadband must still be classified as a private mobile service. "First, they argue that 'public switched network' is a term of art confined to the public switched telephone network. Second, they contend that, even if the Commission can expand the definition of public switched network to encompass users with IP addresses in addition to users with telephone numbers, mobile broadband still fails to qualify as an 'interconnected service,’” the judges wrote.

"We reject both arguments," Tatel and Srinivasan wrote. "In mobile petitioners’ view, mobile broadband (or any non-telephone mobile service) -- no matter how universal, widespread, and essential a medium of communication for the public it may become -- must always be considered a 'private mobile service' and can never be considered a 'commercial mobile service.' Nothing in the statute compels attributing to Congress such a wooden, counterintuitive understanding of those categories. Rather, Congress expressly delegated to the Commission the authority to define -- and hence necessarily to update and revise -- those categories’ key definitional components, 'public switched network' and ‘interconnected service.’” They spent 20 pages addressing further specific mobile broadband petitioner arguments.

The majority also rejected various other petitioner challenges: to net neutrality rules, including that prohibited paid prioritization and instituted a general conduct standard; Alamo Broadband and Daniel Berninger's First Amendment free-speech challenge; and Full Service Network's challenge to the FCC decision to forbear from applying many Title II provisions to broadband service.

Lengthy Dissent

Williams said he agreed with much of the majority opinion but felt he had to dissent.

The 69-page dissent said the FCC order should be vacated for three reasons. First, the FCC's justification for reclassifying broadband as a Title II telecom service "fails for want of reasoned decisionmaking," he wrote: "(a) Its assessment of broadband providers’ reliance on the now-abandoned classification disregards the record, in violation of its obligation under F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009). Furthermore, the Commission relied on explanations contrary to the record before it and failed to consider issues critical to its conclusion. Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). (b) To the extent that the Commission relied on changed factual circumstances, its assertions of change are weak at best and linked to the Commission’s change of policy by only the barest of threads. (c) To the extent that the Commission justified the switch on the basis of new policy perceptions, its explanation of the policy is watery thin and self-contradictory.”

Williams said the FCC based its regulatory scheme on two statutory sections that didn't justify the agency's rules. "Application of Title II gives the Commission authority to apply § 201(b) of the Communications Act," he wrote. "The Commission invokes a new interpretation of § 201 to sustain its ban on paid prioritization. But it has failed to offer a reasonable basis for that interpretation. Absent such a basis, the ban is not in accordance with law." He also said Section 706 is "inadequate to justify the ban on paid prioritization and kindred rules.”

The dissenter said the FCC decision to forbear from enforcing many Title II provisions is based on premises that are inconsistent with its broadband reclassification. "Its explicit refusal to take a stand on whether broadband providers (either as a group or in particular instances) may have market power manifests not only its doubt as to whether it could sustain any such finding but also its pursuit of a ‘Now you see it, now you don’t’ strategy," he wrote. "The Commission invokes something very like market power to justify its broad imposition of regulatory burdens, but then finesses the issue of market power in justifying forbearance.”

“The best place for examining the Commission’s explanation of the jewel in its crown -- its ban on paid prioritization -- is in discussion of its new interpretation of 47 U.S.C. § 201," Williams wrote. "But that explanation is important for understanding the Commission’s failure to meet its obligations under Fox Television, above all the obligation to explain why such a ban promotes the 'virtuous cycle,' which (as the majority observes) is the primary justification for reclassification under Title II.”

Williams said he agreed with the majority that broadband reclassification as a telecom service "may not run afoul of any statutory dictate," but he said the FCC "failed to meet the modest requirements of Fox Television." Agencies that change policy must show "there are good reasons," but more is required in special circumstances, he said. Citing Fox, he said: “An ‘agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. [But s]ometimes it must -- when, for example, its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account.’” He provided much detail on why he believed the FCC inadequately justified its policy switch under the heightened standard.