Symposium. Contents. Fall Broadband Reclassification and Net Neutrality. Symposium: Broadband Reclassification and Net Neutrality

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1 Contents 2 Committee Leadership 3 From the Editor Symposium: Broadband Reclassification and Net Neutrality 4 The Third Way The Federal Communication Commission s Proposed Reclassification of Broadband Internet Service Martin Stern, Marc Martin, & Peter Denton 11 The Comcast Decision and the Case for Reclassification and Re- Regulation of Broadband Internet Access as a Title II Telecommunications Service Lee Selwyn & Helen Golding Communications & Digital Technology Industries Committee ABA Section of Antitrust Law Fall 2010 Symposium Broadband Reclassification and Net Neutrality 39 Why Net Neutrality Rules and Broadband Third Way Reclassifications Are Unnecessary and Unlawful Glenn Manishin 54 Regulatory Framework for an Open Internet: The Canadian Approach The Right Way Forward? George Addy & Elisa Kearney 71 DOJ s Changing Section 2 Enforcement Policy and High- Technology Industries Henry McFarland & Robert D. Stoner

2 Committee Leadership Paul H. Friedman, Chair Dechert LLP Washington, D.C. Fall 2010 Gail F. Levine, Chair Verizon Communications Arlington, VA Adam J. Di Vincenzo, Vice-Chair Gibson, Dunn & Crutcher LLP Washington, D.C. Matthew C. Hammond, Vice-Chair United States Department of Justice, Antitrust Division Washington, D.C. Martin L. Stern, Vice-Chair K&L Gates LLP Washington, D.C. Dana R. Wagner, Vice-Chair Google Inc. Mountain View, CA Mark S. Popofsky, Council Representative Ropes & Gray LLP Washington, D.C.

3 From the Editor ICARUS EDITORIAL BOARD Fall 2010 EDITOR-IN-CHIEF ADAM J. DI VINCENZO GIBSON, DUNN & CRUTCHER LLP ECONOMICS EDITOR ROBERT J. LEVINSON CHARLES RIVER ASSOCIATES I am pleased to introduce this special symposium issue of ICARUS, the newsletter of the ABA Antitrust Section s Communications and Digital Technology Industries Committee. Broadband reclassification and net neutrality are hot-button issues that have recently garnered a great deal of attention from all three branches of the federal government, the telecom industry, and the mainstream press. This issue of Icarus presents a range of perspectives on the ongoing debate from expert lawyers and economists in both the U.S. and Canada. Each article brings a fresh and provacative take on the subject. This issue also presents a unique perspective on Section 2 enforcement in high-tech industries. In addition to the authors, I would like to thank Committee Vice-Chair Marty Stern and Icarus Economics Editor Bob Levinson for their insights, without which this symposium would not have been possible. We hope you find the debate and perspectives in this symposium as timely and interesting as we have. As always, if you as a reader have comments on any of this issue s articles or, better yet, an article idea for a future issue of ICARUS, please let me know. We appreciate your engagement with the Committee and look forward to seeing you at future programs. -Adam J. Di Vincenzo - 3 -

4 The Third Way The Federal Communication Commission s Proposed Reclassification of Broadband Internet Service Martin L. Stern (marty.stern@klgates.com) Marc S. Martin (marc.martin@klgates.com) Peter W. Denton (peter.denton@klgates.com) K&L Gates LLP 1 This issue of Icarus features several perspectives on the controversial and highly politicized proposal being considered by the Federal Communications Commission (the Commission ) to reclassify broadband Internet access service from an unregulated information service to a common carrier telecommunications service. 2 Reclassifying broadband Internet access in this manner would arguably allow the Commission to adopt new net neutrality (or open Internet ) rules and pursue other aspects of its broadband agenda, after the rejection of its jurisdiction by the D.C. Circuit to regulate broadband as currently classified Comcast Corp. v. Federal Communications Commission. 3 The process of reclassification involves a classic Washington scenario: a complicated and novel legal issue playing out in slow-motion across various branches of the government in the federal courts, the Administration and the Commission, and in Congress with interest groups and corporate interests on each side of the debate, all set on the backdrop of a mid-term election cycle that will potentially change the political calculus underlying the issue. As of this writing, and as discussed further below, House Democrats abandoned an effort to broker a legislative solution to codify the Commission s authority to enforce certain net neutrality principles, while prohibiting the Commission from reclassifying broadband Internet access 1 Marty Stern and Marc Martin are partners and Peter Denton is an associate in the Washington, D.C. office of K&L Gates LLP. 2 Information service and telecommunications service are defined terms in the Communications Act of 1934, as amended ( Communications Act or Act ), as is telecommunications carrier, which is defined as any provider of telecommunications services. 47 U.S.C The Commission has found that telecommunications carrier means the same thing as a common carrier subject to the Commission s jurisdiction under and the detailed regulatory prescriptions of Title II of the Communications Act. Virgin Islands Tel. Corp. v. FCC, 198 F.3d 921, 923 (D.C. Cir. 1999). In contrast, non-common carriers, including providers of information services, are not subject to Title II of the Act. See generally Brittan Commc ns Int l Corp. v. Sw. Bell Tel. Co., 313 F.3d 899 (5th Cir. 2002) F.3d 642 (D.C. Cir. 2010)

5 service. Certain Democratic congressional leaders are now encouraging the Commission to push forward with regulatory reclassification. The Selwyn-Golding article argues that the Commission should enact a modified version of the reclassification proposal and provides an economic and public policy basis for classifying broadband Internet service as a regulated telecommunications service. The Manishin article contends that reclassification is beyond the Commission s statutory powers, and that the Selwyn-Golding analysis substitutes preferred public policy for legal constraints on administrative agency action. The Addy-Kearney article provides a Canadian perspective to the underlying net neutrality issue, which is one of the key drivers underlying this debate. The Obama Administration has targeted net neutrality and what it refers to as the open Internet as a key policy initiative, whether through Commission action or new legislation. Net neutrality refers generally to a series of potential requirements on broadband Internet service providers (e.g., cable, telco and wireless broadband access providers), addressing how they handle lawful online content, applications and services, and associated customer disclosures. In 2005, the Commission laid the groundwork for its enforcement of net neutrality, adopting four open Internet policy principles. 4 On October 22, 2009, through the publication of the Open Internet NPRM, the Commission initiated a rulemaking proceeding to codify these four net neutrality principles and add two new ones. 5 At a threshold level, however, in order to implement these proposed net neutrality rules the Commission must have jurisdiction delegated by Congress to regulate broadband Internet services and access providers. Prior to April 2010, the Commission believed that it had this jurisdiction, pursuant to a legal framework developed over the previous decade. 6 In amendments to the Communications Act added by the Telecommunications Act of 1996, Congress distinguished between (1) telecommunications services used to transmit information, regulated by the Commission under Title II of the Communications Act; 7 and (2) information services that run over the network, largely unregulated under Title I of the Act. 8 4 Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, et al., Policy Statement, 20 FCC Rcd 14986, (2005) (hereinafter Internet Policy Statement ). 5 Preserving the Open Internet; Broadband Industry Practices, Notice of Proposed Rulemaking, 24 FCC Rcd (2009) (hereinafter Open Internet NPRM ). 6 See Framework for Broadband Internet Service, Notice of Inquiry, 25 FCC Rcd 7866 (2010) (hereinafter Reclassification NOI ). 7 See 47 U.S.C. 153(43), 153(46). 8 See id. 153(20)

6 As discussed in greater detail in the Selwyn-Golding article, the Commission over time determined that broadband Internet service should be classified as a deregulated Title I information service, rather than a Title II telecommunications service. 9 The Commission reserved the right, however, to apply certain Title II regulations to broadband Internet service under the doctrine of ancillary authority. 10 This refers to the Commission s discretion under... Title I of the Communications Act to adopt measures that are reasonably ancillary to the effective performance of the Commission s various responsibilities. 11 The Commission used this ancillary authority to apply a variety of Title II regulatory requirements to broadband Internet services and voice-over-internet-protocol ( VoIP ) telephony services, including universal service programs, customer proprietary network information, access for individuals with disabilities, network management policies and other related regulations. 12 By classifying broadband Internet service as a deregulated Title I information service, but still selectively applying Title II regulations through the assertion of ancillary authority, the Commission had the best of both worlds it could claim minimal regulation over the Internet, while still regulating largely where it saw fit. The U.S. Court of Appeals for the District of Columbia s Comcast decision toppled what even net neutrality proponents had characterized as a Title I house of cards, 13 albeit one that the Commission carefully constructed and had nurtured for over a decade. In Comcast, the D.C. 9 See Reclassification NOI, 25 FCC Rcd at , The U.S. Supreme Court upheld this interpretation of the Communications Act in See Nat l Cable & Telecomms. Ass n v. Brand X Internet Servs., 545 U.S. 967 (2005). 10 See Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, et al., Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd (2005). 11 Reclassification NOI, 25 FCC Rcd at 7868, 7 n.10 (quoting United States v. Sw. Cable Co., 392 U.S. 157, 178 (1962)). 12 See id. at , In certain cases, the Commission may have direct statutory authority to impose certain regulatory requirements on entities not currently defined as carriers, including VoIP providers and broadband Internet access providers, and need not resort to its ancillary authority to do so. For example, in imposing universal service contribution requirements on VoIP providers, the Commission, in addition to relying on its ancillary authority, relied on Section 254 of the Communications Act, 47 U.S.C. 254, which authorizes the Commission to require other providers of interstate telecommunications (i.e., non-common carrier providers of interstate telecommunications) to contribute to universal service support mechanisms. 13 See House of cards needs re-think, Susan Crawford blog (Jan. 29, 2010), available at

7 Circuit overturned a Commission enforcement action against Comcast Corporation arising from allegations that Comcast engaged in unreasonable and discriminatory broadband network management practices. 14 The court ruled that the Commission could not rely on its ancillary authority to regulate broadband Internet service providers in the same manner that the Commission regulates telecommunications carriers under Title II of the Act. 15 The Comcast ruling immediately cast a cloud over the Commission s ability to adopt proposed net neutrality rules and other key Internet policy initiatives, including its National Broadband Plan recommendations, 16 and called into question the Commission s authority over aspects of the rapidly growing broadband Internet industry. In the wake of the Comcast decision, consumer advocacy groups, content providers and other supporters of net neutrality implored the Commission to assert jurisdictional authority over broadband Internet service by reclassifying it as a regulated telecommunications service under Title II of the Act. At the same time, several broadband service network operators and other free market interests applauded the court s ruling and advocated for less federal regulation of the Internet. On May 5, 2010, Rep. Henry Waxman (D-CA) and Sen. Jay Rockefeller (D-WV), chairmen of the respective House and Senate committees overseeing the Commission, sent a joint letter to Commission Chairman Julius Genachowski urging him to consider reclassification with a light regulatory touch that includes appropriate use of the Commission s forbearance authority. 17 The debate quickly picked up overtones of the broader ideological divide in 14 See Comcast, 600 F.3d at Id. 16 In March 2010, the Commission released and sent to Congress its National Broadband Plan which it undertook pursuant to Section 6001(k)(2)(D) of the American Reinvestment and Recovery Act of 2009, Pub. L. No , 123 Stat. 115, 516, which required the Commission to develop a National Broadband Plan ensuring that every American has access to broadband capability. The National Broadband Plan contained some 200 recommendations, including numerous actions by the Commission related to broadband deployment and adoption, many of which were dependent on the Commission s ancillary jurisdiction over broadband for implementation. 17 See 47 U.S.C. 160 (authorizing the Commission to forbear from applying any provision of the Act to a telecommunications carrier or telecommunications service where such provision is not necessary to ensure just and reasonable rates and practices, is not necessary to protect consumers, and such forbearance would be in the public interest)

8 Washington, as House Minority Leader John Boehner (R-OH) characterized the proposal as a government takeover of the Internet by the Commission. 18 One day after the Waxman-Rockefeller letter, on May 6, 2010, the Commission Chairman proposed administrative action to reclassify the transmission component (or Internet connectivity service ) of wired broadband Internet service from a deregulated Title I information service to a regulated Title II telecommunications service. Rather than subjecting broadband Internet service to the full panoply of Title II regulatory requirements, however, Chairman Genachowski proposed a so-called Third Way, whereby the Commission would use a light touch and impose only the Title II requirements it deems necessary to implement its targeted policy prescriptions (including the Commission s National Broadband Plan and proposed net neutrality rules), while forbearing from applying the majority of the Title II requirements. This proposed Third Way would bifurcate the Commission s regulatory approach to broadband Internet access service, reclassifying only the transmission component of such service as a telecommunications service under Title II of the Act, but leaving the computing functionality portion of the service deregulated as an information service under Title I of the Act. The Commission would then apply a limited number of Title II provisions to the transmission component of broadband Internet access service, while using the Commission s statutory authority to forbear from the application of the remaining Title II provisions. On June 17, 2010, Chairman Genachowski was joined by two fellow Democratic commissioners in a 3-2 vote to adopt the Reclassification NOI, seeking comment on the Third Way reclassification approach and other potential regulatory approaches to wired broadband Internet service. 19 The Commission also sought comment through the Reclassification NOI on how these classification issues relate to terrestrial wireless broadband Internet services and to satellite broadband Internet access (which the Commission had not affirmatively classified as a Title I information service). 20 In the Reclassification NOI, the Commission emphasizes that it is focused only on broadband communications networks used for Internet access, and does not suggest regulating Internet applications, much less the content of Internet communications Tony Romm, Boehner slams FCC for takeover of Internet, The Hill (May 6, 2010), available at 19 Reclassification NOI, 25 FCC Rcd at 7878, Id. at , Id. at 7870,

9 Under the Third Way proposal, the Commission would apply only six of some 48 Title II sections (Sections 201, 202, 208, 222, 254 and 255) to broadband Internet services as it deems necessary to implement the Commission s proposed broadband policies. Chairman Genachowski characterized the proposed forbearance of the remaining sections as reflecting the long-standing bipartisan consensus that the Internet should remain unregulated and that broadband networks should have only those rules necessary to promote essential goals, such as protecting consumers and fair competition. 22 According to Chairman Genachowski, this proposal is aimed at restoring the status quo by not changing the obligations that, prior to the Comcast decision, the Commission placed upon broadband Internet access providers and by not expanding the authority that the Commission believed it had over broadband pre-comcast. Commission General Counsel Austin Schlick also headed off criticism by asserting that the proposal would not modify an incumbent telephone company s network unbundling obligations or afford competing service providers any new rights to the incumbents networks on a wholesale basis. 23 Reaction to the proposed reclassification from industry stakeholders has broken down predictably by perceived business threats. The reclassification would directly regulate and restrict the network management practices of telecommunications landline and wireless network operators and cable broadband service providers, and would provide government protection to Internet content and application providers that stand to gain from net neutrality rules. While some analysts believed that the Commission would quickly promulgate a reclassification rule, the Commission indicated a more deliberative approach by requesting, on September 1, 2010, further comments on two under-developed net neutrality issues first raised in the Open Internet NPRM, with the comment cycle on those questions not closing until early November after Election Day. 24 The Commission s consideration of comments on the Reclassification NOI has not occurred in an administrative bubble. The Democratic chairmen of the congressional committees and subcommittees that currently oversee the Commission initially expressed support for the Third Way approach, while congressional Republicans have seized on the reclassification and net neutrality issues as examples of federal government regulatory overreach. 22 Julius Genachowski, The Third Way: A Narrowly Tailored Broadband Framework (May 6, 2010), available at 23 Austin Schlick, A Third-Way Legal Framework for Addressing the Comcast Dilemma (May 6, 2010), available at 24 Further Inquiry Into Two Under-Developed Issues in the Open Internet Proceeding, Public Notice, GN Docket No , WC Docket No , DA (Sept. 1, 2010)

10 The future of reclassification has been further complicated by the 2010 mid-term elections. In an apparent attempt to pass legislation addressing the reclassification and net neutrality issues before the current Congress adjourns at the end of this year, House Democrats recently engaged in a furious eleventh-hour effort to broker a legislative compromise. A draft bill circulated by Democratic committee leadership would have specifically prohibited the Commission from reclassifying broadband Internet access service and enacting its Third Way proposal. Instead, the bill would have codified the open Internet principles set forth in the Open Internet NPRM, but would have also allowed wireless broadband Internet access providers additional leeway to block certain applications, services, and devices. 25 As of this writing, Chairman Waxman announced he would not attempt passage of this bill prior to the November election, but has not foreclosed efforts to move the bill during a lame-duck session prior to adjournment at year end. If, as expected, this proposed net neutrality and reclassification legislation does not pass during the final weeks of the 111th Congress, the legislative future of these issues is far more uncertain. Chairman Genachowski is expected to push forward with the Open Internet and Reclassification rulemaking proceedings, while adjusting to new post-election political realities. House Energy and Commerce Committee Chairman Waxman, for example, has now explicitly given the FCC Chairman cover to address these issues through administrative rulemaking. 26 Given the intense focus on this issue and its contentious legal history, any Commission reclassification decision would likely face court challenge. With this backdrop, the Selwyn-Golding and Manishin articles address legal, economic, and policy arguments for and against the Commission s approach to reclassification and regulation of broadband Internet in a post-comcast era, with the Addy-Kearney article examining the Canadian approach to net neutrality regulation and whether market conduct regulation by Canada s telecommunications regulator when layered on top of the existing market structure regulation is the right approach to preserve the Open Internet. These articles address important legal, economic, and policy considerations underlying the political debate surrounding this controversial issue. 25 See Eliza Krigman, Net Neutrality Bill Gives FCC No New Rulemaking Power, National Journal (Sept. 27, 2010), available at 26 Sara Jerome, Waxman Backs FCC Reclassification of Broadband, The Hill (Sept. 29, 2010), available at