MEMORANDUM THE FCC S 2015 OPEN INTERNET ORDER AND IMPLICATIONS FOR BROADBAND INTERNET ACCESS SERVICE PROVIDERS SAMPLE

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1 MEMORANDUM THE FCC S 2015 OPEN INTERNET ORDER AND IMPLICATIONS FOR BROADBAND INTERNET ACCESS SERVICE PROVIDERS Introduction On March 12, 2015, the Federal Communications Commission ( FCC or Commission ) released its highly anticipated Net Neutrality Order. The 2015 Order follows two decisions by the Court of Appeals for the D.C. Circuit striking down most of the FCC s Open Internet rules adopted in 2010, with the exception of certain transparency requirements. Following this decision, the FCC initiated a Notice of Proposed Rulemaking ( NPRM ) seeking comments on proposed rules for the regulation of the network management practices of broadband Internet access service ( BIAS ) providers. Among other issues, the FCC sought comment on whether to reclassify BIAS as a telecommunications service under Title II of the Communications Act ( the Act ). The Order has sweeping implications for providers of broadband Internet access services (offering a fixed or mobile mass market retail broadband connection to the Internet). First, the Commission adopted bright-line rules to promote an open Internet (collectively referred to herein as the Open Internet rules ). Specifically, the rules ban blocking and throttling of Internet traffic (subject to reasonable network management ), and prohibit paid prioritization (subject to a narrow waiver process), as well as create a forward-looking no unreasonable interference/disadvantage standard by which the FCC will evaluate other practices not expressly prohibited by these three bright line rules. The Commission also adopted rules to enhance its existing requirements (adopted under its 2010 Open Internet Order) to ensure transparency for network management practices. In addition, the FCC modified its existing rules related to the filing of informal and formal complaints, to streamline filing procedures. Moreover, the Commission adopted an advisory process whereby parties can seek prospective guidance on the application of the Open Internet rules to their service offerings. Second, the Commission reclassified broadband Internet access service as a telecommunications service under Title II of the Act. The FCC further redefined the term public switch network, thereby finding that mobile BIAS qualifies as a Commercial Mobile Radio Service ( CMRS ). The Commission adopted a light touch regulatory approach by exercising its forbearance authority to refrain from applying 27 provisions of Title II of the Act, and over 700 Commission rules and regulations (including immediate contribution obligations to all Title II funding mechanisms, including the Universal Service Fund ( USF )). The Commission, however, preserved its authority to revisit a number of these forbearance decisions, through open proceedings (such as evaluating the contribution obligations of BIAS providers in its ongoing USF Contribution Reform proceeding) or by initiating new matters (such as considering new rules, specific to BIAS providers, to protect Customer Proprietary Network Information ( CPNI )).

2 Page 2 Further, the Commission specifically identified a number of provisions that will apply to broadband providers both fixed and mobile. These include: Section 222 privacy protections (specifically excluding the FCC s implementing rules); Sections 201, 202 prohibiting unfair, unreasonable and unjust practices, associated enforcement provisions (Sections 206, 207, 209, 216 and 217) of the Act, along with the related complaint procedures (Section 208) (excluding ratemaking regulations adopted under Sections 201 & 202); Section 224 and the Commission s implementing regulations (relating to access to poles, ducts, conduits, and rights-of-way); Sections 225, 255, and 251(a)(2), and the Commission s implementing regulations requiring carriers to ensure that services are accessible to and usable by individuals with disabilities (if readily achievable) (other than immediate TRS contribution obligations); Section 254, the interrelated requirements of section 214(e) (excluding Section 254(d) USF contribution obligations); Section 257 preserving statutory authority; Section 706 of the Act (relating to the proliferation of advanced communications services) and the Open Internet rules; Requirements under the Act or the Commission s implementing rules to the extent that they already applied prior to the 2015 Order without regard to the classification of broadband Internet access service (e.g., requirements under the Twenty-First Century Communications and Video Accessibility Act of 2010 ( CVAA ) (Sections of the Act) and liability limitation provisions). Other provisions not affected by the reclassification (as further outlined herein); and Section 309 and the wireless radio licensing rules.

3 Page 3 Section I of the following memorandum discusses the Open Internet rules and the implications for providers of broadband Internet access services. Section II discusses the reclassification of broadband Internet access services as telecommunications services, regulated under Title II, but subject to a light touch regulatory approach per the Commission s exercise of forbearance authority. I. Open Internet Rules A. Scope/Application of the Rules and Definitions The Open Internet rules apply to providers of broadband Internet access service ( BIAS ), defined by the Commission as follows: A mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part. 1 The Commission clarified that mass market is defined to include a service marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries. 2 The FCC further confirmed that mass market includes BIAS purchased with E-rate and Rural Healthcare program support or offered through networks supported by the Connect America Fund ( CAF ). 3 The term mass market does not include enterprise service offerings or special access services. 4 The Order confirms that BIAS includes services provided over any technology platform, including but not limited to wire, terrestrial wireless (including fixed and mobile wireless services using licensed or unlicensed spectrum), and satellite. 5 Moreover, BIAS encompasses services provided over owned or leased facilities. 6 The rules extend to facilities-based providers and resellers alike. 7 Likewise, BIAS includes both fixed and mobile services. 8 1 In the Matter of Protecting and Promoting the Open Internet, GN Docket No , Report and Order on Remand, Declaratory Ruling and Order, FCC at 25 & 187 (March 12, 2015) ( 2015 Open Internet Order ) Open Internet Order at 189; In the Matter of Preserving the Open Internet Broadband Industry Practices, GN Docket No and WC Docket No , Report and Order, FCC (Dec. 23, 2010) ( 2010 Open Internet Order ) at Open Internet Order at 189; 2010 Open Internet Order at Open Internet Order at Open Internet Order at 188 & 337; 2010 Open Internet Order at Open Internet Order at 188 & Open Internet Order at 188, n Open Internet Order at 188 & 337.

4 Page 4 Fixed broadband Internet access service refers to a broadband Internet access service that serves end users primarily at fixed endpoints using stationary equipment, such as the modem that connects an end user s home router, computer, or other Internet access device to the network. 9 The term encompasses the delivery of fixed broadband over any medium, including various forms of wired broadband services (e.g., cable, DSL, fiber), fixed wireless broadband services (including fixed services using unlicensed spectrum), and fixed satellite broadband services. Mobile broadband Internet access service refers to a broadband Internet access service that serves end users primarily using mobile stations. 10 It also includes services that use smartphones or mobile-network-enabled tablets as the primary endpoints for connection to the Internet, 11 as well as mobile satellite broadband services. 12 Notably, the Commission expressly excluded the following from the definition of broadband Internet access service : Enterprise services Virtual private network ( VPN ) services Hosting Content Delivery Networks ( CDNs ) Data storage services 13 Internet backbone services (separate from BIAS) IP-services that do not travel over broadband Internet access service 14 The Commission also provided a number of examples of services that likely would not fit within the category of services subject to the Open Internet rules. These include such non-bias data services as: E-readers Heart monitors Energy consumption sensors 15 Automobile telematics Services that provide schools with curriculum-approved applications and content Open Internet Order at 49 & n See 47 U.S.C. 153(34) ( The term mobile station means a radio-communication station capable of being moved and which ordinarily does move. ); 2010 Open Internet Order at The FCC noted that public safety services do not qualify as BIAS. See 47 U.S.C. 337(f)(1); 2015 Open Internet Order at 188, n Open Internet Order at Open Internet Order at 26; 2010 Open Internet Order at 47; In the Matter of Protecting and Promoting the Open Internet, GN Docket No , Notice of Proposed Rulemaking, FCC (May 15, 2014)( 2014 Open Internet NPRM ) at Open Internet Order at Open Internet Order at 208; 2010 Open Internet Order at 47, n Open Internet Order at 208.

5 Page 5 In general, the Open Internet rules apply to all BIAS providers. The Commission expressly confirmed that BIAS includes qualified services provided to edge providers. 17 The Commission declined, however, to require premise operators to comply with the rules to the extent they provide services that might otherwise fulfill the legal definition of mass market BIAS. 18 Premise operators include businesses that enable patrons to access the Internet at their respective establishments such as coffee shops, bookstores, airlines, universities and libraries. 19 Furthermore, while the Commission confirmed that arrangements for the exchange of Internet traffic generally fall within the definition of broadband Internet access, the Open Internet rules as adopted in the 2015 Order do not apply to these arrangements. 20 However, the Commission reserved its authority to take action against non-bias data services if the Commission finds that a particular service is providing a functional equivalent of broadband Internet access service, or... is [being] used to evade the protections set forth in these rules. 21 Implications for BIAS Providers: Perhaps the most important term in the definition of BIAS is mass market. Providers falling within the scope of definition would include, for example, carriers offering mobile data plans to end-user customers. 22 Wholesale providers, on the other hand, would not qualify (e.g., a Mobile Virtual Network Operator ( MVNO ) reselling BIAS to another MVNO). While mass market connotes a retail service offering, the Commission also included services provided to edge providers within the definition of BIAS. The FCC failed to define edge providers, and therefore providers may be required to interpret the term at the margins. In general, however, edge providers would include companies offering applications and content that ride over the Internet (i.e. any provider offering content, applications or services over the Internet or an entity providing a device used to access such content, applications or services) Open Internet Order at 27. The Commission did not specifically define edge providers. However, this term generally refers to companies that provide applications and content that rides over the Internet, such as Google and Netflix Open Internet Order at Open Internet Order at 191 & 340. The exemption will not apply if the service is offered on a mass market basis Open Internet Order at 186. The Commission noted that it adopts a case-by-case approach but will continue to monitor traffic exchange and developments in this market. Id. at 202. Moreover, the Commission noted that disputes involving a provider of broadband Internet access service regarding Internet traffic exchange arrangements that interfere with the delivery of a broadband Internet access service end user s traffic are subject to our authority under Title II of the Act. Id. at Open Internet Order at 210; 2010 Open Internet Order at While many such carriers already qualify as providers of telecommunications services because they provide voice service with their data plans, those carriers offering only data plans (that did not previously qualify as telecommunications service providers) now qualify as providers of telecommunications services subject to those Title II regulations upon which the Commission did not exercise its forbearance authority. Moreover, carriers that have already been regulated as providers of voice services likewise now have responsibilities with respect to their data offerings as discussed further herein.

6 Page 6 While the Commission included both fixed and mobile mass market Internet access services in the BIAS definition, the FCC expressly excluded enterprise offerings since they are typically offered to larger organizations through customized or individually-negotiated arrangements. 23 Moreover, the Commission specifically excluded Internet backbone services, non-broadband services, CDNs, VPN, and data hosting/storage. The exclusion of enterprise services, CDNs, enterprise, and VPN services present unique issues, which we touch upon below. 1. CDN (Content Delivery Network) Services The Commission does not expressly define CDN (content delivery network) in any of the three Open Internet Orders (2010 Order, 2014 NPRM, or 2015 Order). However, the 2010 Order notes that CDN services are designed to reduce the capacity requirements and costs of the CDN s edge provider clients by hosting the content for those clients closer to end users. Unlike broadband providers, third-party CDN providers do not control the last mile connection to the end user. And CDNs that do not deploy within an edge provider s network may still reach an end user via the user s broadband connection. Moreover, CDNs typically provide a benefit to the sender and recipient of traffic without causing harm to third-party traffic. 24 The 2014 NPRM further indicates that CDNs include Akamai, EdgeCast, Limelight, or Level 3, or cloud service providers such as Amazon, Microsoft, or RackSpace, which provide the servers upon which the applications run and also interconnect directly with broadband providers. 25 In general, CDNs simply rely upon a network of servers hosted in various data centers to quickly deliver content to end users, but do not necessarily provide Internet access. They rely upon Internet Service Providers ( ISPs ) to provide the Internet access; if, however, they also provide a mass market broadband service, they may also qualify as broadband Internet access service providers. Accordingly, there may be some unique considerations involved in determining whether a provider qualifies exclusively as a CDN, and thus avoids classification as a BIAS provider, or if the provider in fact qualifies as a CDN but provides its content delivery services alongside broadband Internet access. If a provider offers or is considering offering a service that could arguably qualify as CDN, the company should carefully review the service offering in consultation with counsel to determine whether it falls within the scope of the CDN exclusion. 2. VPN (Virtual Private Network) VPN (virtual private network) services are expressly excluded from the definition of broadband Internet access service. The 2010 Order expressly exempted VPN, and the Commission carried that exemption through with the 2014 NPRM and the 2015 Order. The Commission reasoned that The Commission has historically distinguished these services from mass market services and, as explained in the 2014 Open Internet NPRM, they do not provide the capability to transmit data to and receive data from all or substantially all Internet endpoints. 26 The Commission did not define VPN in any of these three Orders. While the Commission addressed VPN in the 2010 Order in the context of enterprise services, Open Internet Order at Open Internet Order at 76, n Open Internet NPRM at Open Internet Order at 45; 2014 Open Internet NPRM at 58; 2015 Open Internet Order at 190.

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