Net Neutrality and the Open Internet: What it is, How it Evolved and What In-House Counsel Needs to Know Jennifer Richter, Partner, Akin Gump 2016 Akin Gump Strauss Hauer & Feld LLP
What does Net Neutrality / an Open Internet Mean? n The term net neutrality was first used in January of 2003 by UVA Law Professor Tim Wu. n He was trying to describe the oncoming potential conflict between the private commercial interests of broadband providers and the public s interest in competitive and innovative services to be delivered over broadband. Broadband providers that offer more than just conduit access, such as cable television, or phone service, or content, may have an interest in favoring their own content or services at the expense of similar competing services that are offered over the Internet by third parties. n Today, the requirement of net neutrality, or Internet openness, builds off this concept -- broadband providers are required to treat all Internet traffic the same regardless of source and regardless of their various business interests. 1
Net Neutrality: What is the Debate About? n As they have evolved, the net neutrality regulations prevent broadband providers from creating a pay-to-play system that would allow some companies to pay for fast lanes for their content, while relegating everyone else to a slow lane. Broadband providers, such as Comcast, cannot favor their own video traffic over the video traffic they carry for competing services, such as Netflix. Telephone companies that offer broadband service cannot favor their own phone services over VoIP services that are offered by competitors. The principal concern is that ISPs, as gatekeepers, if not regulated, may have commercial incentives to slow down or block access to new competition. As President Obama put it: An entrepreneur s fledgling company should have the same chance to succeed as established corporations... access to a high school student s blog shouldn t be unfairly slowed down to make way for advertisers with more money. 2
Net Neutrality: What is it the Debate About? n Both consumer interests and commercial interests are at stake when we talk about net neutrality. The 4 groups of stakeholders that coalesce around the Internet include: (1) end users; (2) broadband providers; (3) backbone networks; and (4) edge providers. End users need the ability to access content and services of their choice, and the regulations seek to protect that right. But the big controversy that has pushed net neutrality as an issue over the past 14 years has been between broadband providers (Comcast, Verizon, etc.) and edge providers such as Netflix, Google and Amazon. Edge providers have built businesses providing content, services and applications over the Internet, using broadband infrastructure built by broadband providers, some of whom offer services and content that compete with the edge providers. Proponents of Internet openness have been concerned that broadband providers would prevent end-users from accessing the content or services of certain edge providers, or degrade the quality of Internet access, either to: (a) favor their own competing content or services (voice, news or movie services); or (b) enable them to collect fees from certain edge providers potentially resulting in end users paying twice for the same content once directly and once indirectly. 3
How Did The Rules Evolve? n 2002: The roots of net neutrality were planted in 2002 when Amazon made a filing in an FCC proceeding that explored the, Appropriate Regulatory Treatment for Broadband Access to the Internet over Cable Facilities. Amazon said: Amazon.com believes the FCC should impose on cable operators an open access requirement that would permit... consumers unfettered access to all the information, products, and services the Internet has to offer. This is the best way for the Commission to preserve the Internet s distinctive characteristic of enabling consumers to pull information, products, and services from millions of sources rather than having a handful of entities push out to them, as through the mass media. In addition, the agency should consider rules that would bar parties (either cable operators or broadband ISPs using cable modem facilities) from impeding consumer access to information, products, and services. In Amazon.com s view, such rules are absolutely necessary... [to] provide consumers an important safety net... n 2003: The term net neutrality was advanced by Professor Wu. n 2005: The FCC fined ISP Madison River Communications for preventing subscribers from accessing a VoIP service that competed with Madison River's own voice service. 4
How Did The Rules Evolve? n 2005: The FCC issued an Internet Policy Statement, which was a set of guiding principles that advanced the same basic goals as the net neutrality rules. But they were not rules just guidance. n 2007: Evidence and complaints emerge that Comcast is interfering with Bittorrent traffic on its network. Bittorrent allows end users to quickly download high-quality digital content such as video a very bandwidthintensive application. n August 2008: The FCC issued an Order documenting Comcast's tactics and prohibiting Comcast from discriminating against Bittorrent traffic. Citing its ancillary authority under Title I, the Commission ordered Comcast to make a set of end user disclosures describing how it would remedy the problem. n September 2008: Comcast challenged the FCC Order, appealing it to the D.C. Circuit. n Although the D.C. Circuit ultimately sides with Comcast a few years later, this Comcast challenge, and the back and forth between industry and the FCC that followed (including three cases before the D.C. Circuit), culminated in reclassification of broadband as a telecommunications / common carrier service under Title II earlier this year. 5
How Did the Rules Evolve? n 2008: Barack Obama, a big proponent of net neutrality, wins the 2008 presidential election. n 2009: The FCC begins a net neutrality rulemaking to explore open access issues, including under either Section 706 of the Telecommunications Act or potential reclassification of broadband as a common carrier service. The Commission is searching for the appropriate authority. n April 2010: The D.C. Circuit rules in favor of Comcast, rejecting the FCC's use of Title I ancillary authority to place additional requirements on Comcast in the Bittorrent matter. The D.C. Circuit calls into question the FCC's ability to issue net neutrality rules, finding that the FCC failed to cite any statutory authority that would justify its Order compelling a broadband provider to adhere to certain Open Internet practices. n December 2010: Six months later, in response to the D.C. Circuit s decision, the FCC issues an Open Internet Order exploring new statutory authority for its net neutrality rules. Although it considered common carrier reclassification of broadband, it finds other authority, under Section 706 of the Telecommunications Act, to issue the Open Internet rules. 6
How Did The Rules Evolve? n Using Section 706 as authority, the FCC s December 2010 Order imposed the following on broadband providers: n transparency requirements -- requiring broadband providers to disclose the network management practices performance characteristics, and terms and conditions of service, n anti-blocking requirements -- prohibiting broadband providers from blocking lawful content, applications, services or non-harmful devices, and n anti-discrimination requirements -- holding that broadband providers may not unreasonably discriminate in transmitting lawful network traffic. n September 2011: Verizon appealed the 2010 Order to the D.C. Circuit, questioning the FCC's authority under Section 706 to impose the Open Internet rules. n January 2014: The D.C. Circuit agrees in large part with Verizon and overturns the Open Internet rules. The D.C. Circuit confirmed the FCC's authority to promote the growth of the Internet, but made clear that if the FCC desires to treat Internet access as a telecommunications service, then it cannot classify it as an information service an established FCC position. 7
How Did The Rules Evolve? n Importantly, in the 2014 Verizon ruling, the D.C. Circuit found that the FCC had: (1) supported its conclusion that broadband providers represent a threat to Internet openness and could act in ways that would inhibit the speed and extent of future broadband deployment; and (2) convincingly detailed how broadband providers, as gatekeepers, have the economic power to restrict edge provider traffic and charge for the services they furnish edge providers. n Nevertheless, the D.C. Circuit vacated the anti-blocking and antidiscrimination rules because they required broadband providers to offer service indiscriminately a common carrier obligation at a time when broadband service was not classified as a telecommunications / common carrier service. n A few months after the Verizon decision, the FCC issued its 2015 Open Internet Order, reclassifying broadband as a telecommunications service that would be subject to common carrier regulations under Title II of the Communications Act. 8
The Three Components of the 2015 Open Internet Order n (1) Reclassifying fixed and mobile broadband Internet access service as telecommunications services that are subject to Title II common carrier regulations. n (2) Forbearing from applying certain common carrier regulations including unbundling requirements; and n (3) Establishing five open internet rules for fixed and mobile broadband providers: Ban on blocking lawful content, applications, services, or non-harmful devices. Ban on throttling, degrading or impairing access to lawful content, applications or services. Ban on paid prioritization: broadband service providers may not favor some traffic over other traffic either in exchange for consideration (monetary or otherwise) from a third party or to benefit an entity affiliated with the broadband provider. General Conduct Rule: broadband service providers may not unreasonably interfere with or unreasonably disadvantage (a) end users ability to select, access, and use broadband internet access services or lawful Internet content, applications, service or devices of their choice, or (b) edge providers ability to make lawful content applications, services, or devices available to end users. Enhanced Transparency Rule: broadband service providers must disclose, in a consistent format, monthly service charges (including promotional rates, if any), other fees and surcharges, and data caps and/or allowances. 9
Challenges Continue, but the FCC Finally Wins n 2015: US Telecom Association (and two others) challenged the 2015 Open Internet Order arguing that the Commission lacks statutory authority to reclassify broadband as a telecommunications service. n June 2016: In its June 2016 decision, the D.C. Circuit denied the 2015 challenges, affirming the net neutrality rules promulgated in the 2015 Open Internet Order, and affirming that broadband service can be reclassified as a telecommunications service that is subject to Title II regulations. n Why did the D.C. Circuit find that it was appropriate for the FCC to reclassify broadband service as a telecommunications service? The end user s perspective should be taken into account when classifying a service as either an information service or a telecommunication service. Consumers perceive broadband as a standalone utility-type service, that offers a simple conduit for transmitting data to and from one Internet endpoint to another. This is distinct from add-on applications, content and information services such as email and cloud storage. 10
What s Next? n Legal challenges The ISPs could seek rehearing by the D.C. Circuit, en banc rehearing by the D.C. Circuit, or certiorari to the Supreme Court None of these avenues are expected to be particularly successful for the ISPs, given the lengths to which the D.C. Circuit panel went in detailing its reasoning in upholding the Open Internet rules, the lack of any circuit split, and the Supreme Court s traditional deference to the D.C. Circuit in telecommunications matters n Legislative action Congress could adopt legislation overturning all or substantial portions of the Open Internet rules There was a Republican-led effort in early 2015, but it failed to gain significant bipartisan support With a divided Congress and Democratic president, this outcome is also unlikely With a Republican Congress and president, legislation to repeal the Open Internet rules and prohibit the FCC from regulating ISP conduct is likely 11
Now for some practical advice... n Based on the current regulation, Broadband Internet Access Service, or BIAS, is defined as 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... n BIAS is subject to the Open Internet / net neutrality obligations. n Although BIAS is reclassified as a common carrier service, the Commission used its forbearance authority to exempt BIAS from many regulations, including tariffing, rate regulation, interconnection requirements, and discontinuance approvals. n There are, however, a number of common carrier regulations that are related to, and somewhat beyond, the five Open Internet requirements that now apply to BIAS: Discrimination broadband providers cannot apply unjust or unreasonable charges, practices, or discrimination Enforcement Any person or entity can file a formal complaint with the FCC against a broadband service provider for violating the net neutrality rules Privacy broadband service providers are obligated to protect the confidentiality of end user private information (the FCC is currently undertaking a rulemaking proceeding to adopt rules implementing this requirement these obligations are critical) Disability Access broadband service providers are required to make their services and equipment accessible to individuals with disabilities 12
Open Internet Protections are Not Afforded to All Users of Broadband Service n All providers of BIAS are subject to the Open Internet Rules, including mobile and fixed BIAS providers and resellers of BIAS, but not all broadband service is protected by the net neutrality / Open Internet rules. n The following is not BIAS and does not have Open Internet protections or obligations: Most business data services or enterprise service offerings. Such offerings are typically offered to larger organizations through customized or individually negotiated arrangements, and therefore are not mass-market retail services Voice-over-Internet Protocol (VoIP) services Virtual Private Networks, Content Delivery Networks, web hosting, cloud hosting, data storage or Internet backbone services Internet access offered by a premises operator to its customers or employees Specialized data services that do not travel over the public Internet, such as connectivity bundled with e-readers, heart monitors, or energy consumption sensors. 13
Privacy and Security n The FCC has an open rulemaking proceeding in which it proposes to adopt privacy and security requirements for customer information collected by BIAS providers. n The Federal Trade Commission (FTC) and not the FCC has traditionally enjoyed enforcement authority for privacy matters, and has brought more than 150 privacy and data security cases. However, in reclassifying broadband as a common carrier service, broadband now falls into an FTC common carrier exemption which gives the FCC exclusive authority. n The proposed broadband privacy requirements are modeled after Customer Proprietary Network Information rules applicable to VoIP and traditional telephone service providers. n In general the proposed rule would require BIAS providers to: Notify end users regarding what personal information (PI) is collected and how it is used; Allow end users to opt-out of the BIAS provider using PI to market its own telecommunications-related products to its customers; Obtain opt-in approval from end users before sharing PI with non-communicationsrelated affiliates or third parties; Take reasonable steps to safeguard end user information from unauthorized use, disclosure, or access; and Notify end users regarding data breaches. 14
What You Need to Know n Enterprise services (Internet access services negotiated on an individualized contract basis) and business data services (high-capacity, point-to-point data transmission services distinct from simple broadband access) that many corporations purchase from broadband providers are not covered by the Open Internet rules. However, business data services provided by traditional telecommunications providers (Verizon, etc.) have been, and will continue to be, considered common carrier services. Business data services provided by cable companies (Comcast, etc.) are not currently common carrier services, but the FCC has a pending rulemaking designed to regulate these services on a technology-neutral basis. n If you are a small business and you purchase Internet access from a broadband service provider on standard terms and conditions that are generally offered to similarly-situated businesses, such service is covered by the Open Internet Rules. 15
Purchasing Internet Access Services in the Open Internet Era n Small Business offerings ISPs generally offer small business Internet access services on standardized terms and conditions throughout their service areas, and thus this service is considered mass market and subject to the Open Internet rules. The Open Internet rules are self-effectuating for mass market offerings, and as a result protect purchasers of small business offerings against the conduct prohibited by the rules without express incorporation into the terms and conditions of ISP agreements. If a purchaser of a small business BIAS offering believes the ISP has violated the Open Internet rules, the purchaser may seek recourse via the FCC s complaint processes. n Enterprise offerings Individually negotiated, tailored enterprise Internet access service offerings are not covered by the Open Internet rules. The protections for privacy, transparency and general good conduct by the broadband service provider, and against blocking, and throttling, must be negotiated by the enterprise and specifically included in the contract if these protections are desired or critical to your mission. 16
Premises Operator Exception n If your enterprise provides Internet access services to employees and / or customers in common areas, are you subject to the Open Internet rules? No. Premise operators are not subject to the Open Internet rules. n What is a premise operator? Businesses that acquire BIAS from a broadband provider to enable patrons to access the Internet from their respective establishments, including: Coffee shops Bookstores Airlines Private end-user networks such as libraries and universities n Premises operators are exempt from the Open Internet rules A premises operator that purchases BIAS is an end user and Internet access offered by the premise operator is an ancillary benefit to patrons However, premises operators are still subject to other provisions of the FCC s rules (e.g., a premises operator may not block a customer s use of a personal Wi-Fi hotspot to force the customer to use the premises operator s Internet access service) 17
Compliance and Enforcement n If you suspect your broadband service provider is not complying with the Open Internet rules, you have recourse to the FCC. n The FCC urges parties to resolve net neutrality disputes through informal discussions and private negotiations, but will also "proactively monitor compliance and take strong enforcement action against parties who violate Open Internet rules." n In the interest of providing certainty to regulated entities and the public, the Commission will provide guidance regarding compliance with its net neutrality rules in two ways: Advisory Opinions: Any entity subject to the FCC s jurisdiction may request an advisory opinion regarding its own proposed future conduct with its broadband network. Advisory opinions will be made available to the public. Enforcement Advisories: The Commission will periodically publish enforcement advisories concerning particular types of conduct under the Open Internet rules "to offer clarity, guidance, and predictability." 18
Questions? n Questions about the broadband service you offer or receive, and how the Open Internet rules apply? Don t hesitate to reach out: n Jennifer Richter, Akin Gump Strauss Hauer & Feld LLP n 202-887-4524 n jrichter@akingump.com 19