Verizon triumphs over the FCC, the question is whether policy change or a Supreme Court appeal is in store

Amidst the fallout of the U.S. National Security Agency (NSA) domestic spying scandal, President Barack Obama (D) isn't exactly earning high praise from internet activists these days.
I. FCC's Net Neutrality: Protection or Market Manipulation?
But one policy he and former U.S. Federal Communications Commission Chief (FCC) chief Julius Genachowski pushed through does remain popular to this day among internet activists -- net neutrality.  In its current form, the rules -- set forth in Dec. 2010 -- ban large cable internet providers like Comcast Corp. (COMCSA) from forcing individual websites to pay "tolls" to have their data reach customers and/or make users pay a separate toll to receive the data.
Net neutrality, however, is not without its critics.  Spammers, for one, hate it as they say their email is being "discriminated" against and should not be exempt from the protections.  And some members of the U.S. House of Representatives claim net neutrality regulation is anti-capitalist.  These politicians complain that net neutrality regulation is preventing telecoms from aggressively pursuing monetization schemes, such as a charging users per website visit.

Pay per page visit
The FCC proposal is unpopular among some politicians and ISPs, who complain it would prevent a "free market" in which carriers could charge users per-website usage fees. 
[Source: Fierce Wireless Semina via Wired]

One had to wonder how long the FCC's bid to block Verizon and others from such schemes would last given the strong opposition.  After all, Comcast already sued the FCC and won in U.S. Court of Appeals for the D.C. Circuit.
Verizon Inc. (VZ) piled on, suing the FCC in DC federal court in Oct. 2011 (Verizon v. FCC).  The irony here was that the FCC's proposed guidelines -- while very dissatisfactory to pure cable service providers like Comcast -- were actually relatively close to the suggestions brought forth by wireless companies like Verizon and AT&T Inc. (T) in the sense that it was lenient towards mobile throttling, given the higher costs of mobile internet service.  Verizon hired Helgi G. Walker, the Washington D.C. attorney who won in the prior Comcast challenge to earlier FCC net neutrality policies.

Comcast Xfinity
Comcast sued to block FCC net neutrality rules in 2010 and won. [Image Source: Zachary Kaufman]
In fact, the proposal was so lenient that public activist group Free Press also filed suit against the FCC [PDF] because its plan was too much like the plan Verizon proposed, providing exemptions for mobile.  In other words, the FCC was living in Goldilocks land: one entity was suing it for too much net neutrality, the other was suing it for not enough net neutrality.
The FCC did its best to try to block these proposals.  In an Oct. 2011 counterfiling to Verizon's suit it claimed that Verizon lacked the jurisdiction to file the complaint against the so-called "Open Internet Order" (the net neutrality policy announced in Dec. 2010).
II. Understand the FCC's Power -- and its Nebulous Nature
To understand the debate over the FCC's power you must first look at the laws involved.
The FCC -- which governs wireless spectrum use, as well as wired communications in the U.S. -- was created by The Communications Act of 1934 [PDF], which replaced two federal agencies (one of which regulated radio, the other which regulated telephone) with a single agency empowered by bill of rights, interstate commerce, common defense, and other Constitutional clauses.

FDR radio
The FCC was created under President Roosevelt, merging two previous regulatory agencies, with power over radio and telephone communications.
To get to the meat of the bill you must go to the U.S. Code of Law, specifically 47 U.S.C. § 151 (Chapter 5, Subchapter I).  The text stated:

For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges, for the purpose of the national defense, for the purpose of promoting safety of life and property through the use of wire and radio communications, and for the purpose of securing a more effective execution of this policy by centralizing authority heretofore granted by law to several agencies and by granting additional authority with respect to interstate and foreign commerce in wire and radio communication, there is created a commission to be known as the “Federal Communications Commission”, which shall be constituted as hereinafter provided, and which shall execute and enforce the provisions of this chapter.

In plain English, Congress -- and President Franklin Delano Roosevelt (D) who signed it in to law -- claimed that in order to ensure Constitutional freedoms, promote national security, and ensure free trade; there must be strong centralized federal/national regulation of the communications industry.
That policy sat unchanged more or less 62 years, as telephone, radio, and (later) broadcast television remained America's primary sources of media.  But by the 90s the internet, cellular networks, satellite television, and cable television had come along.  Communications had became much more complicated, so it was time to rethink the FCC's long-in-the-tooth current authorities.  The result of that rethinking was the Telecommunications Act of 1996.
 Fiber optic cable
The FCC's authorities were modernized in 1996. [Image Source: Guardian UK]

Passed by a Republican-controlled House of Representatives and Senate, the new bill was signed into law by President William Jefferson Clinton (D) in 1996.  While Republicans in Congress today have been among the fiercest opponents fighting to cut back on the FCC's authority and eliminate net neutrality, they actually championed the precursor to that policy in the form of universal services support provisions, which cracked down on "communications discrimination" such as fees for intercarrier calling on cellular networks, excessive long-distance charges, or charges for users in urban areas.
Overall the 1996 bill added some controversial provisions (such as the censorship of profanity and sexual content in cable television) and some less controversial ones (such as the regulation and sale of wireless spectrum).
But the crucial language at stake comes from 47 U.S.C. § 230 (Chapter 5, Subchapter II), which states:

(b) Policy
It is the policy of the United States—
(1) to promote the continued development of the Internet and other interactive computer services and other interactive media;
(2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation;

What does that mean? 
Like an increasing number of laws that are today being plugged into the U.S. Code of Laws, the terms are so nebulous and ambiguous that it's basically an arbitrary call as to what the law is authorizing.  How does one define a "vibrant and competitive free market"?  And how does one enforce that definition?  It's an exercise in arbitrary governance, even if the policies enforced at times deliver positive effects.
 We The People
Vaguely worded laws make for arbitrary interpretation of the Constitution in the digtal age.
[Image Source: Jason Mick/DailyTech LLC]

Because U.S. politicians were too unwilling to sit down and negotiate with all parties -- civil liberties advocates, communications companies, etc. -- that negotiation process had been transferred, in effect to the courts who are left to determine whether the FCC's actions are in the spirit of the law (an arbitrary interpretation) and the Constitution (somewhat arbitrary, but hopefully more of a concrete target).
III. Judges Shoot Down Net Neutrality Rules Do to Arbitrary Enforcement
The arbitrary language prolonged the legal battle between Verizon and the FCC for some time at the U.S. Court of Appeals for the D.C. Circuit
Meanwhile the FCC continued to try to enforce its controversial policy, filing throttling complaints against AT&T for blocking FaceTime, and over other "data discrimination" incidents, as it saw fit.  In some cases these complaints worked -- perhaps on the grounds of generating publicity over controversial business policies as much as by the FCC's weak enforcement mechanisms.  AT&T, for example, dropped its exclusion of FaceTime on cheaper data plans.
But on Monday (Jan. 14), a trio of federal judges -- Circuit Judges David S. Tatel (appointed by President Clinton in Oct. 1994) and Judith W. Rogers (appointed by President Clinton in Mar. 1994), plus Senior Circuit Judge Laurence Hirsch Silberman (appointed by President Ronald Wilson Reagan in Oct. 1985) -- at last ruled on the legality of the policy after over a year of court hearings.

Judge Hirsch
Senior Judge Laurence Hirsch [Image Source: Getty Images]

Judge Judith Rogers
Judge Judith Rogers [Image Source: Georgestown]
The ruling should be viewed as much of a surprise. After all, Judge Tatel sat on the three-judge panel in the Comcast case and was in the majority ruling that the FCC lacked the authority to enforce net neutrality.  Back in the same court (regarding a similar case) he hardly rethought his decision and his two colleagues largely were unanimous in agreement, save for some minor points of debate.
Judge David Tatel
Judge David Tatel [Image Source: LegalTimes]

What was more interesting is why Judge Tatel, writing in the majority opinion, shot down the Open Internet Order.  He writes:

The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here — that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet — is reasonable and supported by substantial evidence. 

That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates.  Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such.  Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se [in itself] common carrier obligations, we vacate those portions of the Open Internet Order

In other words the Federal Judge had no problem with net neutrality in principle and felt it was reasonable within the law even.  But because he took issue with the FCC refusing to classify broadband firms like a common carrier (e.g. land-line telephone services, such as AT&T), he says the FCC orders are arbitrary and unlawful.

IV. FCC, Verizon, AT&T, and Free Press React

Reaction to the ruling was swift.  The Free Press President Craig Aaron crowed:

The FCC — under the leadership of former Chairman Julius Genachowski — made a grave mistake when it failed to ground its Open Internet rules on solid legal footing.  Internet users will pay dearly for the previous chairman's lack of political will.

The Free Press is pushing the FCC to classify broadband ISPs and cellular providers alike as "common carriers" and set forth a less arbitrary single universal set of rules.  In the meantime, they argue, it's better to have no net neutrality, rather than a broken half-measure.

New FCC Chairman Thomas ("Tom") Wheeler -- himself a former wireless industry lobbyist -- would not rule out a possibility of an appeal to the U.S. Supreme Court, writing:

I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.

FCC Tom Wheeler
Chairman Wheeler (D) (seen to the right of President Obama) once worked for the CTIA.
[Image Source:]

Comissioner Ajit Pai -- a member of the Republican minority -- comments:

For the second time in four years, the D.C. Circuit has ruled that the FCC exceeded its authority in attempting to regulate the Internet. It is time for the Commission to take no for an answer. Unless Congress acts, we should stay our hand and refrain from any further attempt to micromanage how broadband providers run their networks. We should focus on removing regulatory barriers to broadband deployment, not imposing unnecessary rules that chill infrastructure investment.
Ajit Pai
Commissioner Ajit Pai (R) [Image Source:]

His Republican colleague, Commissioner Michael O'Rielly, was more measured in his criticism, writing:

Once again, the D.C. Circuit has confirmed that the Commission’s authority to regulate is not boundless. Rather than continue to test those boundaries with “prophylactic” regulations, the Commission should look for ways to remove regulatory obstacles to the broadband innovation and investment that will benefit all consumers.

Michael O'Rielly
Commissioner Michael O'Rielly (R) [Image Source: Flickr/Energy and Commerce Committee]

Commissioner Jessica Rosenworcel, a Democratic member of the FCC, likewise differed a bit from her colleague.  She almost sounded to think the ruling was a good thing (perhaps for the same reasons as The Free Press).  She also notes that the Appeals Court did uphold the FCC's authority to regulate the internet in some cases.  She writes:

I support an open Internet that drives innovation, experimentation, and economic growth. I am pleased that the D.C. Circuit recognized the Commission’s authority to encourage the deployment of broadband infrastructure. I look forward to further studying the court’s opinion and working with my colleagues to ensure that the great ecosystem the Internet supports continues to create jobs, opportunity, and digital age prosperity.
Jessica Rosenworcel
FCC Comissioner Jessica Rosenworcel (D) [Image Source: Politico]

Mignon L. Clyburn, another Democrat, was also neutral in tone.  She reacts:

We must ensure that consumers do not become casualties in our efforts to balance competing interests.  Our actions should preserve consumer access to content of their choice, and our policies should advance competition, investment and innovation. The FCC’s public interest obligation requires us to seek solutions that are guided by these principles.  I look forward to working with Chairman Wheeler on next steps.

FCC Mignon Clyburn
Commissioner Mignon Clyburn (D) [Image Source: The Post and Courier]

Verizon interprets the ruling and reacts to it, stating:

Earlier today, the D.C. Circuit issued its much-anticipated decision in Verizon v. FCC. The court rejected Verizon’s position that Congress did not give the FCC jurisdiction over broadband access. At the same time, the court found that the FCC could not impose last century’s common carriage requirements on the Internet, and struck down rules that limited the ability of broadband providers to offer new and innovative services to their customers. The Court upheld the Commission’s disclosure rules.

It's the network
It's the network! -- Verizon Wireless

And it adds an insistence that it won't start charging "pay to play" fees for sites and services (see above) or discriminate against popular services (e.g. YouTube) in favor of its own lesser known alternatives.  The carrier -- which serves landline telephones, cable internet, and cellular customers -- writes:

One thing is for sure: today’s decision will not change consumers’ ability to access and use the Internet as they do now. The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court’s decision.

We shall see if the carrier holds up that promise.

AT&T did not post a reaction to the decision, but at a panel Chairman and CEO Randall L. Stephenson commented:

This doesn’t really change anything for our business model or commitments we have made to deal with the FCC. We were part of that negotiating that arrangement when those rules were put into place and we said yesterday we will continue to abide by those rules.

Randall Stephenson
AT&T CEO and Chairman Randall L. Stephenson [Image Source: The Christian Scientist Monitor]

Other internet advocacy groups have yet to publicly blog or comment on the case.

Sources: U.S. Court of Appeals for the D.C. Circuit, Verizon, FCC, AT&T CEO comments

"People Don't Respect Confidentiality in This Industry" -- Sony Computer Entertainment of America President and CEO Jack Tretton

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