Off the Hook

Kevin Werbach - University of Pennsylvania

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The structure of the digital economy will depend on a seemingly obscure debate about the jurisdiction of the Federal Communications Commission (FCC).  Congress established the FCC during the New Deal and vested it with authority over all interstate communication by wire or radio.  Seventy-six years later, the FCC faces critical decisions that could shape the future of the Internet.  However, the scope of FCC authority over data services such as broadband access has never been adequately defined.  It is time to develop a positive legal theory for the Internet as a communications system.  A new interpretation of the FCC’s controlling statute provides a bridge from the old world to the new.

Consider the iPhone: Apple’s wildly successful device is simultaneously an Internet-access device, a handheld computer, a Global Positioning System location sensor, a digital music and video player, and a platform for tens of thousands of third-party software applications.  It is also, as the name suggests, a phone.  And that, from a public policy standpoint, ought to make all the difference.  Yet, as the Internet has transformed the communications world, the regulatory system has failed to keep up.

The iPhone and devices like it are endpoints of communications networks.  Such networks have been regulated for more than a century to safeguard the public interest, and those regulations remain in effect.  As telecommunications and media converge into the Internet, however, networks are becoming a vast legal grey area.  For example, whether the FCC can apply its rules mandating open interconnection and non-discrimination to the broadband platforms supporting the iPhone ecosystem is unclear.  The same analysis applies to any device or service connecting to the Internet—which is, increasingly, all of them.

This is not a new problem.  A well-developed body of case law and academic literature addresses many aspects of Internet regulation, and the FCC itself has been wrestling with Internet policy issues for more than a decade.  However, no one has yet provided the essential legal analysis to ground open Internet rules in the statutory framework of communications regulation.  In the Communications Act of 1934,1 Congress delegated legal authority to the FCC to oversee communications networks.  The central question is how Internet-based services fit within the contours of that legislation, as amended by the Telecommunications Act of 1996.

Without a coherent theory for Internet regulation, both competition and user interests are imperiled.  Uncertainty about whether FCC rules apply will chill innovation and investment, and disputes about the proper treatment of services will consume excessive resources and encourage regulatory gamesmanship.  Additionally, the public interest commitment to open networks that has governed communications for nearly a century may be lost, even as its importance remains undiminished.

The dominant perspectives in contemporary communications and cyberlaw scholarship support a limited role for the FCC, either because the FCC cannot be trusted to regulate wisely or because the FCC’s legal authority over the Internet is narrow.  A careful reading of the Communications Act, however, gives a different answer—that the FCC has expansive jurisdiction over Internet-based services.  Perhaps unsurprisingly, this conclusion tracks the FCC’s recent pronouncements about its legal authority.  However, the FCC and most commentators base this outcome on the wrong sections of the statute.  The FCC’s current legal theory rests on an unstable foundation, making it likely that courts will overturn it.  Moreover, the FCC’s approach provides insufficient guidance for future actions.  An alternate theory based on the core public interest mandates of Title II of the Communications Act provides a better basis for Internet policy.


I.
The FCC and the Internet

The Communications Act makes a distinction between “telecommunications” and “information services.”  “Telecommunications” means “transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.”2 In other words, telecommunications involves an unaltered communications pipe, analogous to traditional voice telephone service.  “Information service” means “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications . . . .”3 In other words, it involves some computer processing that acts upon the content transmitted across the network.

Generally speaking, the regulatory commands of Title II of the Act apply to providers of telecommunications services.  The statute defines information services, but it imposes no particular mandates on them.  The FCC has interpreted the statutory provisions as a mandate to continue its prior practice of treating information service providers as unregulated users of the network.  The initial issue that came before the Commission was whether it could find that an information service provider engaged in telecommunications.  Some information services, such as voice over Internet protocol (VoIP) calling, closely resemble regulated telecommunications services.  In general, the FCC refused calls to impose its existing rules on these services, which it saw as nascent services offering the potential for innovation that excessive regulation might stymie.

And then, something funny happened: the biggest providers of regulated telecommunications services became the biggest providers of unregulated broadband Internet access.  The major regulated communications operators largely missed the initial wave of the Internet, ceding the leading position in the dial-up Internet-access market to standalone Internet-service providers (ISPs), such as AOL and Earthlink.  Dial-up Internet traffic passes through the telephone network like voice or fax calls.  High-speed broadband connections, on the other hand, involve end-to-end data transmission.  The cable industry was the first to deploy broadband aggressively. Cable was not subject to the requirements of Title II, and it developed its cable modem networks as closed systems, rejecting calls to offer access to independent ISPs.  Telephone companies, however, initially had to offer unbundled access to their competing digital subscriber line (DSL) networks under the infrastructure sharing rules of the 1996 Act.  This produced an unsustainable regulatory asymmetry.

Faced with a choice between expanding the scope of open-access mandates and reducing it, the Republican-led FCC during the Bush Administration chose to cut back on regulation.  It determined that broadband offerings of both cable and DSL providers, as well as other similar services, were indivisible information services.  The FCC rejected the claim that network operators should always have to provide a regulated telecommunications service as distinct from the higher-level information service that they offered to their customers.  From that point on, network operators providing broadband access would be information service providers.  The Supreme Court ratified the FCC’s decision in National Cable & Telecommunications Association v. Brand X Internet Services.4

The FCC and the Supreme Court both asserted that information services were not wholly outside the scope of regulation.  The FCC, they both declared, could adopt necessary rules governing information services.  Unfortunately, the FCC’s initial foray in this direction was deeply flawed.


II.
The FCC’s Flawed “Section 230″ Approach

In a landmark August 2008 decision, the FCC sanctioned Comcast for discriminating against peer-to-peer file-sharing applications on its broadband access network.5  This was the agency’s first major action to enforce the principle of Internet openness (or “network neutrality”).  For several years, commentators have argued that broadband Internet-access providers will function as gatekeepers, restricting innovation by providers of applications, content, and devices.  In 2005, the FCC adopted an Internet Policy Statement incorporating four principles for preservation of the open Internet, but the policy statement was explicitly non-binding.  The Comcast Order was the agency’s step to put those principles into practice.

To justify its authority to take such actions, the FCC relied on the bold, but unfounded, discovery of a Congressional “national Internet policy” in Section 230(b) of the Communications Act.6 That provision, added by the Telecommunications Act of 1996, begins:

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;

(3) to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet and other interactive computer services.7

The FCC concluded that it had a “responsibility for overseeing and enforcing the ‘national Internet policy’ Congress had established,” and that the non-binding Internet Policy Statement merely “clarified the contours” of this statutory federal policy.8 Based on that legal authority, the FCC found that Comcast’s network management practices were unreasonable and discriminatory.  It ordered the company to cease and desist, required it to file detailed information about its technical practices, and ordered it to implement a new non-discriminatory system for traffic management.  Although the FCC structured the Comcast Order as an adjudication governing a single company, it made clear its intent to take action in other cases where it found similar violations.

The central problem with the FCC’s argument in the Comcast Order is that it involves an implausible reading of the Communications Act.  The legislative history of Section 230 makes clear that Congress did not intend Section 230 to be a broad directive to promote Internet openness.

Section 230 began as a freestanding bill, the Internet Freedom and Family Empowerment Act,9 which Representatives Christopher Cox and Ron Wyden introduced in 1995.  The House–Senate conference committee incorporated it into the 1996 Telecommunications Act as an amendment.  At the time, the Congressional debate about Internet regulation and its relationship to the FCC involved government regulation of online content.  Senator James Exon of Nebraska had introduced the controversial Communications Decency Act (CDA),10 which would have barred indecent speech on the Internet.  Under the CDA, the government would have policed online indecency in much the same manner as it regulates indecency on broadcast television and radio.  The legislation was intensely controversial.  Free speech advocates protested the extension of speech regulation to the new medium of the Internet, and business interests expressed alarm that filtering indecent content would itself expose online service providers to liability.

The Cox–Wyden legislation was introduced in response to these fears about the CDA.  The bulk of its sections offered a specific alternative to the CDA’s private censorship: a safe harbor for online service providers for content over which they had no control, and protection for affirmative steps taken to remove unauthorized or illegal material.  The title of the Cox–Wyden amendment was “Online Family Empowerment,”11 and, as codified, section 230 is titled “Protection for private blocking and screening of offensive material.”12 In other words, the “national Internet policy” of Section 230(b) was merely a rhetorical lead-in to the substantive safe harbor provisions.  It cannot justify as significant a step as the FCC took.  Perhaps that is why the agency, in its prior decisions regarding Internet-based services, never before described the “national Internet policy” that was central to the Comcast Order.

There were several other problems with the FCC’s approach.  The agency fused elements of rulemaking and adjudication in a manner that satisfied the Administrative Procedure Act13 requirements for neither.  It failed to reconcile the internal inconsistency in Section 230 between promotion of an open Internet and a mandate to keep the Internet “unfettered by Federal or State regulation.”14 And it pointed to no limiting principles in the statutory language that would cabin agency decision making, as required under the non-delegation doctrine in administrative law.

The FCC’s jurisdictional theory may have been fatally flawed, but the need it addressed remains important.  If Section 230 does not give the agency jurisdiction over Internet-based services, what does?


III.
A New Theory of Ancillary Jurisdiction

Fortunately, the answer lies within the Communications Act, but not where everyone has been looking.  The FCC has expansive authority to regulate broadband Internet access, as such authority is necessary as ancillary to its obligations under Sections 251 and 256 of Title II of the Communications Act.  In the new converged world, the FCC can only effectuate these statutory provisions, mandating open interconnection and standards-based interoperability, by extending FCC authority to certain information services.

United States v. Southwestern Cable Co.,15 a 1968 decision of the Supreme Court, established the concept of ancillary jurisdiction under the Communications Act.  In Southwestern Cable, the FCC sought to regulate cable television service, which fit neither the common-carrier definitions of Title II of the Act, nor the broadcast definitions of Title III, despite obviously having attributes of both.  Even though it was then a small industry, cable had the potential to significantly alter the market for video programming, which the FCC had regulated under its public interest standard since the dawn of television.

In Southwestern Cable, the FCC used a two-step process to assert jurisdiction.  First, the Commission found that cable was within its primary statutory grant of authority to regulate “all interstate and foreign communication by wire or radio . . . .”16 Second, the FCC invoked Section 303(r) of the Act, which allows the Commission to issue “such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law,”17 as “public convenience, interest, or necessity requires.”18 It also referenced section 4(i), that “the Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with [the Communications Act], as may be necessary in the execution of its functions.”19

As affirmed by the Supreme Court in Southwestern Cable, these provisions give the FCC authority to take steps “reasonably ancillary to the effective performance of the Commission’s various responsibilities . . . .”20 The Supreme Court deemed that regulation of cable was reasonably ancillary to the statutorily defined regulation of broadcasting, because an unregulated cable industry could prevent effective achievement of those statutory mandates.

This analysis maps directly onto the problem of Internet jurisdiction today.  Internet-based services clearly satisfy the first prong of Southwestern Cable.  They are “communication[s] by wire or radio”21 that cross state lines.  The second prong is met as well.  In Southwestern Cable, the problem was that a new unregulated service (cable) could mimic, and therefore competitively undermine, a regulated service (broadcasting).  FCC exercise of ancillary authority was deemed necessary to preserve the statutory public interest mandates on broadcasters.  The analogous issue today is whether new unregulated broadband Internet services would have the same effect.  The answer is unquestionably yes.

The rise of broadband Internet services and content threaten FCC statutory obligations in two ways.  First, unregulated services can mimic and compete with regulated telecommunications services.  Simultaneously, those regulated services can either escape regulation or harm competition in the markets higher up.  Either outcome would belie Congressional objectives.  The FCC cannot carry out its statutory duties for telecommunications service providers if information services remain a contentless regulatory grey area.  For example, if Verizon or Cablevision refused to allow independent application and content providers to reach customers through their pipes, or discriminated against unaffiliated providers on their platform, it would ultimately make the substantive provisions of Title II of the Act meaningless.

The final question is to what provisions of the Communications Act potential Internet-access regulations are ancillary.  As noted, Section 230 is too thin a reed.  A better basis is the two core mandates of the statute that would be in jeopardy if Internet-communications services were not subject to ancillary jurisdiction: Sections 251 and 256.

Section 251 requires telecommunications carriers to interconnect “directly or indirectly” with other carriers.22 This broad mandate, the first substantive provision Congress added to the Communications Act in 1996, demonstrates a recognition of the centrality of interconnection for competition in telecommunications.  Without effective interconnection, network effects crowd out smaller players.  Interconnection becomes even more important with the rise of packet data networks, such as the Internet, built on an assumption that traffic may flow between multiple networks dynamically to reach its destination.  Requiring a broadband access provider such as Comcast to offer effective interconnection with other networks, and with application providers, is the contemporary analogue of interconnection between telephone companies.

Interconnection-like open-access requirements on broadband access services, of the kind the FCC proposed in the Policy Statement, would be a distinct and appropriate means to achieve the statutory goal.  It was only after the emergence of the broadband Internet, and the FCC’s decision to treat broadband access as an indivisible information service, that telecommunications carriers such as AT&T and Verizon were viewed as interconnecting to the same degree as information service providers.  Just as the FCC in the 1960s saw the growth of unregulated cable television service potentially making its rules promoting local broadcast content irrelevant, the FCC today could argue that unregulated broadband access networks would make its rules promoting interconnection irrelevant. 

Section 256 concerns the FCC’s involvement in network management and standards-development activities.  It expresses a desire “to promote nondiscriminatory accessibility by the broadest number of users and vendors of communications products and services,”23 and directs the Commission to establish procedures “for the effective and efficient interconnection”24 of networks.  As the Comcast case showed, technical standards for network management and interconnection can have great economic significance.  In a world where traditional public telecommunications networks and newer Internet data transmission networks are pervasively interconnected, precluding the FCC’s interoperability efforts from affecting information services makes no sense.

The FCC can therefore regulate Internet-based services such as broadband access to promote interconnection and interoperability.  Whether and how it does so in any particular case is for the agency to determine within its discretion.


IV.
The Need for a Clear Legal Framework

Some might object that a broad interpretation of FCC authority will hinder, rather than promote, Internet development.  Such a view is shortsighted.  The Internet was once on the periphery of the communications industry; it is now at the core.  It should not be subject to outdated regulatory restraints, but neither should it forfeit the protections that an administrative agency affords.  Without a legal basis for the FCC to regulate Internet services, network operators will have the power to limit innovation that might challenge their traditional business models.  Those who control chokepoints will be able to pervert market forces that would otherwise promote competition.  And we will miss the opportunity for new communications and media channels to reinvigorate democratic discourse.  The network of networks that we call the Internet is more fragile than it seems.

Such problems will only become worse.  As new platforms such as social networks and smart mobile devices become significant, no forum will be able to address the competitive dynamics of standards or the proper limits on exploitation of user information.  We cannot know what Facebook and YouTube and Skype and Twitter will become, but clearly they and their ilk are what AT&T and radio broadcasters were at the beginning of the 20th century: the emerging infrastructure of communication and community for a changing society.  Neither Congress nor the courts are likely to address all the critical issues that these children of broadband networks pose.

The arrival of a new Presidential Administration gives new importance to these questions.  President Obama stated during the campaign that he “will ensure that these critical communications pathways [of the Internet] remain accessible to all Americans . . . .”25 Both he and the new Chairman of the FCC support non-discrimination rules for broadband.  Already, the economic stimulus package that Congress enacted in February 2009 includes seven billion dollars of funding for broadband infrastructure, subject to open-access requirements to be developed in concert with the FCC.  Congress also tied grants for health care, education, energy and the environment to network-based services.  Classic communications policy issues of interconnection, universal access, competition, pricing, and discrimination are bound to arise.  Uncertainty about the scope of FCC authority will only produce unnecessary conflict and delay.

The regulatory structure for communications has not kept up with the times.  The FCC can salvage its role as the guardian of the public interest in communications, but only if it re-examines that mission for a new century.  Promoting competition and innovation in telecommunications today is tantamount to promoting competition and innovation on the Internet.  The FCC must assert its authority under the Communications Act to address this objective.

Acknowledgments:

Copyright © 2010 Cornell Law Review.

Kevin Werbach is an Assistant Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania.

  1. Communications Act of 1934, Pub. L. No. 73-416, 48 Stat. 1064 (codified as amended at 47 U.S.C. §§ 151-615b (2000)).
  2. 47 U.S.C. § 153(43) (2006).
  3. Id. at § 153(20) (2006).
  4. 545 U.S. 967 (2005).
  5. Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation for Secretly Degrading Peer-to-Peer Applications, 23 F.C.C.R. 13,028 (2008) (Memorandum Opinion and Order).
  6. See id. at 13,034.
  7. 47 U.S.C. § 230(b) (2006).
  8. Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation for Secretly Degrading Peer-to-Peer Applications, 23 F.C.C.R. at 13,034.
  9. H.R. 1978, 104th Cong. (1995).
  10. S. 314, 104th Cong. (1995).
  11. 141 CONG. REC. H8468 (daily ed. Aug. 4, 1995).
  12. 47 U.S.C. § 230 (2006).
  13. 5 U.S.C. §§ 551–559, 701–706 (2006).
  14. 47 U.S.C. § 230(b)(2) (2006).
  15. 392 U.S. 157 (1968).
  16. 47 U.S.C. § 152(a) (2006).
  17. Id. § 303(r).
  18. Id. § 303.
  19. 47 U.S.C. § 154(i) (2000).
  20. 392 U.S. at 178.
  21. Id. at 167–69.
  22. 47 U.S.C. § 251 (2006).
  23. Id. § 256(a).
  24. Id. § 256(b)(1).
  25. Barack Obama, Connecting and Empowering All Americans Through Technology and Innovation (2008), http://www.barackobama. com/pdf/issues/technology/Fact_Sheet_Innovation_and_ Technology.pdf.

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