The FCC Open Internet Order: What your company needs to know

Friday, May 1, 2015 - 13:34

On March 12, 2015, the Federal Communications Commission (“FCC” or the “Commission”) released its long-awaited 2015 Open Internet Order, which the Commission adopted on February 26, 2015, in a 3-2, party-line vote. 

In brief, the 2015 Open Internet Order classifies broadband Internet access service (“BIAS”) as a “telecommunications service” under Title II of the Communications Act of 1934 (as amended), promulgates three bright-line “Open Internet” rules, enhances the transparency rule, adopts a forward-looking “no unreasonable interference/disadvantage” conduct standard, and declares that a number of provisions of Title II will apply to BIAS.

The new rules and standard apply equally to fixed and mobile providers insofar as they provide BIAS, including resellers (e.g., MVNOs). Kelley Drye has had an opportunity to review the 400-page order and can now provide more insight into the scope and impact of the Commission’s action.

In this update, we first will provide an overview of the Commission’s new rules specifically related to network neutrality. Second, we will review the Commission’s decision to reclassify BIAS as a “telecommunications service” under Title II, and the key Title II provisions and related regulations that will apply. Third, we will highlight some of the next steps that the Commission envisions through further proceedings.

For a more thorough analysis of the new rules and their implementation, please refer to this March 24th Kelley Drye webinar recording. For a copy of the slide presentation, please click here. 

I. The New Open Internet Rules

In the 2015 Open Internet Order, the Commission reestablishes and reformulates a series of network neutrality rules that the D.C. Circuit vacated in its 2014 Verizon v. FCC decision. For purposes of the rules, BIAS is any “mass market retail service . . . 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,” as well as any service that is the “functional equivalent” of such service or that is “used to evade” the new rules and standard.

The order establishes three bright-line rules that prohibit certain network practices of BIAS providers when acting in that capacity. Those provisions are:

  • No blocking. Fixed and mobile BIAS providers may not block access to legal content, applications, services or non-harmful devices, subject to reasonable network management.
  • No throttling. Fixed and mobile BIAS providers may not impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices, subject to reasonable network management.
  • No paid prioritization. Fixed and mobile BIAS providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind. The “no paid prioritization” rule bans what are commonly referred to as “Internet fast lanes,” and also prevents ISPs from giving preferential treatment to the content or services of their affiliates. This rule does not have an exception for reasonable network management.

The order also reinforces the 2010 transparency rule, which was the only rule that the D.C. Circuit upheld in Verizon v. FCC. Specifically, the enhanced transparency rule largely preserves the existing rule but imposes additional disclosure requirements on providers, including disclosure of promotional rates, all fees and/or surcharges, all data caps and allowances, and metrics such as packet loss. Importantly, however, the order temporarily exempts fixed and mobile providers with 100,000 or fewer subscribers from the enhanced transparency requirements. The Commission’s Consumer and Governmental Affairs Bureau (“CGB”) must determine whether to retain this exemption by December 15, 2015. If the Bureau fails to act by that date, the temporary exemption will expire.

Future Conduct and Non-Broadband Internet Access Services

In addition to the three bright-line rules, the order adopts by rule a standard to address future conduct by BIAS providers and promote innovation, consumer demand and investment. This standard has two components:

  • With respect to consumers, service providers cannot “unreasonably interfere with or unreasonably disadvantage” a consumer’s ability to select, access, or use lawful content, applications, services, or devices of their choosing.
  • With respect to edge providers, service providers cannot “unreasonably interfere with or unreasonably disadvantage” the ability of edge providers to make lawful content, applications, services, or devices available to consumers.

Using this “no unreasonable interference/disadvantage” conduct standard, the Commission will investigate practices on a case-by-case basis, subject to a multi-factor test.

Finally, the Commission includes an exception for “non-BIAS data services” (formerly known as “specialized services”), such as facilities-based VoIP, heart monitors, or energy consumption sensors, even where offered by a broadband provider. The Commission finds that these services are not within the scope of the Open Internet rules, but it reserves the authority to enforce its rules against providers of specialized services if they are providing the functional equivalent of BIAS. It also, as discussed further below, determines that certain other services, including virtual private network (“VPN”) and content delivery network (“CDN”) services are not BIAS. 

Effective Dates

The order will be published in the Federal Register, a process that may take two weeks or more given the complexity of the order. Publication in the Federal Register will trigger the ability for parties to appeal the order (or to seek reconsideration). In addition, the rules will become effective 60 days after publication in the Federal Register, with the exception of provisions that impose additional recordkeeping obligations on service providers. Those elements of the rules will not apply until after they have been approved by the Office of Management and Budget under the Paperwork Reduction Act procedures. 

II. Enforcement of the Open Internet Rules

The 2010 Open Internet Order established a two-tiered framework to enforce Open Internet violations, allowing parties to file informal and formal complaints. In addition, the Commission’s Enforcement Bureau has the authority to self-initiate investigations. In the 2015 Open Internet Order, the Commission expands upon these enforcement procedures in a few ways:

  • Advisory Opinions. The Commission will allow providers to file advisory opinions regarding proposed (rather than hypothetical, existing or prior) conduct that may implicate the Open Internet rules.
  • Enforcement Advisories. The Commission will continue to issue enforcement advisories (such as the advisories it has issued on the existing transparency rule) to recite and remind parties of existing Open Internet obligations.
  • Open Internet Ombudsman. As it proposed in its 2014 Open Internet NPRM, the Commission establishes an ombudsman within the Consumer & Governmental Affairs Bureau to serve as the point of contact to provide assistance to individuals and organizations with questions or complaints about the Open Internet obligations, and to ensure that these groups can contact the appropriate bureaus and offices to address specific questions.
  • Outside Technical Expertise. To ensure that formal complaints are informed by technical expertise, the Commission also delegates authority to the Enforcement Bureau to seek written opinions from outside technical organizations, such as industry-setting bodies. Outside organizations will have 30 days to respond to a request.

Given the Commission’s recent enforcement actions against telecommunications carriers for alleged consumer protection violations, we anticipate that the Commission will be particularly aggressive in its early enforcement of the new Open Internet rules. As a result, BIAS providers should be particularly mindful of the new rules and how existing and proposed business practices may implicate them.

III. Title II Reclassification

Perhaps the farthest-reaching component of the Commission’s ruling is the way that it establishes its authority to impose the network neutrality rules. In the past, the Commission had attempted to rest network neutrality rules on other Commission authority, while maintaining its rulings that BIAS was not a telecommunications service subject to Title II of the Communications Act of 1934, as amended. The D.C. Circuit twice rejected this approach. To establish more enduring rules, in the 2015 Open Internet Order, the Commission formally reclassifies BIAS as a common carrier “telecommunications service.”

A New Factual Analysis

The Commission revises its prior determination that BIAS is a non-common-carrier “information service” that inextricably intertwines telecommunications with information services, rendering the entire service an integrated information service. Specifically, the Commission finds that those information services that the Commission relied upon in its earlier ruling (such as the domain name system (“DNS”), caching, email and web hosting) are either (1) telecommunications system management functions (e.g., DNS, caching and security features), similar to adjunct-to-basic services that do not transform a telecommunications service into an information service; or (2) add-on services, for which consumers have a variety of third-party options (e.g., email, cloud hosting and third-party devices). The Commission describes its determination as being based on changes in factual circumstances surrounding the provision of BIAS over the past 10-15 years. Relying upon this updated factual analysis, the Commission determines that BIAS is in fact a telecommunications service, rather than an information service. Importantly, however, the Commission states that its determination only applies on a prospective basis.

Mobile Broadband Services

In reclassifying BIAS as a Title II service, the Commission finds that its reclassification applies both to “fixed” and “mobile” BIAS services. With respect to mobile services, the Commission revises its earlier ruling that mobile broadband is a private commercial mobile service, finding instead that mobile BIAS is both a “telecommunications service” and a “commercial mobile service,” or the functional equivalent thereof.

Other Services

Moreover, while the Commission declines to classify services that BIAS providers furnish to “edge providers” (i.e., providers of applications and services at the edge of the network), it finds that it has authority to regulate BIAS providers’ interactions with edge providers because the edge service is “derivative of BIAS” in the two-sided marketplace between consumers and those providers.

The Commission also finds that certain providers and services fall outside the definition of BIAS. For example, the Commission rules that VPNs, CDNs, hosting or data storage services, and Internet backbone services are not BIAS because they are not retail, mass-market services. In addition, the Commission finds that “to the extent that coffee shops, bookstores, airlines, private end-user networks such as libraries and universities, and other businesses acquire broadband Internet access service from a broadband provider to enable patrons to access the Internet from their respective establishments,” such service is not BIAS, “unless it was offered to patrons as a retail mass market service.” Lastly, the Commission rules that a user’s provision of a wireless router or a Wi-Fi hotspot to create a personal Wi-Fi network that is not intentionally offered for the benefit of others is not BIAS.

In sum, the Commission reclassifies a broad swath of Internet service providers as BIAS providers subject to Title II, and leaves room for further application of the Title II rules as the Internet ecosystem develops.

Preemption of State Regulation

The Commission affirmed that BIAS is jurisdictionally interstate. At the same time, it stated that the states are bound by its forbearance decisions concerning BIAS (discussed below) and that they are generally preempted from imposing regulations inconsistent with its regulatory regime adopted in the order or regulations that frustrate the policies underlying the new rules. The Commission stated it would address state preemption questions on a case-by-case basis in a prompt matter. It expressly noted that it would expect to preempt any effort by states to regulate BIAS provider entry or rates.

IV. Title II Forbearance

Because Title II contains many provisions the Commission finds were written and are more appropriate for traditional, voice-based telecommunications services, the Commission uses its authority to “forbear” (i.e., refrain) from applying a number of old-style rules to BIAS providers. Nonetheless, many key provisions will apply to BIAS providers in whole or in part.

Provisions That Apply

The Commission determines to apply (in whole or in part) the following provisions of Title II to BIAS services:

  • Sections 201 and 202. These provisions will be applied to BIAS providers to prevent “unjust or unreasonable” practices and prohibit telecommunications service providers from engaging in discriminatory practices. However, in the order, the Commission forbears from applying the rate-regulation provisions of Sections 201 and 202 to BIAS providers.
  • Sections 206-209, 216 and 217. The Commission will apply enforcement provisions (and associated rules) related to the investigation of BIAS providers and prosecution of consumer and edge provider complaints against them, including administrative and judicial complaints.
  • Section 222. The Commission imposes the privacy protections of Section 222 on BIAS providers, but forbears from applying the associated Commission CPNI rules. Importantly, the Commission reaffirms its finding in last year’s TerraCom/YourTelNAL that Section 222(a) includes a general requirement that BIAS providers protect the confidentiality of “proprietary information” that providers hold about their customers.
  • Section 224. The Commission declines to forbear from Section 224 and its attendant rules regulating fair access to poles, ducts, conduits and rights-of-way. The Commission emphasizes that it does not intend its rules to result in an increase in rates for pole attachments paid by cable operators that also provide BIAS, “caution[s] utilities against relying on this decision to that end,” and states that any such outcome would be “unacceptable as a policy matter.”
  • Sections 225, 255 and 251(a)(2). The Commission imposes the requirements of Section 225 related to TRS, but forbears from applying TRS contribution requirements on BIAS providers. In addition, the Commission imposes the accessibility requirements of Section 255 and 251(a)(2) of the Communications Act on BIAS providers.
  • Sections 214(e) and 254. The Commission partially imposes its universal service fund (“USF”) requirements under Section 214(e), which sets eligibility requirements for some USF funds, and Section 254, which establishes the Connect America Fund (formerly the high-cost fund), Lifeline Program, Rural Health-Care Program, and E-Rate Program. Specifically, the Commission forbears from applying subsections (d), (g) and (k) of Section 254, which relate to USF contributions, rate regulation and cross-subsidization, respectively.

Provisions That Do Not Apply

At the same time, the Commission forbears from applying 27 other statutory provisions of Title II, and with it, per the Commission’s tally, approximately 700 codified rules. The key provisions from which the FCC will forbear including the following:

  • Sections 203 and 204. The Commission declines to impose the tariffing provisions of Sections 203 and 204 of the Act. Specifically, the Commission will not require BIAS providers to file a schedule of rates and charges for interstate common carrier services. Relatedly, the Commission will forbear from applying provisions that would allow it to investigate a carrier’s rates and practices filed with the Commission, or to order refunds.
  • Sections 205 and 212. The Commission forbears from applying enforcement-related provisions related to a provider’s rates and practices, including the ability of the FCC to prescribe rates and practices if it determines that rates and practices are noncompliant with the Communications Act.
  • Sections 211, 213, 215 and 218-20. The Commission forbears from applying provisions that would allow it to exercise “discretionary powers to compel production of useful information or the filing of regular reports,” since the Commission will not be applying tariffing requirements or ex ante rate regulation of BIAS that would require information or reports from providers.
  • Section 214. The Commission declines to impose its discontinuance, transfer of control and network reliability approval obligations on BIAS providers.
  • Sections 251, 252 and 256. The Commission forbears from applying its existing interconnection and market-opening provisions (e.g., unbundling, resale, collocation and reciprocal compensation). With respect to interconnection, the Commission notes that it retains authority under Sections 201, 202 and the open Internet rules to address interconnection on a case-by-case basis.
  • Section 258. The Commission declines to impose the provisions of Section 258, which prohibit unauthorized subscriber changes (i.e., “slamming”). In particular, the Commission finds that there is no evidence that slamming could occur in the BIAS context and therefore that the provisions are not necessary at this time.

The Commission also forbears from applying other statutory provisions and regulations, such as specific restrictions related to BOCs, truth-in-billing rules, roaming-related rules and terminal equipment rules. Further, BIAS will remain exempt from state and local taxes under the Internet Tax Freedom Act.

V. Remaining Unanswered Questions and Further Proceedings

In the 2015 Open Internet Order, the FCC defers a number of important questions to pending or future proceedings. These include:

  • USF Contributions. The question of whether to apply USF contribution obligations to BIAS is deferred to a separate proceeding examining reform of the USF contribution mechanism. In that proceeding, a federal-state joint board is considering recommendations for how to reform the contributions methodology.
  • Privacy Obligations. While the Commission declines to forbear from applying Section 222 of the Communications Act to BIAS providers, it does defer application of specific CPNI regulations to a separate rulemaking proceeding. Relatedly, Chairman Wheeler has announced that the Commission will be hosting a privacy workshop next month to discuss the scope and contours of privacy rules in the broadband context, especially as those rules affect the jurisdiction of the Federal Trade Commission (“FTC”) to investigate and prosecute privacy violations of BIAS providers under Section 5 of the FTC Act.
  • Enhanced Transparency Rule and Small Providers. As noted earlier, the order exempts fixed and mobile providers with 100,000 or fewer subscribers from the enhanced transparency requirements through December 15, 2015. The Commission tasked the CGB to determine whether to retain the exemption beyond that date.
  • Disabilities Access. The Commission anticipates addressing the applicability of mobile wireless hearing aid compatibility requirements to mobile BIAS services in its pending rulemaking proceeding.

The 2015 Open Internet Order represents a sea change in telecommunications law and policy, and its intended and unintended consequences will take some time to mature. Kelley Drye’s Communications Group will continue to monitor developments in this space and will keep interested parties apprised of any noteworthy developments. In the meantime, please don’t hesitate to contact any of our attorneys with questions about this proceeding.

John J. Heitmann is a partner and chair of the Communications practice and a member of the Privacy and Information Security practice group at Kelley Drye & Warren LLP. Steven A. Augustino is a partner in the firm’s Communications practice who focuses his practice on telecommunications and enforcement matters. Thomas W. Cohen, a partner in the firm's Communications practice, focuses on providing legal counsel to entities engaged in the provision of wireline and wireless telecommunications, cable (video) and broadband (Internet) services. Henry T. Kelly is the managing partner of the firm’s Chicago office and concentrates his practice in communications, energy and public utility law and regulation. Chip Yorkgitis is a partner in the firm’s Communications practice and represents clients with interests and concerns related to spectrum management. Senior associate Joshua Guyan, associate Jameson J. Dempsey and associate Robyn P. Mohr are also members of the Communications practice group. Mr. Guyan focuses on general telecommunications matters; Mr. Dempsey focuses on telecommunications, information technology, and data privacy and security matters; and Ms. Mohr focuses on telecommunications, Internet, new media and privacy matters.