California’s Net Neutrality Bill

On the last day possible, Jerry Brown, the Governor of California passed SB 822, a state net neutrality bill into law. Within hours the US Justice Department filed a lawsuit against the California legislation.

As bill is relatively short and straightforward. The law applies to both landline and mobile broadband. The prohibitions against ISP behavior are detailed more clearly than in the old FCC net neutrality rules. Specifically, the California net neutrality law:

  • Prohibits ISPs from blocking lawful content;
  • Prohibits ISPs from impairing or degrading lawful Internet traffic except as is necessary for reasonable network management;
  • Prohibits ISPs from requiring compensation, monetary or otherwise, from edge providers (companies like Netflix or Facebook) for delivering Internet traffic or content;
  • Prohibits paid prioritization;
  • Prohibits zero-rating;
  • Prohibits interference with end user’s ability to select content, applications, services or devices;
  • Prohibits ISPs from offering any product that evades any of the above prohibitions;
  • Requires the full and accurate public disclosure of network management practices, performance, and clearly-worded terms of service.

As you would expect, the big ISPs in the state like AT&T and Comcast vehemently opposed the legislation and almost derailed its passage. Interestingly, the big edge providers like Google, Facebook and Netflix have remained quiet on the new law.

This is already shaping up to be one of the most interesting legal fights we’ve ever seen concerning the FCC. Chairman Pai and the other Republican FCC Commissioners immediately declared that the new law is invalid and that states can’t override FCC policy. The lawsuit filed by the Justice department says that California is “attempting to subvert the Federal Government’s deregulatory approach” to the Internet.

That’s where it gets interesting, because the FCC didn’t deregulate broadband. They instead took themselves out of the picture as a broadband regulator by cancelling Title II regulation of broadband, and passing regulation to the Federal Trade Commission.

The FCC could have chosen a different path, which would have been to continue to regulate broadband, but choosing to not require any specific regulatory requirements. That’s the tactic the agency has taken in the past when it decided to end some telephone regulations. The FCC still has the legal authority to re-regulate those telephone issues, but exercises its authority to not regulate – and maintaining the authority to authority is the key issue in this case. The FCC deliberately killed Title II regulation to make it harder for future a FCC to regulate broadband – but in doing so they literally wrote the agency out of the broadband regulation business.

The courts will have to decide if the federal government has any basis for overriding the California law. The FCC created a legal void when they walked away from regulating broadband. In regulatory terms broadband is not deregulated – it is not regulated, and while perhaps a subtle language difference, it’s a huge distinction.

The legal question is not if California is challenging the FCC’s authority to deregulate broadband, because the FCC themselves say they no longer have any authority over broadband. The courts will have to instead decide if a state can step into a regulatory void when the federal government walks away from regulating an industry. There are numerous lawyers saying that California has a strong legal position.

This is such a major decision that I’m guessing it’s going to have to eventually get resolved by the Supreme Court – and that’s going to take a while. The FCC created this situation by abrogating their responsibility to regulate broadband. It’s nearly unthinkable that one of the major industries in the country, operated mostly by a small number of giant companies should not be regulated. But the regulatory mess we have with broadband ultimately lies with Congress which has not passed an update to the telecom rules since 1996, when dial-up was our portal to the Internet.

Killing Net Neutrality Again?

The current FCC repealed the net neutrality rules earlier this year, with that repeal going into effect last month. In a move that is a head-scratcher, the Department of Justice recently filed a petition with the Supreme Court asking them to squash a lower court ruling in favor of net neutrality.

The original net neutrality rules were implemented by the FCC in 2015. The FCC’s order relied upon the use of Title II regulations as their authority to pass those rules. AT&T and other opponents of the ruling immediately appealed the FCC’s action, and in 2016 the DC Circuit Court of Appeals ruled that the FCC had the authority to invoke Title II. The same opponents of net neutrality appealed that decision to the whole Circuit Court, and in 2017 the court refused to take the case, thus upholding the 2016 decision.

The Department of Justice is now asking the Supreme Court to overturn the 2016 order that upheld net neutrality. It’s an unusual request because net neutrality has already been repealed by the FCC, so it seems like the issue is moot.

Nobody is sure about the reason for this filing, because neither action or inaction by the Supreme Court would realistically change anything. The Department of Justice argues that it is cleaning up loose legal ends. Proponents of net neutrality say that it’s an action to make it more difficult for a future FCC to reinstate net neutrality. They say that the administration is trying to kill a precedent that could be used by a future administration to reinstate net neutrality.

What’s most interesting about the whole net neutrality fight is that both the past and current FCC have had to get creative to first pass the net neutrality rules, and then to repeal them. What’s been missing in this fight is a Congress willing to vote on the issue, because legislation would put the issue to rest. The messy court battles over net neutrality for the last decade are all due to a Congress that won’t weigh in on the issue.

The FCC is mandated to follow the direction of Congress. It seems unlikely that net neutrality is ever going to come up for a vote in Congress. Polls have shown huge public support for net neutrality with various polls over the last few years showing support between 76% and 85%. Nobody in the GOP wants to go on record as opposing the issue.

We are badly in need of a new Telecom Act. Many of the rules that govern the FCC are far out of date. We need to fix cable rules that are massively out of synch with a world of on-line content. We need updated privacy laws that deal with current technology. And we need to know definitively if Congress thinks that we should or shouldn’t regulate some aspects of broadband.

But we’re not likely to get a new Telecom Act to a vote since net neutrality is going to get dragged into any discussion of new regulations. That means we’re likely to see the FCC continue to deal with current issues for which they have no direction of basis of action. That can only result in an FCC that grows gradually weaker and ineffective in its ability to tackle the communications issues that we need to face.

What we don’t need is a government that is looking backwards and wasting legal resources to kill a court order for an issue that has already been decided by the current FCC. This is one of the dumbest and most wasteful court actions I’ve ever seen in the industry. We don’t need to fill the over-busy courts with frivolous lawsuits – we need a Congress and an FCC to together tackle the current pressing issues in the industry.

Now That Net Neutrality is Dead . . .

The FCC’s net neutrality rules expired last week. There is a process for FCC rule changes that require the agency to take steps like publishing their decisions in the Federal Register, and all of the administrative steps have been taken and the old rules expired.

The press and social media made a big deal about the end of the administrative process, but the issue is a lot more complicated than that and so today I’ll look at what happens next. Officially the big ISPs are now free to make changes in their policies that were prohibited by net neutrality, but for various reasons they are not likely to do so.

First, 22 states filed a lawsuit against the FCC challenging various aspects of the FCC’s ruling. That suit now resides at the US Circuit Court of Appeals in Washington DC. The big ISPs are unlikely to make any significant changes in policies that might be reversed by the courts. In the past the whole industry has waited out the appeals process on this kind of lawsuit because the Courts might find reason to reverse some or all of the FCC’s actions. The ISPs aren’t legally obligated to wait out the lawsuits, but I’m sure their legal counsel is telling them to do so.

Interestingly, the judges hearing this case also heard the previous appeals associated with net neutrality and are familiar with the issues. This court previously had ruled that the FCC had the authority to use Title II regulation as the way to regulate broadband and net neutrality. I’ve not read any predictions yet of how the courts might rule in this case. But if the FCC had the authority to institute Title Ii authority I would think they also have the authority to reverse that decision.

The big ISPs also have to worry about Congress. The Senate voted to reverse the repeal of Title II regulations as part of the Congressional Review Act (CRA) that was used to pass the last budget. The issue is not currently slated for a vote in the House of Representatives and it seems clear that there are not enough votes there to reverse the FCC’s decisions. But it’s only four months until the next election and there is a chance that the Democrats will win a majority of seats. One would think that net neutrality would be on the list of legislative priorities for a Democratic House since polls show over an 80% public approval of the issue.

A vote by Congress to implement net neutrality would end the various court cases since the new laws would supersede any actions taking by the FCC on prior rules. It’s been the lack of Congressional action that has been the underlying reason for all of the various FCC actions and lawsuits on the topic over the years – Congress can give the FCC specific direction and the authority to enforce whatever Congress wants done.

There is another wild card in the mix in that numerous states have either passed rules concerning net neutrality or are contemplating doing so. Most of the state laws would restrict the award of state telecom business to vendors that adhere to net neutrality. My guess is that these lawsuits will make it through appeals because States have the authority to determine their purchasing preferences. But realistically these laws might backfire since most ISPs that are large enough to tackle state telecom needs are likely to be in violation of net neutrality. States implementing these rules might find themselves unable to find a suitable telecom vendor.

The most direct state net neutrality law comes from Washington. Their law, which went into effect automatically when the FCC net neutrality laws expired, prohibits ISPs from blocking or throttling home landline or mobile data. It also specifically prohibits paid prioritization.  An even more stringent bill was near passage by the California legislature. As I was writing this blog it appears that AT&T lobbyists were successful in derailing that legislation. It’s likely that we’ll see more actions from state legislatures in the coming year.

The FCC stated in the Title II repeal order that States were not allowed to override the FCC order. But as we’ve seen many times in the past at the FCC, there is a constant battle between federal authority and state’s rights, .and disputes of this kind are almost always resolved by the courts. There is a long history of battles between FCC authority and State’s rights and over the years both sides have won battles.

The big ISPs hate uncertainty and each of these paths provide a way to reinstate net neutrality. It seems unlikely that the big ISPs will be aggressive with changes until they get a better feel for the resolution of these various challenges to the FCC. Some of the ISPs already had practices that skirted net neutrality rules such as zero-rating of their own content. It’s seems likely that the ISPs will continue to push around the edges of net neutrality, but it seems unlikely that the ISPs will be more aggressive with implementing products and practices that are clear net neutrality violations. The bottom line is that the end of the FCC administrative process was only the beginning of the process and we still have a way to go to get a clear resolution of the issue.

States and Net Neutrality

We now know how states are going to react to the end of net neutrality. There are several different responses so far. First, a coalition of 23 states filed a lawsuit challenging the FCC’s ability to eliminate net neutrality and Title II regulation of broadband. The lawsuit is mostly driven by blue states, but there are red states included like Mississippi and Kentucky.

The lawsuit argues that the FCC has exceeded its authority in eliminating net neutrality. The lawsuit makes several claims:

  • The suit claims that under the Administrative Procedure Act (ACA) the FCC can’t make “arbitrary and capricious” changes to existing policies. The FCC has defended net neutrality for over a decade and the claim is that the FCC’s ruling fails to provide enough justification for abandoning the existing policy.
  • The suit claims that the FCC ignored the significant public record filed in the case that details the potential harm to consumers from ending net neutrality.
  • The suit claims that the FCC exceeded its authority by reclassifying broadband service as a Title I information service rather than as a Title II telecommunications service.
  • Finally, the suit claims that the FCC ruling improperly preempts state and local laws.

Like with past challenges of major FCC rulings, one would expect this suit to go through at least several levels of courts, perhaps even to the supreme court. It’s likely that the loser of the first ruling will appeal. This process is likely to take a year or longer. Generally, the first court to hear the case will determine quickly if some or all of the FCC’s ruling net neutrality order will be stayed until resolution of the lawsuit.

I lamented in a recent blog how partisan this and other FCCs have gotten. It would be a positive thing for FCC regulation in general if the courts put some cap on the ability of the FCC to create new policy without considering existing policies and the public record about the harm that can be caused by a shift in policy. Otherwise we face having this and future FCCs constantly changing the rules every time we get a new administration – and that’s not healthy for the industry.

A second tactic being used by states is to implement a state law that effectively implements net neutrality at the state level. The states of New York, New Jersey and Montana have passed laws that basically mimic the old FCC net neutrality rules at the state level. It’s an interesting tactic and will trigger a lawsuit about state rights if challenged (and I have to imagine that somebody will challenge these laws). I’ve read a few lawyers who opine that this tactic has some legs since the FCC largely walked away from regulating broadband, and in doing so might have accidentally opened up the door for the states to regulate the issue. If these laws hold up that would mean a hodgepodge of net neutrality rules by state – something that benefits nobody.

Another tactic being taken is for states, and even a few cities, to pass laws that change the purchasing rules so that any carrier that bids for government telecom business must adhere to net neutrality. This is an interesting tactic and I haven’t seen anybody that thinks this is not allowed. Governments have wide latitude in deciding the rules for purchasing goods and services and there are already many similar restrictions that states put onto purchasing. The only problem with this tactic is going to be if eventually all of the major carriers violate the old net neutrality rules. That could leave a state with poor or no good choice of telecom providers.

As usual, California is taking a slightly different tactic. They want to require that carriers must adhere to net neutrality if they use state-owned telecom facilities or facilities that were funded by the state. Over the years California has built fiber of its own and also given out grants for carriers to build broadband networks. This includes a recently announced grant program that is likely to go largely to Frontier and CenturyLink. If this law is upheld it could cause major problems for carriers that have taken state money in the past.

It’s likely that there are going to be numerous lawsuits challenging different aspects of the various attempts by states to protect net neutrality. And there are likely to also be new tactics tried by states during the coming year to further muddy the picture. It’s not unusual for the courts to finally decide the legitimacy of major FCC decisions. But there are so many different tactics being used here that we are likely to get conflicting rulings from different courts. It’s clearly going to take some time for this to all settle out.

One interesting aspect of all of this is how the FCC will react if their cancellation of net neutrality is put on hold by the courts. If that happens it means that some or all of net neutrality will still be the law of the land. The FCC always has the option to enforce or not enforce the rules, so you’d suspect that they wouldn’t do much about ISPs that violate the spirit of the rules. But more importantly, the FCC is walking away from regulating broadband as part of killing Title II regulation. They are actively shuttling some regulatory authority to the FTC for issues like privacy. It seems to me that this wouldn’t be allowed until the end of the various lawsuits. I think the one thing we can count on is that this is going to be a messy regulatory year for broadband.

FCC’s Net Neutrality Myths

We’ve been having the policy debate over creating net neutrality since at least 2005. During that time there have been a lot of arguments made on both sides of the issue. But overall it’s been a policy debate that is similar to the many other issues discussed in the telecom regulatory world. Both sides make their arguments and eventually a decision is made to regulate or not regulate according to the arguments. Politics has always played a role in these debates and issues tend to slew a bit according to the political leanings of the FCC at any given time.

FCC Chairman Ajit Pai recently released a document that argues strenuously for the end of net neutrality. This document lists various ‘myths’ associated with net neutrality and then describes why each myth is untrue. If you look back at the history of the net neutrality debate you’ll see that his list is a summary of the arguments being made over time by the big ISPs. This is a document that one would expect from AT&T, Comcast, USTA or ALEC – but not from the Chairman of the FCC.

I have a problem with the Chairman’s list because most of the conclusions drawn are factually incorrect. It’s expected for the big ISPs to make arguments in their favor, even if those arguments are not wholly true – but it’s disturbing to see these same arguments coming from the FCC, which is supposed to be the arbiter for telecom policy issues.

I don’t think I have any bias that makes me see these statements as false. Anybody whose been reading my blogs knows that I am as biased as anybody else in the industry. My bias is towards policies that allows smaller ISPs to compete. And I am strongly in favor of policies that try to solve the rural broadband gap and the overall digital divide. But other than that I am largely neutral on other telecom policies and am receptive to hear all arguments on the various issues. Other than as a consumer I have no strong bias in the net neutrality debate because I don’t believe that small ISPs will violate net neutrality even if there aren’t any rules. The net neutrality argument really only concerns the behavior of the largest and most powerful ISPs in the telecom market. I could go through the document and discuss each ‘myth’ – but that doesn’t lend itself to a blog-length discussion. But I think every one of the Chairman’s arguments is stretching the truth.

For example, the document rolls out the old big-ISP argument that broadband investments have dropped due to Title II regulation. This argument goes back to shoddy work done by one researcher on the big ISP payroll and has been debunked numerous times. The numbers tell a different story and investments have not dropped. So do the actions of the big ISPs – AT&T, Verizon, Comcast and most of the other big ISPs are all undertaking aggressive expansion and upgrades. Look at what each of these companies is telling their stockholders and you don’t see an industry in retreat. Title II regulation has had almost zero impact on investment decisions (and regulation rarely has ever done so).

Chairman Pai also argues that the Internet was free and open before we had Title II regulation. That’s not the way I remember it. The net neutrality debate has been going on since 2005 and the ISPs have been held in check by the threat of net neutrality regulation. Even without Title II regulations in place the FCC was able in the past to pressure the ISPs on practices like data caps and zero-rating by the threat of future regulation – and for the last decade this has largely worked. Title II regulation didn’t just appear out of thin air with the FCC order in 2014 – the net neutrality principles were the backbone of FCC regulation and actions for a decade before then.

This FCC document also argues that the Federal Trade Commission is well equipped to police unfair, deceptive and anticompetitive behavior from ISPs. That gives the FCC cover to duck out of regulating broadband. What this doesn’t mention is that the big ISPs are now attacking the FTC’s right to regulate broadband (a blog will be coming on this soon). I find it extraordinary that the FCC would declare that it should have no role in regulating broadband – the most important telecommunications product. Regulating broadband seems to be their role in the industry almost by definition.

I guess more than anything else this document disappoints me. While there have always been some politics involved in the decisions made in our industry, past FCCs have largely decided issues on their merits. My own business was founded largely due to the Telecommunications Act of 1996 which unleashed much-needed competition into the industry. But I look at this current FCC and see that the pendulum has swung to one far extreme and the merit of issues aren’t even part of policy discussions. That saddens me.

Small ISPs and Net Neutrailty

Network_neutrality_poster_symbolLast week a small ISP asked me if they should be concerned about the potential end of net neutrality. It’s clear that the new FCC chairman is either going to reverse the net neutrality order completely or hobble it significantly. My response to the question comes in several parts.

First, net neutrality has had virtually zero impact on small ISPs. It is inconceivable to me that a small ISP could somehow find a way to violate the basic principles of net neutrality. It’s not something a small ISP can do on their own and they would have to somehow make a deal with a content providers that would give them the ability to discriminate against customers or against other carriers.

If anything, not having any real market power can be turned into a marketing advantage. Small ISPs should be advertising the fact that they are the one ISP in the market that does not spy on customers. Small ISPs generally offer bandwidth with few strings attached – customers are free to use what they buy in almost any manner.

If net neutrality goes away the real impact is going to come when the big carriers begin offering products that give them an unbeatable market advantage. We already have a hint at what such products are like by looking at the cellular carriers. It’s clear that AT&T and Verizon are each heading down a path where they can offer cellular customers free access to certain video content while charging all other data use against stingy data caps. And, with net neutrality going away, industry analysts expect them to step this up and begin offering exclusive content to their cellular customers that they can’t get elsewhere.

But that’s not the end game. The product that net neutrality is aimed to protect us from is what is called a curated web. Consider, for example, that some of the content providers join together to partner with AT&T. This could be traditional programmers like ESPN or newer content providers like Facebook or YouTube. These companies could help to subsidize customer data plans to entice people to buy a curated web product.

Such subsidies could mean cell plans that significantly less expensive than normal cellular service, but which comes with all of the web access baked-in. The content providers would encourage you to only use their portal. They would control which browser you use. They would control your search engine. And they would advertise specifically to you and collect everything they can about your preferences, buying habits, social contacts, etc. A curated cellphone product would severely curb a user’s ability to get to other content.

Such a product could become popular if it bundles in things people already like such as Facebook, YouTube and other popular web sites. The upside to the content providers is that they have exclusive control of you for purposes of data gathering and advertising – and they ought to be willing to pay for that right. And customers are going to love the savings.

You might ask, “Why worry about cellphone plans? I don’t compete against them.” Well, there is nothing to stop curated web plans from coming to landline broadband as well. Comcast might have a normal broadband product at $60, but a curated one at half that. A company like Comcast could offer multiple curated web products – perhaps one from Facebook, a sports package from ESPN, another that focuses on Star Trek and science fiction, and so on.

These curated plans don’t sound bad if somebody comes out with one that you would find of interest – and that is the danger. People are likely to want such plans if it saves money and has a lot of the content they already use.

But curated web access has several big problems. First, they give the ISP that offers them a major market advantage over any competition in the market. It’s hard for anybody else to compete against a web product that has been paid down to be under market rates by a content provider like Facebook. Second, the curated web will stifle new web content providers. It’s easy to think that companies like Facebook and Google are so large on the web that they can’t be supplanted by something else. But it has only been a few years since when the web was dominated by companies such as AOL, Yahoo and others. It’s almost in the nature of the web that people’s tastes in web content changes over time, sometimes rapidly. The next Google or Facebook is never going to get traction if a huge chunk of the web is curated by the current content giants. In that environment we might still be seeing a Facebook-curated web a century from now – and that would be an innovation killer.

But, to circle back to the original question: Small ISPs are not harmed today by net neutrality. But if it’s taken away, the big ISPs have already given us hints on what they’ll do – and it is those actions that will ultimately disadvantage small ISPs along with anybody else that wants a web which constantly innovates rather than one that would stagnate.

Free Broadband from Facebook

freebasics_facebook_thumbFacebook is talking to the FCC about launching a free Internet service in the US. This would provide a subset of the Internet for free to anybody with a smartphone and would provide such things as news, health information, job sites, and of course Facebook.

This would obviously benefit many people that can’t afford access to the web. Today the national broadband penetration of households that have some kind of access to the web is around 82%. Some of those without broadband live in rural places that don’t have access. Some don’t want Internet access. And the rest would like web access but can’t afford it.

Facebook has launched a similar product around the world in 53 emerging markets in the Middle East, Asia Pacific and Latin America. This is offered under the name Free Basics.

But the free product ran into problems and has been banned in India due to the fact that it violates net neutrality. The Indian net neutrality laws aren’t too different than our own laws and the service is what called zero-rated, meaning that any use of this plan is not counted against a data plan from a participating ISP.

In India the biggest complaint about the product was that it was restricted only to those things that Facebook wanted customers to see and not to the wider Internet. But in Facebook’s favor, it was free.

For this to work in the US, Facebook will need to find a US cellular partner which would not count usage of the app against a data plan. I recall that Facebook was close to this a few years ago in a partnership with T-Mobile that would have provided free access to a suite of products called GoSmart.

But more importantly, Facebook needs to convince the FCC that this is not a violation of net neutrality. The FCC has not formally made any pronouncements about zero-rating of wireless content, but it has talked to the major wireless carriers about the zero-rating they are already doing today.

This is the kind of situation that is really tough for regulators. With this kind of product Facebook could be providing some sort of free access to the web for millions of people in the country that might otherwise not have it. Even if it’s a scrubbed and sanitized piece of the web, it’s hard to find anything wrong with the results of that. People could buy a smartphone with no data plan and have access to parts of the web.

But the downside to the FCC is the same one faced by the Indian regulators. Once you let Facebook do this then the genie is out of the bottle and there doesn’t seem to be any way that the FCC could stop other kinds of zero-rating.

The dilemma is that Facebook is not quite like other companies. I am sure that somehow this isn’t costing Facebook too much and they might even make a little money from the idea. But Mark Zuckerberg seems to be on an altruistic mission to bring broadband access to the whole world. He has already used this idea to bring free broadband to many millions, and his goal is to bring it to billions.

But even with the altruism, this has certainly been good for Facebook – they had 1 billion users in 2015 and are now are reported to have over 1.7 billion users. That’s a lot of people to advertise to and to gather data from, which is how Facebook makes its money.

And of course, no matter how altruistic Facebook might be, nobody would expect the same motives from other large companies like Comcast, AT&T or Verizon. One of the main fears that drove the creation of net neutrality is that we could end up with a web that is filtered by the biggest ISPs and that the openness of the web would be killed by deals like the one Facebook wants to do. The web brought to you by Comcast is not the same web that we know today – and I think it’s a web that we don’t want as a society. But if we take the first step and let a big company like Facebook filter the web, we could be headed down the path where almost all future web access is filtered.