FCC Asserts Authority to Regulate Network Management Practices

August 1, 2008. The Federal Communications Commission (FCC) announced that it adopted an order asserting adjudicatory authority to enforce its policy statement [3 pages in PDF] of August 5, 2005, and to regulate the network management practices of broadband service provides.

This order, which has not been released, pertains to Comcast's management of certain peer to peer traffic.

The Commission split 3-2, with Martin, Adelstein and Copps forming the majority, and McDowell and Tate dissenting.

The FCC issued a release [3 pages in PDF] that describes its not yet existent order, and each of the five Commissioners read statements at an FCC event on Friday, August 1, 2008.

This FCC release announces the FCC's "intention to exercise its authority to oversee federal Internet policy in adjudicating this and other disputes regarding discriminatory network management practices".

Comcast's Sena Fitzmaurice responded in a release that "we believe that our network management choices were reasonable, wholly consistent with industry practices and that we did not block access to Web sites or online applications, including peer-to-peer services."

Fitzmaurice added that the FCC's order "raises significant due process concerns and a variety of substantive legal questions. We are considering all our legal options and are disappointed that the commission rejected our attempts to settle this issue without further delays."

Legislative and Administrative History. The Congress has enacted no statute that prohibits any network management practices of broadband internet access providers.

The Congress has enacted no statute that delegates authority to the FCC to regulate the network management practices of broadband internet access providers.

The FCC has promulgated no substantive rules that regulate network management practices of broadband internet access providers. Indeed, the FCC has yet to issue a notice of proposed rulemaking (NPRM). Although, it did issue a notice of inquiry (NOI) in 2007 requesting comments on this topic. See, the FCC's proceeding titled "In the Matter of Broadband Industry Practices", numbered WC Docket No. 07-52.

The FCC has promulgated no procedural rules that govern its proceedings pertaining to the network management practices of broadband internet access providers. While the FCC has promulgated rules governing adjudication of complaints under Title II, regarding carriers, it has promulgated no rules governing complaints under Title I. In 2002 the FCC declared that broadband modem service is an information service, and that there is no separate offering as a telecommunications service. The Supreme Court upheld that determination in the Brand X case. The FCC now asserts authority in this matter under Title I. But, there are no Title I complaint procedure rules.

The FCC adopted a policy statement [3 pages in PDF] in August of 2005 that states that "To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to access the lawful Internet content of their choice ... to run applications and use services of their choice, subject to the needs of law enforcement ... to connect their choice of legal devices that do not harm the network ... to competition among network providers, application and service providers, and content providers." (Footnotes omitted.)

The just announced action relies upon this policy statement.

This statement adds that "The principles we adopt are subject to reasonable network management." See, stories titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005, and "FCC Releases Policy Statement Regarding Internet Regulation" in TLJ Daily E-Mail Alert No. 1,221, September 26, 2005.

On November 1, 2007, the Public Knowledge (PK) and Free Press (FP) filed with the FCC a document [48 pages in PDF] captioned "Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation For Secretly Degrading Peer-to-Peer Applications".

This complaint alleged that Comcast interfered with its subscribers' use of BitTorrent. See, story titled "Free Press Files Complaint with FCC Alleging that Comcast Is Violating 2005 Policy Statement" in TLJ Daily E-Mail Alert No. 1,669, November 5, 2007.

On March 27, 2008, Comcast reached an agreement with BitTorrent. Both companies also agreed that there is no need for government intervention. See, story titled "Comcast and BitTorrent Reach Accord on Network Management Practices" in TLJ Daily E-Mail Alert No. 1,738, March 27, 2008.

On April 15, 2008, Comcast and Pando Networks announced in a joint release an industry effort, including ISPs and P2P services, to discuss processes and practices ISPs should use to manage P2P applications.

FCC Decision. The FCC has not released its order. It has issued only a brief news release.

The FCC's release states that it "concluded that Comcast has unduly interfered with Internet users' right to access the lawful Internet content and to use the applications of their choice. Specifically, the Commission found that Comcast had deployed equipment throughout its network to monitor the content of its customers’ Internet connections and selectively block specific types of connections known as peer-to-peer connections."

The FCC release further states that the FCC "concluded that Comcast's network management practices discriminate among applications rather than treating all equally and are inconsistent with the concept of an open and accessible Internet." It adds that "Comcast has an anticompetitive motive to interfere with customers’ use of peer-to-peer applications" because video distributed by P2P applications pose "a potential competitive threat to Comcast’s video-on-demand (``VOD´´) service."

The FCC release states that Comcast's practices are "not minimally intrusive ... but rather are invasive", and have "the effect of substantially impeding consumers' ability to access the content and to use the applications of their choice". And, the FCC's release states that Comcast practices do not constitute "reasonable network management".

The FCC's release also finds fault in Comcast's "unacceptable failure to disclose its practices to consumers".

The FCC's release does not state when it will release the order.

The release that "within 30 days of release of the Order Comcast must ... Disclose the details of its discriminatory network management practices ... Submit a compliance plan describing how it intends to stop these discriminatory management practices by the end of the year ... Disclose to customers and the Commission the network management practices that will replace current practices".

The FCC's release does not disclose what statutory authority the FCC asserts for this action. Although, Commissioners Adelstein and McDowell discussed this authority in their statements.

The FCC's release does not disclose the analysis to be applied by the FCC in ruling on the legality of network management practices. Although, Martin and McDowell discussed this analysis in their statements.

While the FCC's assertion of authority is bold and far reaching, the penalty imposed upon Comcast is slight. There is no fine or other financial penalty. This may be calculated by the majority to minimize Comcast's incentive to challenge the action. Also, since this is an adjudicatory proceeding, albeit one that adopts something in the nature of a rule, other affected broadband service providers lack standing to challenge this action.

Finally, the FCC's release states that "To the extent that Comcast fails to comply with the steps set forth in the Order, interim injunctive relief automatically will take effect requiring Comcast to suspend its discriminatory network management practices and the matter will be set for hearing."

The FCC's action, if reduced to a final order and published, would be vulnerable to judicial challenge by Comcast, on numerous grounds, including that the FCC lacks statutory authority to issue the order.

If the FCC were to decline to issue the final order described in its release, but rather were only to issue interim relief, pending hearing of the matter, it might claim that there is no final order, and hence, that the Court of Appeals cannot hear a petition for review. A hearing could take years, and in effect, be a dilatory tactic employed by the FCC to evade judicial review of its regulatory action and assertion of authority.

This order, when it is issued, may be numbered FCC 08-183 in Docket No. 07-52.

Statements by the Majority. FCC Chairman Kevin Martin wrote in his statement [PDF] that the FCC "can and will enforce the Internet Principles".

Kevin MartinMartin (at right), without expressly stating so much, revealed that the FCC is writing substantive rules by adjudication of a complaint. He articulated the analysis to be applied by the FCC in deciding upon the legality of network management practices.

He stated that the analysis begins with "whether the network management practice is intended to distinguish between legal and illegal activity. The Commission’s network principles only recognize and protect user’s access to legal content. The sharing of illegal content, such as child pornography or content that does not have the appropriate copyright, is not protected by our principles. Similarly, applications that are intended to harm the network are not protected."

Then, said Martin, the FCC "considers whether the network service provider adequately disclosed its network management practices. A hallmark of whether something is reasonable is whether an operator is willing to disclose fully and exactly what they are doing. Consumers need proper disclosure so that they can make informed decisions when purchasing broadband service."

"Finally, if legal content is arbitrarily degraded or blocked, and the defense is ``network management,´´ the broadband operator must show that its network management practice is reasonable. We will look at whether it furthers an important interest and is carefully tailored to serve that interest. Also, the practice should be disclosed to consumers so that they can make informed decisions when purchasing broadband service."

Martin's statement of the analysis of the legality of network management practices to be employed by the FCC borrows from the Supreme Court's analyses of the Constitutionality under the First Amendment of government restraints of speech, and the Constitutionality under the 14th Amendment of government denials of equal protection of the law.

Although, Comcast is not a government. And, it is managing a network, not censoring speech, or engaging in racial discrimination.

Martin also asserted that "Our action today is not about regulating the Internet" and that he has "consistently opposed calls for legislation or rules to impose network neutrality". He added that "legislation or rules are unnecessary, because the Commission already has the tools it needs to punish a bad actor."

And he wrote, "Failure to act here would have reasonably led to the conclusion that new legislation and rules are necessary."

Commissioner Michael Copps, who was part of the three member majority, argued in his statement [PDF] that the FCC should adopt as a fifth principle "non-discrimination", and that it should apply to both wireline and wireless networks.

Commission Jonathan Adelstein, also a member of the majority, argued that the FCC does have statutory authority for this action.

He wrote in his statement [PDF], for example, that the Supreme Court held in NCTA v. Brand X that the FCC has ancillary jurisdiction under Title I, and that the FCC can assert ancillary jurisdiction in this proceeding.

Adelstein also asserted that statutory authority exists in various policy statements found throughout the Communications Act.

Then, he wrote that "we have clear discretion about whether to act through rulemaking or adjudication".

Dissenting Statements. Commissioner Robert McDowell wrote a long and vigorous dissenting statement.

Robert McDowell McDowell (at left) first argued that there are a host of procedural problems that may doom this item on appeal.

He wrote that "we have no rules to enforce. This matter would have had a better chance on appeal if we had put the horse before the cart and conducted a rulemaking, issued rules and then enforced them."

He also wrote that the majority is exceeding the FCC's Title I authority.

He opined that "If Congress had wanted us to regulate Internet network management, it would have said so explicitly in the statute, thus obviating any perceived need to introduce legislation as has occurred during this Congress. In other words, if the FCC already possessed the authority to do this, why have bills been introduced giving us the authority we ostensibly already had?"

McDowell also concluded that the standard of review contained in the yet to be released order is a "strict scrutiny" standard. He then argued that it is "inappropriate, for the Commission to judge the actions of a private actor by a standard that has generally been reserved for determining whether the government has trampled on the fundamental constitutional rights of individuals."

He predicted that this "is sure to doom this order on appeal".

McDowell next argued that "the FCC does not know what Comcast did or did not do. The evidence in the record is thin and conflicting." He said that the FCC should have conducted its own factual investigation.

After discussing the procedural defects, he argued that the order is bad policy.

He wrote that "the practical effect of today's order requires all network operators -- cable, telcos and wireless providers -- to treat all Internet traffic equally. That sounds good if you say it fast. But the reality is that the Internet can function only if engineers are allowed to discriminate among different types of traffic. Now, the word ``discriminate´´ carries with it extremely negative connotations, but to network engineers it means ``network management.´´ Discriminatory conduct, in the network management context, does not necessarily mean anticompetitive conduct."

He argued too that "The majority is creating regulatory uncertainty for engineers. Under the new regulatory rubric of the undefined term ``reasonable network management,´´ engineers" will not know what they are allowed to do.

"The Internet has been governed in a bottom-up ``wiki´´ manner rather than a top-down government-knows-best style." But, wrote McDowell, "For the first time, today our government is choosing regulation over collaboration when it comes to Internet governance. The majority has thrust politicians and bureaucrats into engineering decisions."

He concluded that "A better model for the majority to have adopted today would have been to allow the longstanding and time-tested collaborative Internet governance groups to continue to produce the fine work they have successfully put forth for years."

Commissioner Deborah Tate also dissented. She wrote in her statement [PDF] that she is concerned about "fighting the proliferation of online child pornography and unauthorized illegal downloads of creative content".

She asked "If the Commission interferes with the ISPs ability to manage their networks by imposing a strict legal standard, will such regulation have a freezing effect on the fight against illegal content?"

She also wrote that "network management plays a key role in protecting customers from spam, phishing, computer viruses and worms, Trojan horses, and denial of service attacks. If we tie the hands of network managers, there is a good chance this type of malware could neither be identified nor contained before affecting users."

She also noted the agreement between Comcast and BitTorrent and other industry efforts underway.

Title I Ancillary Jurisdiction. On June 27, 2005, the Supreme Court issued its opinion [59 pages in PDF] in NCTA v. Brand X, upholding the Federal Communications Commission's (FCC) determination that cable broadband internet access service is an information service. See story titled "Supreme Court Rules in Brand X Case" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005.

The Supreme Court did state that the FCC has Title I ancillary jurisdiction. But, it wrote little about it.

The Court wrote that "the Commission remains free to impose special regulatory duties on facilities-based ISPs under its Title I ancillary jurisdiction". It also wrote that "Any inconsistency between the order under review and the Commission’s treatment of DSL service can be adequately addressed when the Commission fully reconsiders its treatment of DSL service and when it decides whether, pursuant to its ancillary Title I jurisdiction, to require cable companies to allow independent ISPs access to their facilities."

In addition, Justice Scalia wrote in dissent that "Under the Commission's assumption that cable-modem-service providers are not providing ``telecommunications services,´´ there is reason to doubt whether it can use its Title I powers to impose common-carrier-like requirements, since 47 U. S. C. §153(44) specifically provides that a ``telecommunications carrier shall be treated as a common carrier under this chapter only to the extent that it is engaged in providing telecommunications services´´ (emphasis added), and ``this chapter´´ includes Titles I and II."

Scalia's analysis may be pertinent because what the FCC is doing in the present proceeding is in the nature of imposing a Title II common carrier requirement upon a service now classified as a Title I information service.

Praise for FCC Decision. Ed Black, head of the Computer & Communications Industry Association, stated in a release that "We commend Chairman Martin and Commissioners Copps and Adelstein for their superior understanding of the need to check monopoly and duopoly ISPs who attempt to act as online gatekeepers and for their historic and courageous action today. Stopping discriminatory network management practices is important to the flow of information in our democracy and to the economic growth that is made possible by an open Internet".

Gigi Sohn, head of the Public Knowledge, one of the interest groups that filed the complaint that initiated this proceeding, praised the FCC's action. She stated in a release that "Comcast's throttling of legal Internet traffic had nothing to do with network management as the company claims. It had everything to do with a big company trying to exert its power over a captive Internet market."

Josh Silver, of the Free Press, the other complainant, wrote in a release that the FCC's action is "an historic precedent for an open Internet". He added that "the fight is far from over. A duopoly market -- where phone and cable companies control nearly 99 percent of high-speed connections -- will not discipline itself. We look forward to working with the FCC and Congress to ensure proactive measures keep the Internet open and free of discrimination".

Criticism of FCC Decision. Kyle McSlarrow, head of the National Cable & Telecommunications Association (NCTA), stated in a release that "One need look no further than today's FCC decision for proof that engineering challenges on the Internet should be solved by engineers, not government officials. In second-guessing reasonable network management techniques (with no notice or guidelines in place) that benefit the overwhelming number of broadband subscribers in America, the FCC has inexplicably elevated the interests of a few bandwidth hogs over everyone else." (Parentheses in original.)

The Progress & Freedom Foundation's (PFF) Barbara Esbin stated in a release that "It is perplexing -- and therefore worrisome -- that a government agency has intervened in a technical dispute involving appropriate management of Internet traffic when the dispute was settled and the companies involved have pledged to work collaboratively in the future. Worse, the agency has done so following what can only be characterized as a Kafkaesque process, unprecedented in administrative law and unfaithful to Constitutional Due Process. Whether specific management techniques are appropriate should be decided by technical experts and marketplace interactions, not political appointees responding to interest group pressure."