Federal appeals court strikes down FCC's net neutrality rules

A federal appeals court struck down key parts of the FCC's net neutrality rules, dealing a blow to the commission as it seeks to regulate more of the broadband arena. The ruling comes as wireless carriers have started to experiment with new business models for paying for mobile data and content.

The ruling, from the U.S. Court of Appeals for the D.C. Circuit, said the FCC's so-called Open Internet Order, which established the rules, is invalid. The court said that the FCC overstepped its authority in issuing the rules.

The FCC in 2010 decided to classify broadband as an "information service" and not as a "telecommunications service," the classification used for traditional telephone companies. By doing so, the court said the FCC could not then impose its "anti-discrimination" and "anti-blocking" rules on Internet providers.

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

"The D.C. Circuit has correctly held that 'Section 706 . . . vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure' and therefore may 'promulgate rules governing broadband providers' treatment of Internet traffic,'" FCC Chairman Tom Wheeler said in a statement. "I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."

Harold Feld, senior vice president of public interest group Public Knowledge, which has supported net neutrality, noted that the court did uphold the FCC's "authority to regulate broadband. To exercise that authority, the FCC must craft open internet protection that are not full fledged common carrier rules. Alternatively, if the FCC needs broader authority it can classify broadband as a [Title II] common-carrier service."

The ruling is a major win for Verizon Communications (NYSE:VZ), which was the only major telecommunications company to take legal action against the FCC's net neutrality rules. Verizon successfully argued its case before the court, which is the same court that in April 2010 struck down the FCC's authority to sanction Comcast for blocking subscribers from using a file-sharing service.

The FCC's net neutrality rules were first passed on a party-line 3-2 vote in December 2010 after months of contentious debate, and they took effect in November 2011. Importantly, the rules did not call for the reclassification of broadband under Title II of the Telecommunications Act as a common-carrier service. Rather than take a Title II route, as many Democrats and net neutrality advocates had wanted, the FCC's office of general counsel argued at the time the rules were created that the FCC had authority to promote advanced telecommunications services and encourage broadband deployment--factors that underpinned its authority to create the rules.

Under the FCC's rules, wireless carriers are barred from blocking services such as Google Voice and Skype that compete with their own voice and video offerings, as well as those in which they have an attributable interest. However, wireless carriers don't face the same restrictions wired operators do on blocking Web traffic and other applications--a ban on unreasonable discrimination in transmitting lawful network traffic.

Wireless carriers also face transparency requirements on network management policies and a basic "no-blocking" rule on lawful content and applications. The no-blocking rule doesn't generally apply to carriers that operate application storefronts. The rules do allow for reasonable network management, which is defined as actions that are "appropriate and tailored to a legitimate network management purpose, taking into account network architecture."

The FCC's net neutrality rules were a landmark action by the agency, and have been repeatedly referenced in the years since the FCC approved the rules. Most recently, AT&T Mobility (NYSE:T) came under fire for its new "Sponsored Data" toll-free data plans, which allow partners to subsidize customer data costs. A number of public-interest groups argued AT&T's Sponsored Data plans could run afoul of net neutrality.

Craig Aaron, president and CEO of Free Press, which has been a supporter of strong net neutrality rules, said the group is disappointed with the court's ruling against net neutrality. He said that "Internet users will be pitted against the biggest phone and cable companies--and in the absence of any oversight, these companies can now block and discriminate against their customers' communications at will."

Aaron said the FCC's rules "left much to be desired," but were "a step toward maintaining Internet users' freedom to go where they wanted, when they wanted, and communicate freely online. Now, just as Verizon promised it would in court, the biggest broadband providers will race to turn the open and vibrant Web into something that looks like cable TV. They'll establish fast lanes for the few giant companies that can afford to pay exorbitant tolls and reserve the slow lanes for everyone else."

"The FCC--under the leadership of former Chairman Julius Genachowski--made a grave mistake when it failed to ground its open Internet rules on solid legal footing. Internet users will pay dearly for the previous chairman's lack of political will," Aaron said. "That's why we need to fix the problems the agency could have avoided in the first place. New FCC Chairman Tom Wheeler recently stated that the FCC must have the ability to protect broadband users and preserve the Internet's fundamental open architecture. In order to do that, he must act quickly to restore reassert the FCC's clear authority over our nation's communications infrastructure. The agency must follow its statutory mandate to make broadband communications networks open, accessible, reliable and affordable for everyone."


For more:
- see the ruling
- see this GigaOM article
- see this The Hill article

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