Verizon, Federal Judges Challenge FCC Open Internet Order

A panel of judges suggest that the Federal Communications Commission may have overstepped its authority in issuing rules to prevent broadband providers from blocking or discriminating against content on their networks. Verizon, specifically, is challenging the commission.

WASHINGTON -- A panel of federal judges Monday challenged the Federal Communications Commission's authority to regulate broadband access services, peppering the agency's attorney during an oral-argument session with questions about the scope of its 2010 open Internet order.

That order, which bars Internet service providers from blocking or discriminating against lawful Web content, codified a version of network neutrality that broadband operators have long resisted. Verizon challenged the order in court, arguing that the commission overstepped its authority in writing those rules, while also asserting a First-Amendment free speech right to manage the content passing over its network.

Verizon's attorney, Helgi Walker of the firm Wiley Rein, devoted much of her presentation to a critique of the FCC's statutory authority to issue regulations in the broadband sector, contending that the last major overhaul of communications law, the 1996 Telecommunications Act, did not give the agency an explicit mandate in the space.

"It's just not credible," Walker argued, that Congress would have intended to delegate broadband authority to the commission in such an "opaque and indeed convoluted way."

FCC Again Defends a Net Neutrality Rule

FCC, Federal Communications Commission, Net Neutrality

Monday's arguments mark the second time the FCC has appeared in recent years before the D.C. Circuit Court to defend a net neutrality rulemaking, in both cases arguing that the rules are limited but necessary to preserve the free flow of traffic on the Web and ensure that the Internet remains a thriving segment of the economy.

Three years ago, the agency was in the same court defending its decision to punish Comcast for secretly throttling peer-to-peer traffic on its network. The judges, including David Tatel, who is among those presiding over the Verizon case, unanimously ruled that the FCC had exceeded its authority and vacated the Comcast ruling. Walker, Verizon's lead attorney, also represented Comcast in that case.

Tatel made no effort to conceal his skepticism about the FCC's argument, at times shaking his head or rubbing his eyes in a show of exasperation as the commission's attorney and an intervenor were making their arguments.

Sean Lev, the FCC's general counsel, countered Walker's argument about statutory authority with a different interpretation of the 96 Telecom Act, telling the judges that the open Internet order is "firmly grounded in the relevant statute."

The judges' most probing questions of Lev focused on the practical impact of the rules and the extent to which they prohibit new business models and experimentation in the ways that ISPs manage their networks.

Judge Laurence Silberman took issue with the evidence the FCC presented in its written filings, in particular its reliance on potential scenarios -- each presented with the verb "may" -- of consumer harm or market abuse that the open Internet order would seek to preclude.

"[If] my aunt had wheels she's be a trolley car. What does 'may' mean?" Silberman asked. "You have all these hypotheticals, but that's not a finding of anything."

Lev tried to downplay the sweep of the open Internet order, saying that ISPs would simply be barred from blocking content outright, but that they would still be free to strike deals with Internet companies to provide faster delivery service for a premium cost.

But the judges pressed him on whether the rules amounted to similar provisions found in the so-called common carrier regulations that apply to telecommunications providers, but not broadband operators. Lev argued that the FCC was not invoking the common-carrier style of regulation, noting that ISPs are still free to set rates for their customers and decide to whom they will provider service.

Verizon Lawyer Argues FCC Rules Restrict ISPs Ability to Negotiate Agreements With Edge Providers

But Walker contended that the rules curtail the business activities of ISPs by restricting their ability to negotiate agreements with "edge" providers like Google and Netflix.

"We have no right to terminate service under these rules," Walker said, arguing that they "shut down and prevent the development of a two-sided market" by unfairly advantaging edge players within the Internet ecosystem while effectively barring ISPs from striking pay-for-delivery agreements. "My client wants the freedom to explore that," she said.

Walker returned to that point in her closing statement, flatly contradicting Lev's interpretation of the latitude for ISPs to charge for speedy delivery within the non-discrimination provision of the open Internet order. "They're conflating the rules," Walker said.

"Correct," Tatel responded, seeming to reinforce his incredulousness at the validity of the FCC's case.

When the court rules on the case later this year or next year, the judges could vacate the entire open Internet order, allow it to stand, or strike parts of it. Christopher King, an analyst with Stifel, suggested that a hybrid ruling that preserves the no blocking portion of the order while striking down the anti-discrimination rules (which only apply to wireline providers, not wireless) seems likely after Monday's hearing.

"We believe a D.C. Circuit panel majority signaled today at oral arguments that it's inclined to pare back FCC open Internet rules in a way that would allow cable and telco broadband providers to charge Internet edge providers for improved connections to broadband customers. At the same time, the panel seemed inclined to uphold the FCC's authority to regulate broadband to some extent," King wrote in a research note.

Such an outcome could give telcos and cable new flexibility to strike paid-prioritization deals for offering better service to Internet edge providers, which could also include media companies.

Whether it would be good or bad for edge/media providers would depend on their business plans and financial wherewithal, but it could create faster 'toll' lanes that give big edge players advantages over upstarts," King added.

Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.

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