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Net neutrality: The road ahead for providers

Net neutralityEarlier this month, the Federal Communications Commission (FCC) — headed by Chairman Tom Wheeler — officially approved the policy known as net neutrality, effectively redefining how the Internet is governed in the U.S. If the rule goes into effect, it has the potential to revolutionize the way all Internet providers interact with the federal government.

Officially called the Open Internet Order, the new regulation is based on the principle that all Internet providers should treat all traffic on their networks equally. However, many providers fear that the new rules will hinder innovation, increase costs for consumers and hurt future investment. One thing is certain, though: The industry will likely contend with regulatory uncertainty for years to come.

The policy replaces the FCC’s previous 2010 rules, which were struck down last year by a U.S. Court of Appeals ruling in a case brought by Verizon against the regulating body. The Verizon case took the position that the FCC did not have the authority to create open Internet rules, because it had given up its right to regulate Internet service providers as common carriers by reclassifying broadband under Title I of the Communications Act of 1934 (Communications Act). According to the court’s ruling, “the Commission had failed to cite any statutory authority that would justify its order compelling a broadband provider to adhere to open network management practices.”

How we got here
In 2002, ISPs were classified as information service providers, which is a less-regulated category that comes under Title I of the Communications Act. Then, in 2007, the FCC further classified wireless broadband Internet access as an information service.

Though many open-Internet proponents took the 2014 defeat as a real blow to their cause at the time, it did leave the door open for the FCC to take the opportunity to write new rules on the subject — which the fivemember commission promptly proceeded to do.
What the new rules look like
The Open Internet Order falls under Title II of the Communications Act and Section 706 of the Telecommunications Act of 1996. Title II, which dates back to the beginning of the telephone system, regulates services as public utilities. Under the new order, ISPs will now be classified as common carriers, subject to regulation against paid prioritization.

In layman’s terms, paid prioritization means that a larger carrier — say, a Comcast or a Verizon — could offer faster streaming to a company with which they have a relationship, such as Netflix. Essentially, the proposed FCC rules will establish three practices:
  1. No blocking: Broadband providers may not block access to legal content, applications, services or non-harmful devices.
  2. No throttling: Broadband providers may not impair or degrade lawful Internet traffic on the basis of content, applications, services or nonharmful devices.
  3. No paid prioritization: Broadband providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration — in other words, no “fast lanes.” This rule also bans ISPs from prioritizing the content and services of their affiliates.

Far from resolving the issue, the new regulation has provoked significant debate — and both sides are nothing if not vocal. In fact, the situation has become a talking point addressed by everyone from President Obama to former FCC chairmen. Here, we outline the basic tenets of both sides.

The case for net neutrality
Last November, the president made a public statement urging the FCC to adopt the “strongest possible rules” on net neutrality, stating that, “For most Americans, the Internet has become an essential part of everyday communication and everyday life.” Advocates of net neutrality see the ruling as an important cornerstone, guaranteeing equal access to an open Internet for all consumers. In fact, more than 4 million people petitioned the FCC on this platform, and the president acknowledged them in an open letter posted on whitehouse.gov immediately following the ruling.

Advocates of net neutrality see this as being especially important because, in many communities, ISPs are virtual monopolies, with consumers having little to no choice as to which provider they can use. Proponents argue that net neutrality will, “ensure that [the Internet] will remain a global, shared resource for everyone.”

Under net neutrality, proponents say, ISPs will be prevented from interfering with the open marketplace, which will lower the barriers to entry for entrepreneurs and small businesses looking to expose their product to a larger market. Heightened competition in an open Internet marketplace will, in turn, foster creativity by allowing good concepts to succeed on their merits, without being hampered by a pay-to-play pecking order.

The case against net neutrality
Conversely, those advocating against regulation of this kind argue that the FCC ruling is an archaic remedy that demonstrates FCC overreach. Indeed, even one of the FCC’s own commissioners, Ajit Pai, describes the order as one that “imposes intrusive government regulations that won’t work to solve a problem that doesn’t exist using legal authority the FCC doesn’t have.” Pai goes on to warn that “regulating the Internet like a utility company will threaten the kind of innovation we’ve taken for granted over the past 20 years.”

Pai also raises serious doubts about the government’s ability to be agile in a technological world: “Do you trust the federal government to make the Internet ecosystem more vibrant than it is today?” he asked. “Can you think of any regulated utility like the electric company or water company that is as innovative as the Internet?”

Across the board, detractors agree that net neutrality will stifle, not encourage, ISP innovation, ultimately culminating in higher costs as the industry struggles with the burden and uncertainty of greater regulation.

In fact, former FCC Chairman Michael Powell decried the FCC’s decision, stating that it paves the way for an era of heightened bureaucracy and marks the beginning of a “new chapter of competing visions for the Internet — one where government regulators play a central role in directing how the Internet evolves, versus one in which entrepreneurs, private enterprise and consumers expressing their preferences set the terms for the future.”

The road ahead for providers
The challenges are going to be mechanical as well as philosophical, as right now it is unclear how the FCC intends to enforce the ruling or which providers will be affected. And, while it’s generally agreed that everyone wants an open Internet, it’s still not entirely clear what that might look like. Further, we don’t know yet how the two regulating bodies in this arena – namely, the FCC and the Federal Trade Commission (FTC) – might collaborate with or contradict each other when it comes to enforcement. One thing is certain, though: the next few years will be tinged with ongoing regulatory uncertainty. Three best practices for moving forward as this new era unfolds:

  1. Keep aware: Monitor court action, keep abreast of ongoing regulatory action and related legislation.

  2. Be ready: Brita Strandberg, co-chair of the Audits and Enforcement practice at Harris, Wiltshire and Grannis LLP, focuses on representing communications and technology clients before the FCC and federal courts. In the current Internet landscape, she notes that “the most important thing to think about is how this could impact your business in negative ways, and how to prepare yourself for any changes coming down the pike that could affect you.”

    For example, she says, under the new regulation, ISPs are likely to get pulled into the FCC’s privacy regime, where before they answered to the FTC. So, if you are an ISP that has built up a substantial compliance program and strategy based on the FTC’s regulations, now you will need to shift your focus to the FCC’s requirements. And while both agencies do have consumer protection as their ultimate goal, she says that “the devil is in the details, and there are different requirements for each.”

  3. Get ahead of it: Companies that respond to regulatory changes on the back end get themselves in trouble and find themselves having to race to play catch-up or, worse, get left behind completely. It’s a good idea, says Strandberg, to work with a team that can help to navigate the choppy waters ahead. “Decide that you’re going to understand the regulation, and put good compliance programs in place at the front end, and as the dust settles, you’ll be in a position to focus on your business, and not on legalities.”

Many Internet providers will find they need to secure qualified legal counsel with a nuanced understanding of this very specialized landscape. Put differently, Internet providers will need to obtain legal and regulatory know-how to advise them on compliance as it relates to new and existing products and services. In particular, Internet providers will
need to engage specialists — such as attorneys, accountants, and tax and management consultants — who are conversant with historical regulatory authority under Title II of the Communications Act and who can apply the rule to an industry built upon dynamic technology and innovation.

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Contact
Johnny Lee
Managing Director
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Steven Perkins
Managing Director
Technology Industry Practice
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E steven.perskins@us.gt.com