In The FCC's Own Words: Chairman Wheeler Has Proposed Online Discrimination, Paid Prioritization, And Exclusive Deals

from the that's-not-net-neutrality dept

Last week, we showed how the Verizon court decision made it clear that without Title II reclassification, the internet would be open to discrimination, paid prioritization and exclusive deals. This week, we're looking at how FCC Chairman Tom Wheeler's claims back that up, despite his attempts to argue otherwise.

Chairman Wheeler claims to oppose discrimination and a two-tiered Internet of fast lanes and slow lanes.

Chairman’s speech on 5/15/14: “This agency supports an Open Internet. There is ONE Internet. Not a fast internet, not a slow internet; ONE Internet. … The potential for there to be some kind of ‘fast lane’ available to only a few has many people concerned. Personally, I don’t like the idea that the Internet could become divided into ‘haves’ and ‘have nots.’ I will work to see that does not happen. In this Item we specifically ask whether and how to prevent the kind of paid prioritization that could result in ‘fast lanes.’”

But his proposal would authorize discrimination and a two-tiered Internet of fast lanes and slow lanes.

Chairman’s proposal: “[W]e propose to adopt the text of the no-blocking rule that the Commission adopted in 2010, with a clarification that it does not preclude broadband providers from negotiating individualized, differentiated arrangements with similarly situated edge providers (subject to the separate commercial reasonableness rule or its equivalent). So long as broadband providers do not degrade lawful content or service to below a minimum level of access, they would not run afoul of the proposed rule. We also seek comment below on how to define that minimum level of service. Alternatively, we seek comment on whether we should adopt a no-blocking rule that does not allow for priority agreements with edge providers and how we would do so consistent with sources of legal authority other than section 706, including Title II.” (para. 89)

That is, the rule proposed would allow for cable and phone companies to offer and cut new deals with websites and applications, and those deals do not have to treat similar companies similarly. These priority arrangements could be for a fee, and wildly different fees for each site. As an "alternative" to the proposal, the FCC agreed to ask whether it should adopt a rule that forbids "priority arrangements," but that is certainly not Wheeler's official proposal.

Further, Wheeler is also proposing exclusive deals, with merely a rebuttable presumption against a very small subset -- between an ISP and a website it owns. So Verizon-Amazon or Comcast-Apple exclusives would be legal.

In light of such concerns, we propose to adopt a rebuttable presumption that a broadband provider’s exclusive (or effectively exclusive) arrangement prioritizing service to an affiliate would be commercially unreasonable. (para. 126)

What this means is that the FCC is presuming that all exclusive deals with websites and applications are reasonable -- except for a small subset where a cable company makes an exclusive deal with a company it owns. So if Comcast prioritizes NBC.com (which it owns) and one other company (say Apple or Facebook), then Comcast's deals are presumed reasonable. If Verizon makes an exclusive deal with one investment platform (e.g., E-Trade or TD Ameritrade), then the exclusive deal is presumed reasonable because Verizon does not own either of them.

As I noted in my previous post , if the FCC relies on the authority in Section 706, and not the one in Title II, the FCC must in fact permit discrimination, paid prioritization, and exclusive deals. Meaning, so long as the FCC grounds its rule in Section 706 and not Title II, Wheeler could not have even proposed a better rule.

33 Comments

The Court's Own Words: Life Without Title II Has Online Discrimination, Paid Prioritization, Exclusive Deals, And Maybe Blocking

from the it's-not-like-it's-secret dept

To hear Tom Wheeler and most of the big broadband players explain the net neutrality situation, the appeals court decision back in February laid out a "roadmap" for the FCC to continue to use Section 706 for its open internet rules. But that's not actually true. It's a clear misrepresentation of what the court actually said.

The language of the Verizon decision by the DC Circuit court is pretty clear: unless the FCC rests its rules in Title II of the Communications Act, the FCC must permit the carriers to engage in discrimination, charge access fees, cut exclusive deals, and perhaps block websites. Despite this, the FCC is proposing to use Section 706 (again), rather than Title II, and the court already ruled that Section 706 does not authorize network neutrality in January.

To begin, without Title II, the FCC cannot treat broadband providers as "common carriers."

We think it obvious that the Commission would violate the Communications Act were it to regulate broadband providers as common carriers. Given the Commission's still-binding decision to classify broadband providers not as providers of “telecommunications services” [under Title II] but instead as providers of “information services,” … such treatment would run afoul of section 153(51): “A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services.”

So, what does it mean to regulate broadband providers as common carriers? It means to impose any rule against discrimination or requiring providers to charge similar prices to similarly situated parties.

“[I]f a carrier is forced to offer service indiscriminately and on general terms, then that carrier is being relegated to common carrier status.” … Given these principles, we concluded that [a specific earlier rule concerning data roaming] imposed no per se common carriage requirements because it left “substantial room for individualized bargaining and discrimination in terms.”

If the FCC must permit "substantial room for … discrimination in terms" without Title II, then it cannot ban unreasonable discrimination.

The Court also said that the FCC cannot ban paid prioritization under Section 706. That’s because, under any provisions other than Title II, the FCC cannot require the broadband providers to effectively charge websites the same price of zero not to be blocked.

[W]ith respect to broadband providers’ potential negotiations with edge providers, the [2010] Order ominously declares: “it is unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard.” … If the Commission will likely bar broadband providers from charging edge providers for using their service, thus forcing them to sell this service to all who ask at a price of $0, we see no room at all for “individualized bargaining.”

Remember, "substantial" room, not "no room at all," is required when imposed on a carrier not subject to Title II. Therefore, under Section 706, without Title II, the FCC cannot ban access fees imposed by cable and phone companies.

Moreover, Section 706 also requires exclusive deals.

For example, Verizon might … charge an edge provider like Netflix for high-speed, priority access while limiting all other edge providers to a more standard service. In theory, moreover, not only could Verizon negotiate separate agreements with each individual edge provider regarding the level of service provided, but it could also charge similarly-situated edge providers completely different prices for the same service. The FCC might not even be able to ban blocking under Section 706.

The Verizon decision said: "Whether the [2010] Order's anti-blocking rules, applicable to both fixed and mobile broadband providers, likewise establish per se common carrier obligations is somewhat less clear [than the anti-discrimination rule]." But it still struck down the anti-blocking rule. The decision merely stated that the FCC may have tried to defend the anti-blocking rule on other grounds, but said "whatever the merits of that view," it did not need to address it. So the anti-blocking rule may not be permissible under Section 706. The FCC called this discussion a "roadmap," when in reality it is not even what lawyers call "dicta," because the court did not have to consider the argument, and passed no judgment on it.

Yes, the court already said you can't do network neutrality under Section 706 and need Title II.

Why is the FCC still trying?

Tim Wu noticed similar facts unfolding in 2010, under the previous FCC Chairman Genachowski:

Genachowski grounded the rules in what is called—in legal jargon—the agency’s “auxiliary authority.” If the F.C.C. were a battleship, this would be the equivalent of quieting the seventeen-inch-inch guns and relying on the fire hoses.

What could possibly have convinced the agency to pursue a legal strategy that any law student could see was dubious? As in any big mistake, there were compounding errors. Members of Congress threatened to strip the F.C.C. of some of its powers if it enacted the rules with the full weight of its legal authority. (Indeed, Congress tried and failed to overturn the Open Internet Order.) A.T. & T. warned that it would cancel its ongoing effort to become a cable company, threatening to tar the agency with job losses. One senior F.C.C. staffer told me that it would have unduly affected the stock prices of the telecom firms. The agency also had a Kool-Aid-drinking problem; it started to believe its own legal arguments, however weak. Altogether, it was a cowardly reaction to empty political threats.

If the current FCC doesn't change course and pursue Title II, Wu could write the same paragraphs a few years from now about the current Chairman, Wheeler.

11 Comments

Contrary To What Big Broadband Players Will Say, The FCC Has Acted Many Times To Protect Net Neutrality

from the a-look-at-the-history dept

The cable and phone companies are telling people in DC that the Internet has benefited from "no" net neutrality rules. They claim, since there were no rules for a decade, we don't need them now. They've got the story exactly backwards: we have had active FCC interventions on net neutrality. That's one reason we have had a neutral Internet until now. Indeed, since 2004, we have had enforcement actions, policy statements, merger conditions, spectrum conditions, and a rule. The first time we have had the FCC announce that it would not ensure neutrality but would instead authorize fast lanes ... was Chairman Wheeler's comments earlier this year.

While very often imperfect, the FCC has done much to ensure an open internet. Carriers have not historically engaged in rampant discrimination partly due to the threat of FCC action. In 2004, the FCC's Chairman issued a speech about the "Four Freedoms" online, which promised to keep the Internet an open platform. In 2005, the FCC punished Madison River, a small telephone company that was blocking Vonage, an application that powered online phone calls competing with Madison River's own service. In 2005, the FCC adopted an Internet Policy Statement and pledged to respond to any violations of the statement with swift action. In 2008, after it was discovered that Comcast, the largest ISP in the nation, was interfering with some of the internet's most popular technologies -- a set of five peer-to-peer (P2P) technologies -- the FCC enjoined Comcast in a bipartisan decision. Much of the cable industry was engaging in such actions, so this wasn't a small exception. In 2010, the FCC adopted the Open Internet Order that was only recently struck down.

Additionally, in the years since 2005, the FCC has conditioned spectrum assignments and mergers on net neutrality rules. The largest three broadband providers have been (or remain) subject to net neutrality for many years. AT&T accepted two-year net neutrality conditions in its merger with BellSouth, and SBC accepted a two-year condition in its merger with AT&T. Verizon accepted a similar condition in its merger with MCI. Verizon purchased a 22MHz band of spectrum (the C block) in the FCC's 2008 700MHz auction for $4.7 billion dollars, and did so subject to open internet conditions modeled on the Internet Policy Statement. Comcast has been subject to network neutrality rules since its merger with NBC in 2011, and the merger condition extends for seven years. Both Verizon and Comcast's conditions still apply today. Moreover, Congress imposed contractual obligations on internet networks built with stimulus funds -- nondiscrimination and interconnection obligations that, at a minimum, adhered to the internet Policy Statement, among other obligations.

In light of these merger obligations, license conditions, FCC adjudications and rule-making, stimulus conditions, and consistent threats of FCC action, startups have enjoyed a generally neutral network that is conducive to, and necessary for, innovation. These actions provided some certainty that startups would not be arbitrarily blocked, subject to technical or economic discrimination, or forced to pay carriers so that the carriers' consumers can access all the innovation online.

Following the Verizon v. FCC decision, and under the Chairman's proposal, that will likely change, in ways that harm entrepreneurship and the public interest.

The past decade of tech innovation may not have been possible in an environment where the carriers could discriminate technically and could set and charge exorbitant and discriminatory prices for running internet applications. Without the FCC, established tech players could have paid for preferences, sharing their revenues with carriers in order to receive better service (or exclusive deals) and to crush new competitors and disruptive innovators. Venture investors would have moved their money elsewhere, away from tech startups who would be unable to compete with incumbents. Would-be entrepreneurs would have taken jobs at established companies or started companies in other nations. The FCC played an important role. The Chairman and this FCC shouldn't break that.

33 Comments

Yes, Net Neutrality Is A Solution To An Existing Problem

from the plenty-of-examples dept

While AT&T, Comcast, and Verizon have argued -- with incredible message discipline -- that network neutrality is "a solution in search of a problem," that's simply not true.

There are many concrete examples of network neutrality violations around the world. These network neutrality violations include ISPs blocking websites and applications, ISPs discriminating in favor of some applications and against others, and ISPs charging arbitrary tolls on technology companies.

We have seen network neutrality violations all over the world.

Even in the U.S., there have been some major violations by small and large ISPs. These include:

• The largest ISP, Comcast, secretly interfering with peer-to-peer technologies, including some of the most popular basic technologies used to distribute online TV and music (2005-2008);
• A small telephone ISP called Madison River blocking Vonage, a company providing competing telephone service online (2005);
• Apple blocking Skype on the iPhone, subject to a secret contract with AT&T, a company that competes with Skype in providing telephone service (2008-2009);
• Verizon, AT&T, and T-Mobile blocking the functionality of Google Wallet on Nexus devices, while all three of those ISPs are part of a competing mobile payments joint venture called Isis (late 2011- +today);
• and Comcast's disputes with Level 3 and Netflix over termination fees, and the appearance that Comcast is deliberately congesting its network connections to force Netflix to pay Comcast for an acceptable connection (2010- +today).

In other countries, including democracies, there are numerous violations. In Canada, rather than seeking a judicial injunction, a telephone ISP used its control of the wires to block the website of a union member during a strike against that very company in July 2005. In the Netherlands, in 2011, the dominant ISP expressed interest in blocking against U.S.-based Whatsapp and Skype.

In the European Union, widespread violations affect at least 1 in 5 users. That is the conclusion of a report issued in June of 2012 by the Body of European Regulators for Electronic Communications (BEREC), a body composed of the regulatory agencies of each EU country. Most of these restrictions were on online phone services, peer-to-peer technologies (which are used not only by copyright pirates, but also in a variety of well-known technologies, including Skype and several Amazon cloud services), as well as other specific applications "such as gaming, streaming, e-mail or instant messaging service."

ISPs block and discriminate against applications and websites even in countries that require disclosure of the violations and even in countries with far more competition among ISPs than the U.S. A recent Oxford dissertation on the topic explores the wide-scale blocking and discrimination in the United Kingdom, a market with both considerable competition among ISPs and robust disclosure laws.

Essentially, a specific rule that would be upheld in court is necessary protect network neutrality and address a major, global problem.

* Footnote: Thanks to Stanford professor Barbara van Schewick, whose recent letter to the FCC inspired my thinking in this post.

24 Comments

Marvin Ammori's Favorite Techdirt Posts of the Week

from the on-internet-freedom dept

With so many good posts this week, it's hard to select only a handful of favorites. Here are some stories that captured my attention. I chose an overall favorite and then one per day. They're all worth reading.

For those who don't know me, I'm a lawyer. I recently released a book called "On Internet Freedom," which focuses on what the First Amendment can teach us about Internet law. I spent a few years as a law professor and a few more years as an advocate on Internet policies--in line with Techdirt's general views on network neutrality, copyright expansion, unlicensed spectrum, CFAA, etc. I'm also interested in, and have written about, education reform efforts to increase the teaching of programming and entrepreneurship.

Favorite Post:

DailyDirt: The Future Of Higher Education Is Online

This post jumped out at me because the intersection of technology and education is an increasing interest for so many people. Organizations like Codecademy, General Assemb.ly, Dev Bootcamp, and new efforts like the Congressional Apps Challenge exemplify the growing importance of technology (including coding) to improving America's educational competitiveness. Still, these efforts are not without obstacles. I'm glad Joyce Hung picked out a few of the current stories on similar efforts and the problems they face. This is an important issue for us all and for future generations, so we should keep an eye on these efforts and learn what we can do to help make them successful.

Monday:

Project Launched To Fix The Anti-Circumvention Clause Of The DMCA

The recent cell-phone unlocking push seemingly came out of nowhere to sweep the nation. As Mike points out, changing the law is not the open and shut case many assume it is. There are provisions in the DMCA that do some good, like the safe harbor provisions that (despite some copyright-holders' abuses) have become a crucial component of "the web that we know and love today." Nevertheless, the anti-circumvention provision of the DMCA is a real problem for innovation and antithetical to the idea that when we buy something we own it--known for centuries as "property rights." With a few different bills floating around the Hill right now on the subject, I'm hopeful that Congress will recognize the common-sense need for fixing Section 1201 and enact legislation to do so. It's also another example of average citizens coming together and successfully putting an issue on the public agenda.

Tuesday:

Innovators Break Stuff, Including The Rules: How Gates, Jobs & Zuckerberg Could Have Been Targeted Like Aaron Swartz & Startups And Innovators Speak Out In Favor Of Fixing CFAA

If you read Techdirt with any regularity you're familiar with the problems of the Computer Fraud and Abuse Act and the urgent need for reform, as exemplified by the prosecution of Aaron Swartz. What's important about these posts is that they illustrate the scope of the problem -- many of today's leading companies would not be what they are today if their founding innovators had been hounded by prosecutors wielding the overbroad and vaguely worded CFAA. According to prosecutors, Congress has given them carte blanche to hound the tinkerers, the geniuses, the creators. According to them, since violating contractual or technical restrictions would be a crime, Zuckerberg should clearly be in prison for FaceMash, as seen in the early scene of The Social Network. As the second post rightly concludes, we need to step back and identify the harm we want to prevent, and approach CFAA reform efforts with that goal in mind. It also points out that several brave tech companies and coalitions joined the letter to urge reform, despite continued opposition from the likes of the DOJ, Oracle, Microsoft, and others (including perhaps Facebook). These include the Internet Infrastructure Coalition, Engine Advocacy, O'Reilly Media, Reddit, OpenDNS, Stack Exchange, and PadMapper. The law is broken, and must be fixed.

And yes, I selected two posts for this day, but they're on the same issue.

Wednesday:

Why CISPA Could Actually Lead To More Hacking Attacks

Much of the focus on the Cyber Intelligence Sharing and Protection Act (CISPA) has been about the potential privacy harms, and rightly so. But the idea of permitting companies to engage in countermeasures in response to network intrusions is highly controversial, as even one of the bill's sponsors, Rep. Mike Rogers admits. Yet during the House Judiciary Committee hearing Wednesday on the CFAA and "Investigating and Prosecuting 21st Century Cyber Threats," Rep. Louie Gohmert suggested it might be a good idea to amend the CFAA to permit companies and individuals to "hack back" against "hackers" intruding on their systems. While not mentioned in the post, Professor Orin Kerr, a witness at the hearing, indicated that the idea could lead to complications, especially given the problem of attribution. Still, Rep. Gohmert appeared undeterred. The clear disconnect between Rep. Rogers and Rep. Gohmert on this matter indicates there may be a long way to go before any sensible agreement can be made on cybersecurity legislation.

Thursday:

Virginia ISP Locks Customers Into 25-75 Year Contracts; Sues Everybody When Monopoly Threatened

One of the more galling aspects of this story is that many people felt compelled to purchase another broadband service, and consequently paid two fees because they had no other option. And rather than assuaging the concerns of their customers by improving the service in question, OpenBand spent millions on litigation to protect these contracts. I anticipate Techdirt will continue to follow the story, and hope that the community is successful in dealing with OpenBand's reprehensible behavior. There is a reason why cable and phone ISPs are so unpopular--because of concentrated markets, in many areas, these companies can gouge users with high prices, bad service, unfair contract limitations, and (sometimes) creepy spying.

4 Comments