On April 6, 2010, the U.S. Court of Appeals for the District of Columbia ("Court of Appeals") ruled that the Federal Communications Commission ("FCC" or "Commission") lacks authority to regulate Internet Service Providers' ("ISPs") management practices.  In 2007, Free Press and Public Knowledge filed a joint petition for declaratory ruling with the FCC, challenging Comcast's practice of interfering with subscribers' use of peer-to-peer programs.  In 2008, the Commission ruled that Comcast had "significantly impeded consumers' ability to access the content and use the applications of their choice."  Comcast voluntarily committed to a new system for allocating bandwidth and, thus, the Commission simply ordered the company to disclose the details of its new plan.

Comcast filed suit in the Court of Appeals challenging the Commission's 2008 order and its jurisdiction over the company's services.   The Court of Appeals held that the FCC exceeded its authority by ordering Comcast to cease throttling peer-to-peer traffic in the name of network management. The Commission based its 2008 order on "net neutrality" principles adopted in 2005, which encouraged treatment of all network transmission as equal. Comcast argued that the FCC's order was unlawful because the agency sought to enforce mere policy principles, which do not have the force of regulations or law.  The Court of Appeals unanimously agreed, finding that the FCC lacks "any statutorily mandated responsibility" to enforce net neutrality rules.

In response to the ruling, the FCC recommitted to its ambitious National Broadband Plan released last month stating that "...the court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end."  Indeed, the court explicitly limited its ruling stating, "we begin - and end - with Comcast's jurisdictional challenge." 

The FCC also faces an ongoing debate regarding net neutrality. Supporters of net neutrality, including the FCC chairman, have argued that the policy is necessary to prevent broadband providers from favoring or discriminating against certain websites and online services.  But broadband providers such as Comcast, AT&T and Verizon argue that, after spending billions on their networks, they should be able to sell premium services and manage their systems to prevent certain applications from hogging capacity.  The Comcast decision may impact this pending proceeding and encourage the FCC to adopt tougher net neutrality rules. 

CLIENT ADVISORY

There is a lot riding on the FCC's broadband mission, and the Plan's success hinges in large part on the FCC's reaction to the Comcast decision.  The FCC must respond quickly and in a manner that provides it with a sound legal basis for implementing its Plan.  It could ask Congress to give it explicit authority to regulate broadband, or it could appeal the Comcast decision.  But both of these options would take too long to meet the agency's objectives. Therefore, it seems as though the only viable option for the FCC is to reclassify broadband as a more heavily regulated telecommunications service.  And, the timing is perfect for such a reclassification. 

There are varying degrees of Title II reclassification that the FCC could employ.  For instance, on the lighter side, the FCC may use the Communications Act to regulate network management practices of the telecommunications component of broadband services and apply Universal Service Fund ("USF"), public interest funds and privacy requirements.  Or, on the heavier side, the FCC could outright declare broadband to be telecommunications.  The former, lighter approach seems more likely to receive support from the Commissioners.  Indeed, both of the FCC's Republican members have voiced opposition to the idea of reclassifying broadband as a telecommunications service.

In short, reclassification appears inevitable.  The reclassification of broadband serves at least two important objectives:  it would facilitate the agency's National Broadband Plan, and it would help cure one of the biggest issues with the USF program -- the issue of contributions.  In recent years, more and more communications services have migrated to broadband networks, and the traditional telecommunications funding base of the USF has suffered due to declines in traditional interstate telecommunications revenues.  By adding broadband or the telecommunications component thereof to the list of contributing entities and revenue subject to USF contributions, the FCC could increase the funding so much as to support funding the national broadband initiative. 

Ironically, Comcast's victory in court last week could ultimately produce the worst-case outcome for cable companies.  But, for those entities already contributing to the sinking hole that is the USF program, reclassification of broadband provides welcome relief.

Clients with comments or questions regarding this Advisory should contact Jonathan S. Marashlian at jsm@commlawgroup.com or (703) 714-1313.