Critics say the FCC’s powers are on the chopping block.
The No Rate Regulation of Broadband Internet Act is a deceptively complicated and far-reaching bill—one critics say could fundamentally change the legal landscape of the open Internet.
H.R. 2666, as it’s known in the House—where it passed 241-173 on April 15—is designed to prevent the Federal Communications Commission from telling Internet service providers what they can charge for Internet service. But this three-page bill, sponsored by Rep. Adam Kinzinger (R-Ill.), has ignited a firestorm of criticism from Democrats and consumer advocates who say it undermines the FCC’s landmark 2015 net neutrality rules, regulations that empower it to police the behavior of ISPs—and that are immensely controversial among industry-friendly Republicans and small-government conservatives.
“What … the Republicans here are trying to do, without so much as saying so,” said Harold Feld, senior vice president of the open-Internet advocacy group Public Knowledge, “is prevent the FCC from going after zero-rating, or other forms of below-the-line fees [that] involve data caps.”
Erik Stallman, who until recently served as the director of the Open Internet Project at the Center for Democracy and Technology, described the bill as “something that seems more like a branding campaign [trying] to pass itself off as serious policymaking.”
“This is irresponsible and bad policymaking.”
Supporters of the bill respond that it is simply a codification of FCC Chairman Tom Wheeler’s promise that the commission wouldn’t use its net neutrality rules to set artificial Internet price caps. “The crux of this dispute is Wheeler is saying, ‘Well, when I said no rate regulation, I meant something fairly narrow,’” said a lawyer at a firm involved in net neutrality litigation, who requested anonymity to discuss a bill related to the active lawsuit. “And the Republicans are saying, ‘When we want a ban on rate regulation, we want a ban on all forms of rate regulation.’”
But in interviews with the Daily Dot, telecom-policy experts pointed to numerous problems with the brief bill’s language, crafting decisions that, whether intentional or accidental, could empower the already fiercely litigious broadband industry to block all kinds of FCC actions intended to protect the public.
“It looks sort of hastily written,” said Rob Frieden, the Pioneers Chair and Professor of Telecommunications and Law at Penn State University. “I, quite frankly, think they didn’t consider some of the nuances and ways this might be interpreted or misinterpreted.”
Pantelis Michalopoulos, a partner at Steptoe & Johnson LLP who leads the firm’s telecom practice, agreed that, if the bill became law, it would create “a ripple effect of some uncertainty” that would “create the risk of some litigation.”
Rep. Anna Eshoo (D-Calif.), who led the fight against the bill in the Energy and Commerce Committee and on the floor of the House, was even more blunt.
“H.R. 2666 was cobbled together using a definition of ‘rate regulation’ that is not based on any prior case law or legal precedent,” Eshoo said in a statement provided to the Daily Dot. “This would leave many FCC actions, including those that importantly protect consumers and act in public interest, subject to litigation while the scope of this overly broad definition of ‘rate regulation’ is argued before the courts. This is irresponsible and bad policymaking.”
For now, these fears are moot: The Obama administration opposes what it calls an “overly broad” bill that would “hamstring” the FCC’s ability to act in the public interest, and the White House said that the president would veto the bill if it passed the Senate and reached his desk.
But if a Republican wins the White House in November, Obama’s veto threat will disappear. And in the Senate, Majority Leader Mitch McConnell (R-Ky.) has “hotlined” the bill, meaning that it can be brought up for an expedited final-passage vote, with limited opportunity for debate, whenever McConnell wants.
Whether or not that happens, the story of the rate-regulation bill—and its potential unintended consequences—provides a perfect window into the fierce debate over how the FCC regulates the Internet. Congressional Republicans have floated several other bills to dilute the 2015 net neutrality rules. A federal appeals court is set to rule any day now on a major challenge to those rules from the cable and wireless industries; it could strike them down altogether.
The agency’s supporters, foreseeing the Kinzinger bill’s ripple effects, describe it as part of this broader campaign to undermine open-Internet protections.
“Net neutrality has been opposed by the same parties who pushed this bill since the beginning,” said Ernesto Falcon, a legislative counsel at the Electronic Frontier Foundation. “This is just the newest vehicle.”
The rate-regulation bill has its roots in the Feb. 26, 2015, Open Internet Order that introduced net neutrality protections to the Internet. By reclassifying broadband as a “common carrier” service, the commission placed it under the framework of Title II of the Communications Act of 1934, which allowed it to apply the cornerstone protections of net neutrality: no blocking content, no slowing content down, and no charging extra for faster access to certain content.
But the reclassification empowered the FCC to supervise Internet service providers in other ways. Sections 201 and 202 of the Communications Act deal with the prices that providers charge for certain services. Section 202, for example, requires common carriers to charge only “just and reasonable” prices. Now that it had transformed ISPs into common carriers, the FCC could theoretically enforce this provision by setting maximum prices for monthly Internet service.
“We have a word in normal English that we use” to describe ISPs charging exorbitant rates, “and that word is ‘price-gouging.’”
But Tom Wheeler, the FCC’s chairman, knew that this would be a political nonstarter, one that could kill net neutrality. Thus, in laying out how it would apply its new authority under the Open Internet Order, the Commission promised to “forbear from applying sections 201 and 202 of the Act in a manner that would enable the adoption of ex ante rate regulation of broadband Internet access service in the future.”
Ex ante is Latin for “up front.” The Commission was promising that it would not set price ceilings for Internet service. It was not promising to forego its ability to scrutinize prices once they were set, charged, and flagged by angry consumers. That would become relevant in the near future.
Congressional Republicans, worried that a future FCC chairman might reverse Wheeler’s forbearance decision, decided to write it into law. They asked Wheeler if he would support such legislation. Wheeler, thinking of his forbearance promise as only covering up-front rate regulation, said he would.
When Wheeler saw the Kinzinger bill, he realized that the House had gone further than he expected. “There have been suggestions that the approach in this legislation is consistent with comments I made before the Senate Appropriations Committee last year,” Wheeler wrote in a March 14 letter to the leaders of the House Energy and Commerce Committee. “I want to state, respectfully, that it is not.”
This is a point that divides supporters and opponents of the bill. The telecom lawyer described it as “an attempt to codify what Chairman Wheeler himself said was the intent.”
“Chairman Wheeler has been emphatic in saying there’s no intention of engaging in rate regulation,” he said. “I think the legislation just tries to confirm that any future of the FCC—future members of the FCC—would be bound by that framework.”
Stallman emphatically disagreed. “After he said ‘fine,’ they then went and interpreted the term ‘rate regulation’ to mean basically any commercial practice and then said, ‘Because you committed that you would be OK with legislation that prevents you from doing rate regulation, you have to be OK with this legislation that we’re about to try to shove down your throat.’”
Kinzinger’s office said the congressman was unavailable for an interview to discuss his bill.
The text of the Open Internet Order is quite clear that the FCC’s forbearance concerns only “ex ante” activity, like sending a letter to the CEOs of American ISPs that reads, “Thou shalt not charge more than $120 per month for 25Mbps broadband service.” But Congressional Republicans didn’t want to leave their bill at that; they wanted to prevent other kinds of enforcement activity that the FCC hadn’t promised not to undertake.
Rep. Greg Walden (R-Ore.), the chairman of the House Energy and Commerce Subcommittee on Communications and Technology, explained Republicans’ fears about as the House was preparing to pass the bill. “It sounds good on its face,” he said of the promise not to engage in up-front rate regulation, “but the practical impact for someone who wants to regulate [is that] they go, ‘Well, we think that [it] is in the public interest to bring down [Internet prices] after the fact.’”
Walden and other Republicans worried that the FCC might start punishing ISPs by finding that certain prices exceed the “just and reasonable” standard. If the Commission, say, fined Verizon for charging $150 for a broadband speed tier by labeling it unreasonable, that would effectively set the price ceiling for such service at somewhere below $150. In other words, the FCC would be capping prices.
There is another way to look at this activity, though. The FCC is required by statute to ensure that the practices of telecommunications firms are just and reasonable; indeed, this is the agency’s core mission. Americans would riot if Comcast announced that it was doubling all of its monthly Internet prices, and few would grumble if the FCC then announced that it was opening an investigation into whether the move was just and reasonable. The question lies in how much flexibility the agency should have to carry out this generally accepted mission.
“Democrats want to preserve the flexibility for the agency to look at practices on a case-by-case basis and pronounce not just practices but rates to be unreasonable after the fact,” the telecom lawyer said. But “if you tell a provider that its rates are unlawful and it has to impose different rates, it doesn’t really matter if you say that upfront or after the fact. It creates the same kind of disincentive to invest and uncertainty and inefficiency of having the government step in and set rates.”
“That’s the danger of having a poorly worded and vague bill. You just give more opportunities to litigate against the FCC for every enforcement action they take in this space.”
Feld put a different spin on it. “We have a word in normal English that we use” to describe ISPs charging exorbitant rates, “and that word is ‘price-gouging.’”
“When a company charges a monopoly rate [and] says, ‘I can jack up the price as much as I want, because there is no competition to restrain me,’” Feld said, “we rely on the Federal Communications Commission, or other agencies like the Federal Trade Commission, to say, ‘No, that is a monopoly rate. That is price-gouging. We are going to therefore say you’re not allowed to do that.’ That’s what we normally mean by enforcement.”
Asked how he would have drafted the bill differently to avoid vagueness that could hamper the FCC’s overall authority, Feld said the bill wasn’t vague at all.
“I cannot imagine how you would make the statute more clear that the intent is to prohibit the FCC from examining whether these charges are discriminatory to competition or whether they are the result of monopoly pricing,” he said. “It is impossible for the statute to be more clear that that is the intended outcome.”
On Jan. 25, 2015, the U.S. Supreme Court issued its decision in Federal Energy Regulatory Commission v. Electric Power Supply Association et al., a case about FERC’s authority to do what the FCC does for broadband and ensure the reasonableness of wholesale electricity prices. In siding with FERC, the Supreme Court adopted a narrow, dictionary-based definition of the term “rate.”
“To set a retail electricity rate is thus to establish the amount of money a consumer will hand over in exchange for power,” Justice Elena Kagan wrote for the Court’s six-member majority. “Our decisions uniformly speak about rates, for electricity and all else, in only their most prosaic, garden-variety sense.”
At a committee meeting to mark up the bill, Democrats led by Eshoo tried to get Republicans to use this definition, which would constrain the legislation to only the regulation of monthly Internet prices. Reps. Eshoo and Walden, who chairs the Communications and Technology subcommittee, went back and forth on this point, with Eshoo pressing him to explain why he didn’t support it. Walden never gave her a clear answer.
Feld believes that the explanation of the Republicans’ true goal lies in that inconclusive exchange. “They’ve had the Supreme Court case from January rubbed in their noses,” he said, “and they’re still choosing to take a novel definition whose sole purpose is to preclude the FCC from preventing price gouging.”
Zero rating: The biggest battleground
On Nov. 10, 2015, T-Mobile, the nation’s third-largest wireless carrier, announced a program called Binge On that would let customers stream video from Hulu, HBO, Netflix, ESPN, and several other major platforms without it counting against their data caps. This arrangement is known as “zero-rating” because the “cost” of streaming this video, in terms of megabytes included in one’s data cap, is “rated” at “zero.”
Net neutrality activists say that zero-rating is precisely what the 2015 Open Internet Order is designed to prevent, because it gives companies whose platforms are included in an offering like Binge On an unfair advantage over others that continue to cost customers precious data. They have pressed the FCC to scrutinize the practice, and while the commission has not begun a formal review, it is informally looking into Binge On and rival programs from Verizon Wireless and AT&T.
“The concern is the Internet service provider is essentially acting as a gatekeeper,” said Falcon, whose organization recently wrote to Wheeler asking for a zero-rating investigation. “They’re deciding which content is favored [and] which content isn’t.”
One of the biggest concrete concerns for critics of the Kinzinger bill is that it will prevent the FCC from telling T-Mobile to shut down Binge On. The language of zero-rating programs—“rating” the data “cost” of streaming content—is deliberate. It may not be obvious, but zero-rating is a form of pricing: It amounts to a wireless carrier’s decision not to charge, in terms of data-cap usage and overage fees, for certain content.
“If the FCC decided to take an action and said, ‘Okay, you can’t have a policy that’s content-discriminatory based on not charging a rate,’” Falcon said, “the companies can then, if this bill is law, say, ‘Okay, now you’re [regulating] what we can’t charge for things, which is rate-regulation.’”
Here, too, Republican lawmakers’ comments during the markup session offer a clue as to their intentions. Falcon observed that as Walden discussed the bill, he “exclusively talked about Binge On … as something that needed to be protected from FCC oversight.”
The telecom lawyer agreed that T-Mobile might seize on the idea of legislative intent and use the bill to cloak Binge On from FCC scrutiny.
“If the FCC tried to ban it, you could conceive of T-Mobile saying, ‘Well, I impose usage-based billing. And if you’re micromanaging which aspects of my service are subject to usage-based billing, you’re effectively regulating my rate structure. And you can’t do that under legislation that prohibits any form of rate regulation.’”
Greater than zero-rating
Conversations with telecom experts and legal professionals exposed a host of other telecom practices that the FCC might have trouble overseeing if the Kinzinger bill became law.
Falcon pointed out that the FCC recently began regulating what prison phone providers could charge inmates and their families. For decades, these companies have taken advantage of prisoners’ low public standing and set rates that no unincarcerated American would accept if they had to pay them. If the companies begin offering more advanced services to inmates—like video calling—they could use the Kinzinger bill to argue that the FCC couldn’t scrutinize those services’ rates. “The bill,” Falcon said, “looks like it gives them enough of a ground to argue, ‘We are no longer regulated by the FCC’” if it becomes law.
Feld singled out several other examples.
Using this bill as cover, he said, ISPs could begin capping data for previously unlimited plans and charge an extra fee to return to the unlimited usage that they previously offered. Internet providers that also run streaming-video services might want to do this to make it more costly to use competitors’ streaming services (they would presumably exempt their own). “It’s like, oh, okay, all you’re doing is finding a sneaky backhanded way to jack up the price for people who want to use rival services,” Feld said. “Telling the FCC that they’re not allowed to deal with that is not about stopping rate regulation. That’s about preventing the FCC from keeping these companies from price gouging.”
Or consider more blatantly unfair practices. ISPs let customers rent or buy their cable modems; buying one costs more upfront but removes the monthly rental fee from one’s bill, and some people find this worth it. But what if, after a customer bought a modem, an ISP simply decided to keep charging the rental fee? Right now, that would seem like an invitation for FCC action. But an ISP, Feld said, could easily use the Kinzinger bill to argue that rental fees are rates and that the FCC no longer had the authority to stop it.
Stallman noted that the bill carved out a few exceptions to the rate-regulation ban, including one that lets the FCC continue to block paid prioritization. But “when you have specific exclusions,” he said, the principle of “negative implication” means that “everything else is subject to the ban.”
Frieden cited a few other examples. There is a question of whether the bill’s prohibition applies only to so-called “last-mile” charges—meaning the prices that consumers pay for the broadband service that travels the “last mile” to their house—or whether it also covers business services like content delivery networks, which large companies rely on to manage and distribute their content. The bill’s description of “the delivery of broadband Internet traffic” does not make this clear.
Comcast angered consumer advocates in March 2012 when it announced that content streamed through an Xbox—which now includes everything from online gaming to TV shows on Netflix—wouldn’t count against its then-250GB data cap. Could the FCC block that arrangement if Comcast argued that it amounted to, in Frieden’s words, “a rate not charged?”
“I have a law background,” Frieden said, “and you’re financing kids’ college educations in perpetuity over debates as to when something is a rate versus when something is an arrangement versus when something is a practice.”
ISPs have a history of making creative arguments that rely on describing things as rates. After the FCC issued its first open-Internet rules in 2010, Verizon sued the agency. In its legal brief, Verizon argued that, because the regulation banned ISPs from treating content differently based on what people paid to receive it, it required the companies to “carry [all] traffic … at a common, nondiscriminatory rate of zero.” Because ISPs were not yet common carriers—the Title II reclassification decision was a year away—such “rate regulation” was outside the scope of the FCC’s power.
The federal appeals court in Washington bought Verizon’s argument that the rules relied on Title II authority without having classified ISPs under it, and it struck down the rules.
Stallman pointed to Verizon’s argument in the 2014 case as a harbinger of things to come if the Kinzinger bill became law. “There, the very heart of the open-Internet rules—the no-blocking rules—was characterized as rate regulation.”
Michalopoulos expected many companies to follow the Verizon model to undermine the new rules if a rate-regulation ban took effect. “I can see an ISP saying, in a blocking or throttling case, ‘My conduct, and the appropriateness of my conduct, should be evaluated … in light of an interpretative rule informed by this law.’”
“I don’t think they would succeed,” he added. “But it might take years for us to find out that they will not succeed.”
Without this bill, will the FCC run amok?
At the heart of the dispute over the bill are differing views of how Wheeler’s FCC has conducted itself in the broadband market.
“The FCC’s refusal to forbear from the rate regulation provisions in [Section] 201b of the Act reflect a desire to maintain pretty sweeping power,” the telecom lawyer said, “From my standpoint representing broadband providers, it doesn’t provide much comfort to be told the FCC won’t impose tariff requirements and set rates in that manner if it’s explicitly preserving the power to set rates in other manners.”
“Where the government merely does things to encourage competition or prohibit rates from being monopolistic, that is not ‘rate regulation,’” Feld countered. “That is a standard form of consumer protection.”
“This isn’t really about codifying the chairman’s promise. It’s more about the idea of curtailing the FCC’s authority to do something in this space.”
It is true that the Commission has a long history of ensuring that markets are either competitive or at least not charging unjust and unreasonable rates. Sometimes, prevailing assumptions about the competitiveness of a market begin to seem inaccurate when unfair practices pile up. “The FCC, since the 1996 [Telecommunications Act], has said, ‘Where there is competition, as with cellphones, we will generally assume that competition takes care of it,’” Feld said. “But as with things like the bill-shock proceeding that we had some years back, where below-the-line fees and other things started to jack up there because there wasn’t a lot of competition, the FCC says, ‘Well, we have a statutory obligation to step in.’”
It is also not as if the FCC’s enforcement actions can arise out of nowhere. The Administrative Procedure Act of 1946 requires it to open proposed regulations for public comment, giving Americans ample time to organize against—or, as in the case of the net neutrality rules, for—a proposed rule. Regulatory agencies, wary of court challenges, are also careful to lay out a detailed body of evidence support each rulemaking. Agencies must describe in detail both the problem they seek to remedy and the legal basis for their remedy. “The FCC still needs all those conditions if it’s ever going to take action on other issues,” Falcon said. “What the [Kinzinger] bill does essentially is forecloses the FCC from taking those actions.”
Reading legal tea leaves
Critics of the bill say its goal is obvious: to smother a core aspect of both the FCC’s well-established overall consumer-protection authority and a key tenet of its new net neutrality rules.
“If you look at the House vote, at the end of the day, it was pretty much completely along partisan lines. That’s kind of revealing of what is the goal behind the bill,” Falcon said. “This isn’t really about codifying the chairman’s promise. It’s more about the idea of curtailing the FCC’s authority to do something in this space.”
Michalopoulos didn’t go that far, but he did acknowledge that the controversy over the bill—“this uncertainty and this fear of litigation”—stemmed from “the proximity of the subject matter of the bill to the subject of the open-Internet rules.”
The telecom lawyer, while not sympathetic to activists’ arguments, did say that their fears were probably correct.
“At the margins, things that affect the economics of the consumer relationship with the broadband provider, or the broadband provider’s [relationship] with third parties, you could see some narrowing of the FCC’s authority,” he said, “and I think that’s precisely the goal of the legislation.”
It’s impossible to predict the exact contours of a lawsuit based on Kinzinger’s bill, but Falcon said that it invited a “litigation trap” in which companies “find a favorable judge” who will shield their potentially eyebrow-raising conduct from FCC scrutiny.
“The players that it provides an advantage to are lawyers—the folks who will then take the FCC to court and say, ‘This is what this bill means,’” Falcon said. “That’s the danger of having a poorly worded and vague bill,” he added. “You just give more opportunities to litigate against the FCC for every enforcement action they take in this space.”
The telecom lawyer, for his part, said that “all legislation presents interpretive issues” and that this bill wasn’t atypical in that respect.
Because courts often give agencies wide discretion when ruling on the legality of their regulations, the FCC has largely escaped the Republican-controlled Congress’s anti-regulatory wrath. But seemingly simple laws with vast unforeseen consequences could substantially chill the FCC’s enforcement power.
Falcon expressed a worry that the Kinzinger bill could “reach into a lot of things that the FCC has authority over, that a lot of people support the FCC doing something on.” Stallman said it would force the FCC to jump through more hoops in order to write “effective open-Internet protections” that could survive a court challenge.
“The more that you cloud the agency’s authority,” he said “the more that … [outside parties] have to make these really hard assessments about whether or not it’s even worthwhile to bring a complaint or ask the FCC to look at something.”
The telecom lawyer, understandably, thought the activists were overstating things. “It would be a real stretch to say that a targeted bill prohibiting rate regulation should be read to undercut the FCC’s enforcement power with respect to open-Internet rules more broadly,” he said. Still, even he acknowledged that ISPs would want to use the bill flexibly. “If you’re challenging a particular broadband practice that has an impact on the charges that are imposed on end users,” he said, “then it’s possible that other things could be described as a form of rate regulation.”
Like so many regulatory fights, there are simply too many unknown variables—the practice, the judge, the lawyers—to predict outcomes this early. The bill may never see the light of day if a Democrat wins the White House in November and Republicans don’t reintroduce it. But if it does become law, the FCC will have to contend with a new weapon in the hands of companies hell-bent on neutering its oversight of their industry.
“I think the better argument is that it would not be an impediment to the Commission’s oversight of open-Internet-related practices,” Michalopoulos said, “but I nonetheless think the other argument will be made.”
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