The FCC finally released its neutrality order, causing such a run on the website that it crashed the document delivery portion. Generally, the order is consistent with the preliminary statement on its contents that was released earlier, but now that the full text is available it’s possible to pin down some of the issues I had to hedge on before.
First, the reference. The official document is FCC 15-24, “REPORT AND ORDER ON REMAND, DECLARATORY RULING, AND ORDER” issues March 12, 2015. Not surprisingly in our current politicized age, it was passed on a 3:2 partisan vote. It’s 400 pages long in PDF form, so be prepared for a lot of reading if you intend to browse it fully.
This order was necessitated by the fact that the previous 2010 order was largely set aside by the DC Court of Appeals. The problem the FCC had stemmed from the Telecom Act of 1996, which never mentioned the Internet at all and was woefully inadequate to serve as guidance in what was the dawn of the broadband era. I won’t rehash all the past points, but in summary we spend about seven years trying to come up with a compromise reading of the Act that would let broadband investment continue but at the same time provide some regulatory clarity on the Internet itself. The formula they arrived at was that the Internet was “an information service with a telecommunications component.” That exempt it from common-carrier regulation, which is defined by Title II of the Communications Act.
When in 2010 the FCC tried to address some of the emerging neutrality issues, they were trapped by their own pronouncement. If the ISPs were common carriers there was no question the FCC could do what it wanted, but the FCC had said they were not. The order of 2010 was largely an attempt to salvage jurisdiction from that mess, and it failed—that’s what the Court of Appeals said. So the fact is that unless you wanted no neutrality order at all, the FCC had no option but Title II regulation. Fortunately for the FCC, it is not bound legally by its own precedent, which means it can simply change its mind. It did.
The essence of the 2015 order is simple. The FCC declares the ISPs to be common carriers with respect to broadband Internet service, making them subject to Title II. They then exercise the once-famous-now-forgotten provision of the Telecom Act, Section 706, which allows the FCC to “forebear” from applying provisions of the act to assure the availability of Internet services to all. In this basic sense, the order is following the recipe that the DC Court of Appeals offered in its opinion on the 2010 order, and so this part of the order is fairly bulletproof.
What the FCC proposes to do with the authority it has under Title II is a bit more complicated. At a high level, the goal of the order is to draw what the FCC calls a “bright line”, a kind of classic line-in-the-sand that would tell everyone where they can’t go. The basic principles of that bright line are:
- No blocking of lawful traffic, services, devices, or applications.
- No throttling of said traffic, except for clear network management purposes.
- No paid prioritization.
Unlike the order of 2010, the FCC applies these rules to both wireless and wireline. They exempt services based on IP or otherwise that are separate from the Internet, including VoIP, IPTV, and hosting and business data services. I interpret the exemptions as including cloud computing services as well. The key point is that an exempt service is one that does not provide access to the Internet overall, and uses facilities that are separate from those of broadband Internet access.
The last point is important to note. Broadband Internet access is a Title II service. The Internet itself is not. However, the FCC does reserve for itself with this order the right to intervene on interconnect issues, though it declines to do that at present. The order says that regulators lack the history of dealing with Internet interconnect issues and is not comfortable with prescriptions without further data and experience. Thus, the order neither affirms nor rules out paid settlement among ISPs of the Netflix-Comcast type.
A point that cuts across all of these other issues is that of transparency. The FCC wants broadband Internet providers to say what they mean and then do what they say. My interpretation of this means for example that a mobile provider can’t offer “unlimited” data and then limit it by blocking or throttling or by adding hidden charges based on incremental usage.
To me, the order has one critical impact, perhaps not what the FCC intended. Operators want to make a favorable return on investment. If they don’t have a pathway to that through paid prioritization, then it is unlikely that Internet as a service will ever be truly profitable to them. The best they could hope for would be to earn enough to cover the losses by selling other over-the-top services. That’s a problem because the OTTs themselves wouldn’t have those losses to cover, and so could likely undercut operators on price. Thus, the operators may look to “special services” instead, and I think that works against everything the FCC says it wants.
The order gives the distinct impression that the FCC believes the distinguishing point about the Internet is its ubiquity. A “special service” has the defining criteria of not giving access to all of the Internet. You can use IP and deliver some specific thing, not Internet access, and call it a special service, immune from regulations. Certainly the universality of Internet access is a valid criteria, but in an investment sense the fact is that most paying services travel very short distances—less than 40 miles—and involve largely content delivery or (in a growing amount) cloud computing. Does the order allow operators to separate out the profitable stuff—even encourage them? Already it’s clear that profitable services are largely special services and the prohibition on paid prioritization guarantees that will be truer in the future.
Video is delivered both on- and off-Internet today, but channelized viewing is a special service. Most for-fee operator VoIP is also a special service. Business data services are special services. Were there paid QoS on the Internet, might there be pressure to move these special services back onto the Internet? Might the FCC even be able to take the position that they should be combined? As it is, I see no chance of that happening, and in fact every chance that operators will look to special services, off the Internet, to insure they get reasonable returns. Home monitoring, cloud computing, IoT, everything we talk about as being a future Internet application could, without paid prioritization, end up off the Internet not on it.
We might, with paid prioritization and a chance for Internet profit, see VC investment in the Internet as a network instead of in other things that increase traffic and complicate the ISP business model. Certainly we’d give traditional L2/L3 devices a new lease on life. The order, if it stands, is likely to put an end to those chances and accelerate the evolution toward virtual L2/L3 and minimization of “access” investment.
Will it stand? The FCC has broad powers on Title II services; do they have the power to say that some commercially viable options cannot be presented, or that operators have to provide services with limits on their features? I don’t know the answer to that one, but I suspect that there will be pressure now for Congress to step in. In this day and age that’s a doubtful benefit, but there’s plenty of doubt in what we have now.
The problem here is that we don’t have a real middle ground in play. Compromise, even when it’s politically possible, is easier to achieve if there is a position between the extremes. With neutrality we’ve largely killed off moderation, leaving the best position one none of the partisan advocacy groups occupy. There is then no constituency on which to build a compromise because a middle-ground view simply offends all the players.
“Internet” is an information network on top of a telecommunications service. We have to treat the latter like all such services, meaning we have to regulate it and apply rules to settlement and interconnect. We have to include QoS (where have we had a commercial service without SLAs?) I think that Chairman Wheeler was on the right track with neutrality before the Administration intervened. Sadly, we can’t take that back and sadly Congressional intervention will only create the other extreme polar view. Now, I guess, we’ll have to wait until some symptoms develop and rational views can prevail, or so we can hope.