Overcoming Comcast and Paving the Way for Universal Service Reform

Regarding Reclassification:  A series of blog posts exploring the legal landscape of Communications Act Title I and II reclassification

Yesterday, during a Senate Commerce committee hearing focused on the important task of modernizing the Universal Service Fund, Senators and FCC Commissioners again called into concern the FCC's current authority over broadband and what that lack of authority may mean for improvements to the Universal Service Fund.

On June 17th 2010, the Federal Communications Commission (FCC) opened a proceeding seeking public input on the hotly-debated "Third Way" proposal to regulate high-speed Internet connections, broadband, as a telecommunications service. The proceeding, called a Notice of Inquiry (NOI), directly addresses the recent court decision in Comcast v. FCC that called into question the FCC's legal rationale and ability to enforce a significant number of its Internet-related rules. As a consequence, the FCC's ability to implement the National Broadband Plan and Universal Service reform is now in the balance.

Legal hurdle created by Comcast v. FCC

In 2008, the FCC found Comcast, a leading broadband service provider in the U.S., had violated the nondiscrimination rules by secretly degrading its customers' lawful Internet traffic. Yet the DC Circuit held this past April in Comcast v. FCC that the FCC relied on the wrong legal authority to enforce nondiscrimination rules. The FCC had previously classified broadband as an information service1 over which it has limited jurisdiction.

Since 2002, the FCC has exercised only ancillary authority over broadband through section 4(i), a provision of the Communications Act which states it may make any rules that are necessary to fulfill the agency's function. In Comcast, the FCC claimed that its ancillary authority, tied to its broad policy goals defined in the Communications Act of 1934 and specific Internet policy goals included in an update of the law,2 was sufficient to enforce nondiscrimination rules against Comcast.

The court in the Comcast case held that the cited provisions were mere "statements of policy," rather than direct statutory mandates. According to the opinion, policy statements may "illuminate" the scope of a statutory delegation of authority in a specific context, but "it is Titles II, III, and VI that do the delegating."3 The FCC's ancillary authority to enforce the policy goals cited in Comcast would have had to have been tied to an express delegation of regulatory authority under Title II which covers common carriers like traditional telephone service providers.

Consequences for universal service reform

One key provision of the National Broadband Plan calls for the transformation of the Universal Service Fund, currently used to make traditional telephone service more affordable, into a fund that supports the expansion of broadband networks into high-cost rural areas. Universal service falls under section 254 of the Communications Act, but the statute is ambiguous referring to the use of universal service support for, alternately, "telecommunications services" and "telecommunications and information services." If the FCC declines to adopt the "Third Way" reclassification of broadband connectivity as a telecommunications service, the combination of the lack of statutory clarity and the FCC's limited legal authority over information services leaves the future of universal service reform uncertain.

The "Third Way" as a solution to the Comcast problem

What the DC Circuit rejected was the FCC's reliance on its Title I ancillary authority without tying it to a direct statutory mandate over broadband. In previous cases, such as U.S. v. Southwestern Cable and U.S. v. Midwest Video (Midwest Video I), the Supreme Court held that the FCC could rely on policy statements similar to those referenced in the Comcast case when the FCC also has a direct statutory mandate, such as Title III authority over broadcasting.

"Adopting the FCC's "Third Way" proposal and bringing broadband Internet connectivity under Title II would strengthen the FCC's authority to enforce nondiscrimination policies and similar provisions related to the National Broadband Plan."

Adopting the FCC's "Third Way" proposal and bringing broadband Internet connectivity under Title II would strengthen the FCC's authority to enforce nondiscrimination policies and similar provisions related to the National Broadband Plan. In an analogous case, CCIA v. FCC, the DC Circuit permitted the FCC to exercise its ancillary authority over the enhanced services (analogous to today's information services) provided by AT&T because the FCC had tied its ancillary authority to its jurisdiction over common carriers under Title II.

As for implementing the "Third Way," the FCC retains the authority to reclassify broadband. In Chevron v. NRDC, the Supreme Court held that in technical, complex areas such as broadband, courts would defer to the FCC's reasonable interpretation of an ambiguous, complex statute such as the Communications Act. The 2005 decision in NCTA v. Brand X relied on Chevron to find that the FCC's decision to classify cable Internet access service as an information service was a reasonable interpretation of an ambiguity in the Communications Act.

Justice Scalia's dissent in Brand X is particularly helpful as an analysis of a possible reclassification regime. His opinion argues that a distinction should be drawn between the applications that sit on top of the Internet and the transmission of broadband Internet access, Scalia goes on to write that these two components should be regulated differently because consumers understand and use these services in different ways. This distinction is very similar to the "Third Way" approach, which relies on a framework separating the transmission component from the information service of broadband Internet access service.

Under the "Third Way," the information services offered by broadband providers would continue to be subject to minimal ancillary jurisdiction under Title I. However, the proposal calls for reclassification of the basic transmission component of broadband as a Title II telecommunications. Further, the FCC is considering forbearance from most of Title II and only applying six Title II provisions to broadband connectivity: sections 201, 202, 208, 222, 254, and 255. Together, sections 201, 202, and 208 allow the FCC to enforce consumer protection principles, such as truth-in-billing and limits on unjust or unreasonable discrimination. Further, customer information privacy protections are supported under section 222. Section 254 advances all areas of universal service support. Finally, section 255 provides for mandates and guidelines for access by individuals with disabilities. These sections are considered the minimum necessary to support the National Broadband Plan goals. Enabling the FCC to draw directly on a small number of Title II provisions, as proposed in the "Third Way," would resolve the uncertainty created by Comcast and provide a solid legal foundation for the National Broadband Plan and universal service reform.

Co-Authored by Alexandra Wood and Amina Fazlullah

1 An "information service" is legally defined as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service."

2 Sections 1 and 230 describe in broad terms certain policy goals of the Act, including the provision of rapid and efficient Internet service, the promotion of Internet development and services, and maximizing user control over one's online experience. The FCC claimed that each of these goals had been violated by Comcast's network management practices.

3 Section 1 is in Title I, which defines the General Provisions of the law.