Regulation of broadband services

Introduction
Federal regulatory jurisdiction over broadband services generally is subject to the shared jurisdiction of the FCC, the FTC, and the DOJ. FCC jurisdiction comes chiefly from the Communications Act, which established the FCC and provides for the regulation of “interstate and foreign commerce in communication by wire and radio.” FTC jurisdiction over broadband services comes chiefly from its statutory mandate to prevent “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce” under the FTC’s enabling legislation, the FTC Act.

The FTC’s authority to enforce the federal antitrust laws generally is shared with DOJ’s

Antitrust Division.

FTC Jurisdiction under the FTC Act
The FTC Act gives the FTC broad authority with regard to both competition and consumer protection matters in most sectors of the economy. Under the FTC Act,

“[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts

or practices in or affecting commerce,” are prohibited, and the FTC has a general

statutory mandate “to prevent persons, partnerships, or corporations,” from engaging in

such prohibited methods, acts, and practices.

At the same time, the FTC Act cabins this general grant of statutory authority with regard to certain activities. In particular, the FTC’s enforcement authority under the FTC Act does not reach “common carriers subject to the Communications Act of 1934,” as amended. An entity is a common carrier, however, only with respect to services that it provides on a common carrier basis. Because most broadband Internet access services are not provided on a common carrier basis, they are part of the larger economy subject to the FTC’s general competition and consumer protection authority with regard to methods, acts, or practices in or affecting commerce.

Exercising its statutory authority over competition matters, the FTC has, where

appropriate, investigated and brought enforcement actions in matters involving access to

content via broadband and other Internet access services. For example, the FTC

challenged the proposed merger between America Online (“AOL”) and Time Warner, on

the basis that the merger threatened to harm competition and injure consumers in several

markets, including those for broadband Internet access and residential Internet transport

services (i.e., “last mile” access). The consent order resolving the agency challenge required the merged entity to open its cable system to competitor Internet service providers on a non-discriminatory basis, for all content. The order also prevented the company from interfering with the content of non-affiliated ISPs or with the ability of non-affiliated providers of interactive TV services to access the AOL/Time Warner system. Moreover, the order required the company, in areas where it provided cable broadband service, to offer AOL’s DSL service in the same manner and at the same retail pricing as in areas where it did not provide cable broadband service.

The FTC has addressed Internet access and related issues in a number of other merger investigations as well. For example, the FTC investigated the acquisition by Comcast and Time Warner of the cable assets of Adelphia Communications and, in a related matter, the exchange of various cable systems between Comcast and Time Warner. In the course of that investigation, the FTC examined, among other things, the likely effects of the transactions on access to and pricing of content. The investigation eventually was closed because a majority of the Commission concluded that the acquisitions were unlikely to foreclose competition or result in increased prices.

In addition to such competition issues are various consumer protection issues that have been raised in the larger Internet access context. Over the past decade, the FTC has

brought a variety of cases against Internet service providers that have engaged in allegedly deceptive marketing and billing practices. For example, in 1997, the FTC

separately sued America Online, CompuServe, and Prodigy, alleging that each company

had offered “free” trial periods that resulted in unexpected charges to consumers. One

Prodigy advertisement, for example, touted a “Free Trial” and “FREE 1ST MONTH’S

MEMBERSHIP” conspicuously, while a fine print statement at the bottom of the back

panel of the advertisement stipulated: “Usage beyond the trial offer will result in extra fees, even during the first month.” Other alleged misrepresentations included AOL’s failure to inform consumers that fifteen seconds of connect time was added to each online session (in addition to the practice of rounding chargeable portions of a minute up to the next whole minute), as well as its misrepresentation that it would not debit customers’ bank accounts before receiving authorization. The settlement orders in these matters

prohibited the companies from, among other things, misrepresenting the terms or

conditions of any trial offer of online service. Although all three matters involved dial-

up, or narrowband, Internet access, the orders are not limited by their terms to

narrowband services.

In addition, the FTC has brought numerous cases involving the hijacking of

consumers’ modems.

For example, in Federal Trade Commission v. Verity International Ltd., the Commission alleged that the defendants orchestrated a scheme whereby consumers seeking online entertainment were disconnected from their regular ISPs and reconnected to a Madagascar phone number. The consumers were then charged between $3.99 and $7.78 per minute for the duration of each connection. In that case, AT&T and Sprint &mdash; which were not parties to the FTC enforcement action &mdash; had carried the calls connecting the consumers’ computers to the defendants’ servers. Consumers were billed at AT&T’s and Sprint’s filed rates for calls to Madagascar. The defendants therefore argued that the entertainment service in question was provided on a common carrier basis and thus

outside the FTC’s jurisdiction. One defendant also claimed to be a common carrier itself

and hence beyond FTC jurisdiction. Although both the District Court and the Court of

Appeals rejected those arguments, the FTC had to expend substantial time and resources

litigating the question of jurisdiction.

As the Verity case demonstrates, enforcement difficulties posed by the common

carrier exemption are not merely speculative. The FTC regards the common carrier

exemption in the FTC Act as outmoded and, as it creates a jurisdictional gap, an obstacle

to sound competition and consumer protection policy. As the FTC has explained before

Congress, technological advances have blurred traditional boundaries between

telecommunications, entertainment, and high technology. For example, providers routinely include telecommunications services, such as telephone service, and non-telecommunications services, such as Internet access, in bundled offerings. As the

telecommunications and Internet industries continue to converge, the common carrier

exemption is likely to frustrate the FTC’s efforts to combat unfair or deceptive acts and

practices and unfair methods of competition in these interconnected markets.

Finally, based on the above discussion of the FTC’s jurisdiction over broadband

services, three general points may be in order. First, as the investigations and

enforcement actions described above suggest, the FTC has both authority and experience

in the enforcement of competition and consumer protection law provisions pertinent to

broadband Internet access. Second, the FTC Act provisions regarding “[u]nfair methods

of competition in or affecting commerce, and unfair or deceptive acts or practices in or

affecting commerce,” are general and flexible in nature, as demonstrated by judicial and

administrative decisions across diverse markets. Third, the FTC’s investigative and enforcement actions have been party- and market-specific; that is, neither the general body of antitrust and consumer protection law nor the FTC’s enforcement and policy record determines any particular broadband connectivity policy or commits the Commission to favoring any particular model of broadband deployment.

FCC Jurisdiction under the Communications Act
As noted above, FCC jurisdiction over broadband services arises under the

Communications Act. Central to the broadband discussion is a distinction under that Act between “telecommunications services” and “information services.” The former, but not the latter, are subject to substantial mandatory common carrier regulations under Title II of the Communications Act. While not subject to the Title II common carrier regulations, information services are treated by the FCC as subject to its general, ancillary jurisdiction under Title I of the Communications Act.

Under Title II, providers of telecommunications services are bound to, among

other things, enable functional physical connections with competing carriers, at “just and reasonable” rates, which the FCC may prescribe, and are prohibited from making “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services. . . .”

There are, however, several important qualifications on these Title II common

carrier requirements. First, the Communications Act expressly provides for regulatory

flexibility to facilitate competition. In particular, with regard to telecommunications

carriers or services, the FCC:


 * shall forebear from applying any regulation or any provision of this Act . . . if the Commission determines that &mdash; (1) enforcement . . . is not necessary to ensure that the charges, practices, classifications, or regulations . . . are just and reasonable and are not unjustly or unreasonably discriminatory; (2) enforcement . . . is not necessary for the protection of consumers; and (3) forbearance from applying such provision or regulation is consistent with the public interest.

In addition, in determining such “public interest,” the FCC must “consider whether

forbearance from enforcing the provision or regulation promotes competitive market

conditions.” Finally, the Communications Act expressly states that “[i]t shall be the policy of the United States to encourage the provision of new technologies and services to the public.” As a consequence, any person “(other than the Commission) who opposes a new technology or service proposed to be permitted under this Act shall have the burden to demonstrate that such proposal is inconsistent with the public interest.”

Regulatory and Judicial Clarification
As noted above, a series of regulatory and judicial decisions have helped to clarify

both the distinction between information and telecommunications services and the status

of broadband services as information services. That clarification is, to an extent, in

tension with early regulatory and judicial attempts to grapple with the novel technologies

that enabled the provision of Internet access. For example, in 1980, the FCC

promulgated rules designed to address, among other things, the growing commerce in

data-processing services available via telephone wires (the “Computer II Rules”).

With reference to those rules, the FCC subsequently applied certain common carrier

obligations, such as non-discrimination, to local telephone companies providing early DSL services. Further, as recently as 2000, the Court of Appeals for the Ninth Circuit held that “the transmission of Internet service to subscribers over cable broadband facilities is a telecommunications service under the Communications Act.”

Still, the FCC’s current view that broadband services are information services has

its roots in earlier decisions by the FCC and the courts. The same Computer II Rules that

grounded the early DSL determination distinguished between “basic” and “enhanced”

services and did not subject the latter to Title II common carrier regulation. In the following decade, the FCC recognized that ISPs provide not just “a physical connection [to the Internet], but also. . . the ability to translate raw Internet data into information [consumers] may both view on their personal computers and transmit to other computers connected to the Internet.” Moreover, the 1998 Universal Service Report regarded “non-facilities-based” ISPs – those that do not own their own transmission facilities &mdash; solely as information service providers. Indeed, even the Ninth Circuit opinion that held that ISPs offering cable broadband were offering telecommunications services

recognized that, under the Communications Act and FCC implementing regulations, a

significant portion of those services were information services.

In 2000, the FCC issued a Notice of Inquiry to resolve, among other things, the application of the Communications Act’s information/telecommunications distinction to

cable broadband ISPs. In its subsequent declaratory ruling in 2002, the FCC concluded that broadband cable Internet access services were information services, not telecommunications services, and hence not subject to common carrier regulation under

Title II. In reaching that conclusion, the FCC emphasized the information coding, storage, and transformation processes that were central to such services, as it had in concluding that non-facilities-based services were information services in its Universal Service Report. Moreover, the FCC concluded that there was no principled or statutory basis for treating facilities-based and non-facilities-based services differently, as both offered “a single, integrated service that enables the subscriber to utilize Internet access service. . . .”

In response, several parties sought judicial review of the FCC’s determination in a

dispute eventually heard by the Supreme Court, in National Cable & Telecommunications Association v. Brand X Internet Services (“Brand X”). In Brand X, the Court upheld the FCC’s determination that cable broadband is an information service as a reasonable construction of the Communications Act, reversing a Ninth Circuit decision that had relied on City of Portland as precedent.

In the wake of the Brand X decision, the FCC has continued to expand, platform by platform, upon the broadband policy defended in that case. In 2005, the FCC released

the Appropriate Framework for Broadband Access to the Internet over Wireline

Facilities (“Wireline Order”), in which it reclassified wireline broadband Internet access

service by facilities-based carriers as an information service. That reclassification pertains to both “wireline broadband Internet access service. . . [and] its transmissiocomponent,” and is independent of the underlying technology employed. The Wireline Order does, however, permit facilities-based wireline carriers to elect to provide broadband transmission service on a common carrier basis.

In 2006, the FCC released an order in which it classified broadband-over-

powerline Internet access services as information services. Also in 2006, the FCC granted &mdash; by operation of law &mdash; Verizon’s petition for forbearance from Title II and Computer Inquiry Rules with respect to its broadband services. Verizon had asked for forbearance “from traditional common-carriage requirements for all broadband services,” seeking relief chiefly with regard to certain commercial broadband services not expressly addressed in the Wireline Order or other rulemaking.

Most recently, the FCC clarified more generally the status of wireless services as

information services, issuing in 2007 a declaratory ruling finding: (1) “that wireless

broadband Internet access service is an information service”; (2) that while the

underlying transmission component of such service is “telecommunications,” offering

telecommunications transmission “as a part of a functionally integrated Internet access

service is not ‘telecommunications service’ under section 3 of the Act”; and (3) “that mobile wireless broadband Internet access service is not a ‘commercial mobile service’

under section 332 of the Act.”

Thus, over the past few years, the FCC has essentially unified the regulatory status of cable, wireline, powerline, and wireless broadband Internet access services as information services that are not subject to Title II common carrier requirements. In doing so, the FCC has focused on the abstract functional properties of ISPs as they ranged across varying implementations or platforms. Underlying this unification has been a significant degree of deregulation across broadband technologies, in keeping with the statutory interest under the Communications Act in furthering competition and the development of new technologies.

The FCC has nonetheless continued to demonstrate an interest in, and commitment to, broadband Internet access. Certain policy statements have sought to guide industry conduct to avoid both FCC enforcement actions and the “potentially destructive” impact of overbroad and premature regulation of an “emerging market.” In 2004, then-FCC Chairman Michael Powell challenged the industry to preserve four

“Internet Freedoms” to that end. They were:


 * (1) The “Freedom to Access Content . . . consumers should have access to their choice of legal content” (within “reasonable limits” imposed by legitimate network management needs);


 * (2) The “Freedom to Use Applications . . . consumers should be able to run the applications of their choice” (within service plan limits and provided the applications do not “harm the provider’s network”);


 * (3) The “Freedom to Attach Personal Devices . . . consumers should be permitted to attach any devices they choose to the connection in their homes” (within service plan limits, provided the devices do not “harm the provider’s network or enable theft of service”); and


 * (4) The “Freedom to Obtain Service Plan Information . . . consumers should receive meaningful information regarding their service plans” (so that “broadband consumers can easily obtain the information they need to make rational choices.”).

With some modification, those four Internet Freedoms were incorporated into an FCC policy statement (“Broadband Policy Statement”), issued to accompany the Wireline Order in 2005. Recast as FCC principles, they included:


 * (1) The ability of consumers to “access the lawful Internet content of their choice”;


 * (2) the ability of consumers to “run applications and use services of their choice, subject to the needs of law enforcement”;


 * (3) the ability of consumers to “connect their choice of legal devices that do not harm the network”; and


 * (4) the existence of “competition among network providers, application and service providers, and content providers.”

In approving the AT&T/SBC and Verizon/MCI mergers in 2005, the FCC required the companies to adhere to connectivity principles set forth in its Broadband Policy Statement for a period of two years. More recently, in approving the AT&T/BellSouth merger, the FCC required the combined company to agree not to provide or sell (for a period of thirty months following the merger closing date) “any service that privileges, degrades, or prioritizes any packet transmitted over AT&T/BellSouth’s wireline broadband Internet access services based on its source, ownership, or destination.”

Most recently, the FCC announced an inquiry “to better understand the behavior of participants in the market for broadband services.” Among other things, the FCC is

seeking information regarding the following:


 * How broadband providers are managing Internet traffic on their networks today;


 * Whether providers charge different prices for different speeds or capacities of service;


 * Whether our policies should distinguish between content providers that charge end users for access to content and those that do not; and


 * How consumers are affected by these practices.

In addition, the FCC has asked for comments “on whether the [Broadband] Policy

Statement should incorporate a new principle of nondiscrimination and, if so, how would

‘nondiscrimination’ be defined, and how would such a principle read.”