The FCC Gets Real Schlick

Said FCC Chairman Julius Genachowski on May 6th, “The [Comcast] opinion therefore creates a serious problem that must be solved so that the Commission can implement important, commonsense broadband policies…”

I’ll say.  It’s a problem, alright.  Yet the chutzpah of the ensuing NOI – in particular, the FCC asking whether its Net Neutrality workaround to reclassify the transmission element of broadband as a Title II service is worth doing / can be done – doesn’t make it any better.

Throwing process concerns to the wind (again), FCC General Counsel Austin Schlick recently noted that the FCC may just jump straight to an Order right after the NOI instead of going the more predictable route of issuing a proposed rule first.  Claiming that the skipped step is “entirely appropriate,” Schlick says that if the FCC simply reclassifies broadband transmission, that exercise represents an “interpretive rule” as opposed to a “legislative rule.” This allows the Agency to compress a lot of time and avoid a full rulemaking process.   

The interpretive v. legislative rule distinction is no small detail, however.  The latter has more process – good stuff to help fashion well-reasoned, sound and sustainable rules that affect all parties fairly and equitably.   

To be sure, the Administrative Procedure Act (APA) provides an exemption to its process for “interpretive rules.”  But, in the present exercise, is it “entirely appropriate,” as glibly stated by Schlick? More to the point, would reclassification be an interpretive rule, or would it be more like a legislative rule?

As I see it, I think it looks more like the latter. 

Why Does This Matter

The APA was designed to ensure that agencies aren’t creating “law” beyond their delegated authority from Congress.  But, interpretive rules can allow agencies to go rogue on the APA, enabling them to get around the notice-and-comment process used to develop rules that have legal effect.

When employed properly, interpretive rules generally enable agencies to explain terms in legislative acts.  The American Bar Association adds that they “merely [interpret] existing law or [remind] parties of duties under existing law.”  Essentially, they create no new legal obligations or duties.    

Legislative rules are the flipside of this.  To get there, agencies generally have to go through a proper rulemaking process because, in essence, it provides an important check on their “mini-Congress-like” activities (only Congress makes law; agencies make rules which effect the law). 

In determining whether an interpretive rule is actually a legislative rule, courts examine whether an agency rule has the force of law, or is legally binding – rules which could support enforcement actions, grant benefits, or compel duties or obligations.  

FCC “Interpretive Rule” Would Affect Legal Duties of Network Providers

Schlick suggests that the reclassification is a trivial, interpretive matter.  It is anything but that.  The FCC wants to take the intertwined, unregulated information services / broadband transmission  package and split the baby. The two that were once one, now are to be separated as two, allowing the regulation of one – broadband transmission – as its own Title II service (wow, that’s a mouthful).

Through the act of separating the Siamese twins, however, the FCC will have created a regulatory delta which goes well beyond mere interpretation of present duties for industry players.  As it pertains to network providers, it severely curtails their bundle of rights.  Since 2005, network providers could largely do what they wanted with their broadband facilities, responding to marketplace pressures as they saw fit with little intervention from the FCC. 

It becomes a different story after reclassification (after all, why do it if it has no effect?).   

The NOI hints at this in paragraph 100: “If the Commission decided to alter its current approach to Internet connectivity service, affected providers might need time to adjust to any new requirements” (emphasis added).

You bet they’ll need some time to adjust.  “Affected providers” – those that could freely respond to competition – will now have to do what’s directed by the FCC.  The new requirements will clearly change how they deal with all others in the Internet ecosystem. 

The Commission Just Can’t Wait

While I generally abhor the rulemaking process, I’ll be honest here.  In this instance, if the FCC moved this divisive issue cleanly through the whole rulemaking procedure – which I think it should – the process would allow for a full airing of the underlying matters, adding proper deliberation, and yes, time, to any Order that issues.   NOI to NPRM to Rule.   

But the Commission seems bent on a hasty mission.  They do not appear to have the time for that to play out.  Thus the “interpretive skip-step.”  They must sense that the Congressional deck will change come November, and this could change a lot for the Agency.  Quite simply, the new oversight dynamics that might then ensue stand a good chance of impinging on current FCC practices, likely constraining what the Majority wants to accomplish vis-à-vis regulating broadband providers and the Internet.

I guess they figure that possession being nine-tenth’s of the law, they ought to grab a rule while they can, and then let the courts figure it out from there.  At least then they can go back to their Free Press base and say, “Heck, at least we tried.  We would have been successful but for all those evil corporations (availing themselves of their evil rights and process).”  And then all the Saul Alinsky tactics can go from there. 

Sure – even if a proper, post-Comcast rulemaking happens, the courts will get involved.  That said, however this mess gets prosecuted going forward, the FCC should at least walk its own talk and act with the same “regulatory predictability” it urges for the entities it regulates. 

The Commission got into hot Net Neutrality water because it played fast and loose with process.  General Counsel Schlick could avoid the “Comcast problem” by not skipping steps and moving everything through a predictably proper rulemaking.

FCC Seeks to Regulate the Internet…Because It Can

As I touched on last night, I can’t say as I was surprised by today’s announcement by the FCC to move toward full-blown Internet regulation.  Voting along party lines, the three Democratic FCC Commissioners expressed their wholehearted belief that their regulation of the Internet – not de facto marketplace regulation – was the only way to protect consumers and Americans. 

The Comcast v. FCC decision should have rebooted the Commission’s discredited Net Neutrality ambitions. Yet instead, the FCC appears moving closer toward questionable new rules, using specious authority to get there.  Such an exercise in regulatory hubris is truly confounding, especially in light of the facts and a clear consensus that the Internet must remain free from stultifying regulation.

Make no bones about it, the FCC’s NOI today will work to regulate the Internet, and poorly at that.  It takes a yellowed, dog-eared page from a 19^th Century industrial policy playbook, and seeks to graft that on to the rapidly evolving Internet.  Ultimately, it will prove offensive to American consumers, as well as those innovating at the core and edge of America’s broadband networks.  

Internet regulation isn’t warranted.  It may never be.  Though the Commission appears eager to impose Net Neutrality-looking rules, the irony here is this: We already have Net Neutrality today.  The marketplace, technological innovation, industry best practices and investment, and consumer empowerment have created a de facto Net Neutrality regime well outside of FCC rule or regulation.  For this particular FCC, and the underlying politics, such a fact is seemingly unacceptable. 

For American consumers, our economy and society, it is, however. 

Over the past five years – when the Internet was officially freed from the Commission’s yoke – Americans have experience a virtually endless font of new services, applications, devices, content, and voices, all available via an ever-growing array of network providers.  Whole new industries, wealth creation and legions of jobs have ensued.  Further, American society has become more democratically engaged than at any time in our history. 

The lack of formal regulation caused this explosive growth.  It should militate strongly against heavy-handed government intervention “to make it better.”  Yet, sadly, the FCC’s regulatory OCD has reared its ugly head again.  One can only hope that the putative challenges the FCC seeks to prevent (whatever they are) will avoid preventing the ongoing growth and vitality of the Internet ecosystem. 

Some analysts believe that’s wishful thinking, though. 

According to Charles Davidson and Bret Swanson, their research concludes that the new rules will harm network investment, with this in turn hindering “capital expenditures by others in the ecosystem, particularly those at the edge.”  In their estimation, just a “10 percent decrease in investment by wireline and wireless broadband service providers, coupled with likely spillover effects, could result in the loss of 502,000 jobs across the entire ecosystem and would have a negative impact on U.S. GDP on the order of approximately $62 billion per year.”

Their reasoning makes intuitive sense.  New rules where virtually none existed before will disrupt core investment.  And this will spill over to the edge.  It’s not called the web for nothing – the ecosystem is connected to itself.  Regulators can’t be smug enough to think that costs imposed on one portion of the Net will be contained solely there. 

You know, it doesn’t need to be this way.  As FCC Commissioner Robert McDowell thoughtfully lamented in his NOI statement today –

If my colleagues feel compelled to act…let us create a new role for the FCC to spotlight allegations of anti-competitive conduct while working with non-governmental Internet governance groups and consumer protection and antitrust agencies.  In each of the small number of cases cited by proponents of network management rules, all were rectified quickly, without new rules.  The recently announced technical advisory group [to deal with network management issues such as net neutrality] could serve as a component of such an endeavor.

Clearly, less regulatory alternatives abound.  One of our favorites is PFF’s Digital Age Communications Act (DACA), an idea similar to what Senator Jim DeMint will soon introduce with his reform-minded FCC Act.  Briefly, DACA scrapes the old regulatory “silos” of the Communications Act (such as Title II for telecom, Title III for broadcast, Title VI for cable), and replaces them with a Federal Trade Commission-like “unfair competition” standard. Under DACA, the FCC would retain some baseline regulatory authority to oversee the marketplace, but this authority would be limited and based upon more settled principles of competition law and economics—essentially, streamlined antitrust regulation.  

Will this happen?  Probably not in this pro-regulatory environment.  But I wouldn’t mind the surprise. 

Neither would the Internet ecosystem.