NARUC Recap: Federalist Implications of Verizon v. FCC…

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Shortly after the Federal Communications Commission issued its Open Internet Order, I authored a short Perspective where I highlighted the fact that the FCC’s use of Section 706 as an independent source of authority “has introduced, perhaps inadvertently, significant questions of federalism that need to be considered.”  My observation was simple:  because Section 706 applies equally to both the FCC and to “each State Commission with regulatory jurisdiction over telecommunications services”, if the Commission can exert its jurisdiction over broadband Internet services (the authority to do so now confirmed by the D.C. Circuit in Verizon v. FCC) under Section 706, then States also have every right to impose “regulatory methods that remove barriers to infrastructure investment” under the same legal theory.

As I saw it, there were two important wrinkles to the problem.

First, under the terms of Section 706, Congress provides a choice:  if the FCC finds that broadband is not being deployed on a reasonable and timely basis, then the FCC and the states can either (1) impose regulation (e.g., price cap regulation … measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment); or (b) forbear from regulation.  Let us assume, arguendo, that the FCC decides to impose some sort of regulation on a Title I “information service” (and, just to keep things kosher, such regulation does not reach the level of “common carriage” as prohibited by Verizon).  However, let’s also assume that State A disagrees with the FCC’s policy, finding that forbearance of regulation better achieves its co-equal responsibility of encouraging broadband deployment.  What happens if State A challenges the FCC’s rule in court?  Usually, Federal law pre-empts state law, but in this particular case we have a federal law (Section 706) unambiguously granting co-equal jurisdiction the states and to the FCC.   So, while I learned a long time ago not to make prognostications about how a court may eventually rule, under the plain terms of the statute a reviewing court is going to have to accord the State’s view with a bit more weight than just a courtesy deference.

More troubling, however, is the opposite scenario, where a State commission may use the FCC’s logic as a backdoor to reassert jurisdiction over Title I Information Services.  (For those with long memories, it is important to remember that one of the original motivations of the Title I/Title II reclassification movement was to prevent states from imposing intra-state access charges and retail price regulation on the then-nascent VoIP industry and broadband generally.)  That is to say, under the D.C. Circuit’s reasoning in Verizon, so long as a regulation does not rise to the level of common carriage, the FCC has ample jurisdiction over broadband service providers under Section 706.  By the same logic, then, Section 706 provides a public utility commission in State B with equal authority to do exactly the same thing entirely on its own initiative.  Let’s assume arguendo that State B takes up the challenge and imposes some sort of regulation on Broadband Service Providers.  To make matters more fun, let’s further assume that State B is followed by States C through E, each of which imposing their own unique twist on the regulation, thus making BSPs comply with both a federal regime and with four different state regimes.  Yet, given the language of Section 253(a) of the Communications Act, it is unclear whether the FCC could even use its preemption author to curtail such regulatory creep.  To wit, Section 253(a) provides that “No state or local statute or regulation, or State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” (Emphasis supplied.)  Section 253(d) then goes on to provide that “If, after notice and an opportunity for public comment, the [FCC] determines that a state or local government has permitted or imposed any statute, regulation or legal requirement that violates [Section 253(a)], the Commission shall preempt the enforcement of such statute, regulation or legal requirement to the extent necessary to correct such violation or inconsistency.”  However, by the FCC’s own admission, the regulated service at issue in the Open Internet Order is not a “telecommunications service” as specified in Section 253, but rather a new “broadband Internet service”, which the FCC self-defines as a “mass market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantial all Internet endpoints….”  (Open Internet Order at ¶44).

Now, when I wrote this Perspective three years ago, I was generally dismissed by my colleagues.  According to them, courts have unambiguously ruled that broadband is a federal, inter-state service and there is absolutely no way a state could try to use Section 706 as an independent source of regulatory authority.

Well guess what?

Last week, I attended the net neutrality panel at NARUC’s annual Winter Meeting, and the primary topic of conversation was how states can use their new-found authority under Section 706 post-Verizon.  (Indeed, while I may have been the first to raise this issue, several other lawyers I respect have also reached similar conclusions on the matter.)  Of course, whether or not a state attempts to exercise this authority, and how a reviewing court will ultimately rule on this authority, remains to be seen.  However, for better or worse, this legitimate interpretation—and the resulting important federalist implications—of Section 706 can no longer be ignored.