Tariffing the Internet: A Response to Harold Feld (Part Deux)…

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On October 2, 2014, Harold Feld of Public Knowledge defiantly declared that net neutrality was not about a “terminating service” provided by broadband providers to edge providers, but rather it’s about the regulation of retail broadband service.  His position on this matter was unequivocal and characteristically bumptious.  Harold’s blog was, in part, a response to my paper, Tariffing Internet Termination:  Pricing Implications of Classifying Broadband as a Title II Telecommunications Service, in which Larry Spiwak and I detailed why the termination market was the relevant market for net neutrality regulation (see Larry’s summary here).  Ignoring the plain text of the 2010 Open Internet Order, the 2014 Open Internet NPRM, and the D.C. Circuit’s ruling in Verizon v, FCC, Harold referred to this terminating market as a “straw man” we created to discredit reclassification.  Indeed, he claims to have needed “a whole ‘nother 3000 word blog post” to expose “everything wrong with” our paper.  I suspect Harold was surprised when on October 31, 2014, FCC Chairman Tom Wheeler outlined his plan to split broadband into its retail and terminating components, reclassifying only the termination side as a Title II telecommunications service.  So much for Harold’s “straw man” theory.

Undeterred as usual by the obvious, this week Harold made one more attempt to peddle reclassification as an innocuous endeavor and defend his argument that forbearance is “easy peasy.”  Harold is, once again, precisely wrong.  In fact, he unwittingly—as he’s often prone to do—provides an excellent rebuttal to his own position.

Let me explain.

To start, let me remind you of the logical flow of Tariffing the Internet.  First, the relevant market for net neutrality regulation is the terminating market, or as the FCC describes it, “the second side of the market—between the broadband providers and the edge provider.” (2014 NPRM at ¶ 37.)  To all but those terminally ill with confirmation bias, Chairman Wheeler’s hybrid approach provides unquestionable confirmation of this market definition.  Second, net neutrality is the regulation of price in this termination service (i.e., no blocking and no paid prioritization).  It’s obviously so, and the D.C. Circuit in Verizon said as much.  Third, affirmatively regulating prices of a Title II service requires, by Section 203, the filing of tariffs.  Fourth, since a tariffed price must be both “just and reasonable” under Section 201 and “not unreasonably discriminatory” under Section 202, not only would the tariffed termination price most likely be positive, but as anyone familiar with telecommunications law knows, paid prioritization would also be permitted.  (Henry Waxman agrees, if that counts for anything.)  Fifth, the Commission would face a high hurdle to forbear from tariff filings because it has declared every Broadband Service Provider to be a “terminating monopoly”—i.e., each broadband provider is “dominant” in the relevant geographic market for terminating access which is, interestingly enough, each broadband provider. (I recommend reading these to get you up to date on this argument: here, here, here, here, here, here, here and ideally here.  I realize that’s an awful lot of reading for you to formulate your opinion on regulating the Internet, and I apologize for that.)

It’s not difficult to see why Chairman Wheeler isn’t “all in” on the Title II route.

Our’s is a logical argument, and the best way to break our logical flow is by finding something that was reclassified as a Title II service but, in doing so, the Commission avoided all the tariffing and forbearance ugliness.  This week, Harold argued he had found such a case.  (By the way, Larry and I, among others, had already gone through this exercise, so we were not unfamiliar with his chosen, and sole, example.)  In 2007, the Commission reclassified a type of mobile roaming service (“automatic voice roaming”) as a Title II service.  The service was subjected to Sections 201 and 202 of the Communications Act, and enforcement was to be accomplished via Section 208 (that is, the filing of complaints by aggrieved parties). Harold confidently concludes, “And that was it. Period. Full stop.”

If Harold is convinced that an exception to our argument has been found, I suggest he think again.  In fact, Harold’s chosen example buttresses our arguments, and here’s why.

First, roaming is a carrier-to-carrier relationship.  Net neutrality, however, is a carrier-to-customer relationship.

Second, in the example cited by Harold, the Commission determined that the direct “regulation of rates for automatic roaming service is not warranted.”  Rather, the agency held that carriers are to initiate disputes via the Section 208 complaint process.  Right off the bat the distinction between this case and net neutrality is apparent.  Harold makes this point clear (to me, at least) when he describes the roaming order as “having set up a very basic obligation to play nice.” Is this what Harold proposes for net neutrality regulation?  The “basic obligation to play nice”?  I think not.  Net neutrality, in the form proposed by Harold and other reclassification advocates, is not about playing nice.  Rather, it unequivocally requires rate regulation of the termination price to zero under all circumstances (i.e., no blocking and no paid prioritization).  Without the explicit regulation of the termination rate to zero, net neutrality regulation of the sort sought by Harold is empty.

Third, the Commission must in some way formally establish a price between the edge providers and the telecommunications carrier.  Since edge providers are not carriers but customers of the Broadband Service Provider, doing so requires a tariff.  There’s nothing specific without the tariff, and reclassification advocates seem to want something very specific—i.e., zero-price regulation. What would paid prioritization violate without a tariff?  It’s not clear.  If the FCC decides to embrace the complaint on a positive termination price or paid prioritization, then litigation over the issue ensues and Section 201 and Section 202 are then used by the broadband providers to call for the rejection of the zero-price regulation in the form of bright line “no blocking” and “no paid prioritization” rules (even Mr. Waxman knows this to be true).  Without a tariff, the broadband providers have wide latitude on how they treat edge providers, which is entirely antithetical to the liberal concept of net neutrality.  (Sorry to expand your reading list, but I recommend you also read Orloff v. FCC on this matter.)  And, with a tariff, zero-price regulation and no paid prioritization are likely precluded.  Plainly, reclassification is a mess with no benefit outside of politics, which is why the FCC is trying its best to avoid it.

With Harold’s tariffing argument dispensed with, let’s turn to Harold’s forbearance argument.  While Harold makes much about the absence of any forbearance language in the 2007 Voice Roaming Order, claiming he keeps “telling people the FCC didn’t even need to do forbearance,” the fact of the matter is that the agency had already detariffed mobile wireless voice service (a Title II service) in 2004.  Thus, the FCC didn’t do forbearance in 2007 because it had already done so three years earlier.  So, the agency did need to do forbearance. Harold is, again, precisely wrong.  (For a good take on this issue, see the recent blog by former FCC Wireless Bureau Chief Fred Campbell.)  Moreover, as we have made clear in our work, the Commission’s 2004 Mobile Voice Detariffing Order relied on the presence of effective competition in the relevant geographic market as the basis for forbearance.  However, competition cannot be used to grant forbearance in the broadband termination market, since the FCC has essentially declared that the relevant geographic market is each individual BSP, all of whom are thus “dominant” over their respective customers.

Harold’s claim about the “easy peasy” nature of reclassification and forbearance is readily dismissed by merely opening one’s eyes to what is.  The FCC isn’t struggling with Title II net neutrality rules because it’s an easy problem to solve; it is struggling because it’s an impossible problem to solve.  Falling prey to the enormous political pressure for reclassification, the agency is choosing from a set of weak legal arguments, thereby risking, for the third time, a rebuke from the courts.  A third strike for net neutrality is likely an out; the issue will be shelved for years.  It is this risk of neutralizing net neutrality, I believe, that Chairman Wheeler seeks to avoid.

Legally defensible net neutrality rules that are as close as possible to the liberal goals of “no blocking,” “no throttling,” and “no paid prioritization” using the “commercially reasonable standard” under Section 706 as the agency originally proposed are the best one can hope for.  Accomplishing that much should be considered a victory for those seeking to regulate the Internet into its status quo.  Besides, not only is Section 706 the only complete legal theory the agency has crafted and shared with the public, it’s the only legal theory that doesn’t look like Swiss cheese.

Unfortunately, there are some groups that will argue that any rules without reclassification, irrespective of whether reclassification is either legal or useful, is a defeat.  To borrow from the philosopher Soren Keirkegaard, my honest opinion and my friendly advice to the Chairman is this: do it or do not do it—you will regret both.