Court Strikes Down FCC Ruling on Comcast

Tuesday Apr 6th 2010 by Kenneth Corbin
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Major blow for Federal Communications Commission's authority to regulate broadband services, raising major doubts about its current net neutrality proceedings.

A federal appeals court has struck down the Federal Communications Commission's order censuring Comcast for secretly blocking traffic on its network, dealing a major blow to the commission's regulatory authority over the Internet just as it sets out on implementing its ambitious 10-year broadband plan.

In a unanimous ruling, the three-judge panel held that the commission exceeded its so-called "ancillary authority," a term referring to a regulatory mandate implied -- but not expressly stated -- in statute.

"The commission may exercise this 'ancillary' authority only if it demonstrates that its action -- here barring Comcast from interfering with its customers' use of peer-to-peer networking applications -- is 'reasonably ancillary to the ... effective performance of its statutorily mandated responsibilities,'" Judge David Tatel wrote in the court's ruling, citing an earlier Circuit Court decision in a 2005 case. "The commission has failed to make that showing."

When Comcast (NASDAQ: CMCSA) and the FCC presented their oral arguments to the court in January, the judges seemed skeptical about the commission's assertion that it had the authority to enforce an Internet policy statement it had ratified in 2005. In the meantime, the FCC has initiated a proceeding to enshrine that policy statement as a set of binding rules and add specific provisions barring Internet service providers from discriminating against certain traffic and providing meaningful disclosures about how they manage their networks.

But with the ruling the D.C. Circuit Court of Appeals issued on Tuesday, the FCC's authority to press forward with that proceeding or any other broadband-related issue is in serious doubt.

FCC spokeswoman Jen Howard declined to comment beyond a statement saying the commission is "firmly committed to promoting an open Internet," and that the ruling would not derail its work on the issue.

"Today's court decision invalidated the prior commission's approach to preserving an open Internet," Howard said. "But the court in no way disagreed with the importance of preserving a free and open Internet. Nor did it close the door to other methods for achieving this important end."

But what the court did say is that with broadband classified as a so-called Title I service under the Communications Act, the FCC does not have the authority to regulate ISPs in the same manner as telecommunications, or Title II, services, which are subjected to common carrier requirements and other regulations.

At the time of the oral-argument hearing in January, FCC General Counsel Austin Schlick made it clear how much was riding on the court's decision.

"If Comcast's most extreme argument were adopted by the D.C. Circuit, then we would have to either change fundamentally our regulatory approach, or look to the Supreme Court or Congress to restore that power," Schlick told InternetNews.com on the eve of the hearing.

For Comcast, the court's ruling was obviously welcome news, though the company said it won't affect the way it manages its network.

"We are gratified by the court's decision today to vacate the previous FCC's order. Our primary goal was always to clear our name and reputation," Sena Fitzmaurice, Comcast's vice president of government communications, said in an e-mail to InternetNews.com. "We have always been focused on serving our customers and delivering the quality open-Internet experience consumers want."

In vacating the order, the court pinned the reasoning for its decision on Comcast's jurisdictional argument, and did not address the company's procedural or due process complaints.

The FCC's legal options are slim. The commission could take an appeal to the Supreme Court, as Schlick suggested, or it could ask the full D.C. Circuit Court to hear the case, though Stifel Nicolas analyst Rebecca Arbogast said that neither scenario would be likely to overturn the decision the court handed down today.

Freeing broadband providers from FCC regulation?

"Today's ruling is destabilizing as it could effectively free broadband providers from FCC regulation over broadband, including net neutrality, rules requiring transparency letting customers know what actual speeds they are receiving, the ability to prioritize emergency communications [and] consumer privacy protections (though these could presumably be imposed to a certain degree by the FTC)," Arbogast wrote in a research note.

The FCC could continue to press on with its current net neutrality proceeding, though even if it succeeds in enacting rules, it will almost certainly face legal challenges from a host of industry interests that will be emboldened by today's ruling.

Those murky and litigious scenarios have left advocacy groups that campaign for net neutrality in despair, with several expressing concern that today's ruling effectively strips the FCC of any authority to enact meaningful broadband policies.

They have called for the FCC to shift broadband Internet to a Title II service under the Communications Act, a move that would clarify the commission's authority in situations like the Comcast incident, but would encounter a torrent of opposition from ISPs. Some lawmakers have echoed those calls, and suggested that it's time for Congress to step in and strengthen the FCC's authority to enforce net neutrality and other broadband regulations.

Conversely, right-leaning groups have seized on the court's ruling as proof positive that the commission lacks the authority to proceed with its proposed net neutrality rulemaking without congressional action.

Sen. Kay Bailey Hutchison, the ranking Republican on the commerce committee and an ardent opponent of net neutrality rules, called on FCC Chairman Julius Genachowski to abandon the open Internet rulemaking.

"In light of this important court decision, policy makers should assess whether there should be any regulatory role for the agency as it relates to the Internet and how private companies manage their investment," Hutchison said in a statement. "It would be wrong to double down on excessive and burdensome regulations, and I hope the FCC chairman will now reconsider his decision to pursue expanded commission authority over broadband services in current proceedings before the agency."

Broadband providers say ruling won't affect Internet users

For their part, some broadband providers are trying to position today's ruling as an isolated response to a singular misstep by the FCC, arguing that it is hardly the dramatic rewrite of commission authority that the net neutrality set is claiming.

"The court correctly ruled that a specific order by the previous FCC was wrong," Kyle McSlarrow, president and CEO of the National Cable and Telecommunications Association, said in a statement. "We cannot state strongly enough that this decision will change nothing about the cable industry's longstanding commitment to provide consumers the best possible broadband experience. Nor does the ruling alter the government’s current ability to protect consumers."

Verizon made a similar statement, declaring that today's ruling "will have no impact on the experience of Internet users," and noting that the court did not argue in its ruling that the FCC has no ancillary authority over Title I broadband providers, only that it overstepped in the Comcast case.

It is worth noting that Verizon has recently called on Congress to update the Communications Act, a move that Arbogast sees as an effort "to try to head off a possible FCC move to Title II regulation," which could be the next policy war after today's ruling.

"Bottom line, although today's decision is an immediate victory for broadband providers, they may have won the battle only to face a larger war," she said.

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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