Title II Closing Arguments

Posted by: Hank Hultquist on February 2, 2015 at 4:13 pm

Today, AT&T made a couple of filings at the FCC regarding its authority to reclassify Internet service providers (ISPs) as common carriers. Given that this decision seems driven by political considerations, I hold out little hope that the FCC will alter its course, but the letters nonetheless try to set out what we see as significant infirmities with reclassification.

The first letter addresses the substantive question of whether ISPs are information service providers, telecommunications service providers, or both. Much of the debate over this question has focused on the Supreme Court’s decision in Brand X and, in particular, Justice Scalia’s dissenting opinion. Putting aside the Constitutional Law 101 principle that dissenting opinions are  not binding precedent, Justice Scalia’s dissent made clear that, in his view, ISPs provide both an information service and a telecommunications service and that the telecommunications service ends where the information service begins. This comes through loud and clear in the various analogies he used to explain why he thought that ISPs provided a transmission service in addition to an information service. At one point he compares ISPs to pizzerias that offer a combination of pizza and home delivery. At another point he compares them to a pet store that sells dogs with a leash. At no time did he suggest that there was no pizza or dog in the transaction.

We disagree with Justice Scalia’s view that ISPs simultaneously offer both an information service and a telecommunications service.  The FCC has long adhered to an interpretation of the statute under which these definitions are mutually exclusive. Such a reading follows naturally from the fact that, according to the statute, information services are provided via telecommunications. As consequence, and as noted by the Brand X majority, without mutual exclusivity all information services would become vulnerable to the artificial separation of their information and telecommunications components. In this construct, the definitions, which are intended to serve as Congressionally-defined boundaries for the FCC’s jurisdiction, become little more than semantic speed bumps.

The elimination of mutual exclusivity could empower the FCC to regulate virtually every tech company that combines transmission with information to deliver digital goods and services to customers. Social networks, digital music, video chat, and even Internet search are all examples of information services that are provided via telecommunications, and thus have a transmission component that could be segregated and regulated under Title II if the mutual exclusivity of information and telecommunications services were breached. And since the FCC has long treated resellers of common carrier services as common carriers themselves, providers of connected devices, like e-readers and vehicles, are virtually indistinguishable from ISPs in their use of transmission as a way to deliver information. It’s no longer a question of how providers design their services and consumers perceive them, instead it becomes simply a question of whether the Commission wants to pry it apart or not.  In this structure, the boundaries around the Commission’s jurisdiction become as broad as it wants them to be, at best loosely tethered to what Congress granted it.

Ironically however, adoption of Justice Scalia’s view by the FCC would not even impose Title II regulation on the purported service to which net neutrality rules, including paid prioritization, apply.   To understand why, I encourage you to take a closer look at Justice Scalia’s opinion and his description of the delivery/transmission service that he thought cable companies provided. First, in analogizing cable modem service to dial-up Internet access and to DSL transmission service (which was regulated under Title II at the time) he cites an FCC working paper for the proposition that:

“In the case of Internet access, the end user utilizes two different and distinct services. One is the transmission pathway, a telecommunications service that the end user purchases from the telephone company. The second is the Internet access service, which is an enhanced service provided by an ISP… . Th[e] functions [provided by the ISP] are separate from the transmission pathway over which that data travels. The pathway is a regulated telecommunications service; the enhanced service offered over it is not.”

Justice Scalia then goes on to say that, with respect to cable modem service:

“Since the delivery service provided by cable (the broad-band connection between the customer’s computer and the cable company’s computer-processing facilities) is downstream from the computer-processing facilities, there is no question that it merely serves as a conduit for the information services that have already been ‘assembled’ by the cable company in its capacity as ISP. This is relevant because of the statutory distinction between an ‘information service’ and ‘telecommunications.’ The former involves the capability of getting, processing, and manipulating information. §153(20). The latter, by contrast, involves no ‘change in the form or content of the information as sent and received.’ §153(43). When cable-company-assembled information enters the cable for delivery to the subscriber, the information service is already complete. The information has been (as the statute requires) generated, acquired, stored, transformed, processed, retrieved, utilized, or made available. All that remains is for the information in its final, unaltered form, to be delivered (via telecommunications) to the subscriber.”

Thus, in Justice Scalia’s view, cable modem service actually consisted of two service offerings – one that ends where the other begins. The first included the ISP functions associated with generating, acquiring, storing, transforming, processing, retrieving, utilizing and making available information. The second consisted merely of the delivery of that information to the cable modem subscriber. According to Justice Scalia, the transmission component of cable modem service begins at the subscriber’s home and ends at the cable company’s “computer processing facility.” The rest of the cable company’s network falls on the ISP side of the line that Justice Scalia has drawn. Indeed, Justice Scalia’s reliance on the description of dial-up arrangements makes this distinction perfectly clear. In that case, the transmission component was literally the telephone connection between the subscriber’s home and the ISP’s modem bank.

The particular net neutrality rules that the FCC is considering, such as prohibitions on blocking and paid prioritization, relate largely to the functions of routers that fall on the ISP side of the line drawn by Justice Scalia, and thus the “information service” component of Internet access service (assuming, incorrectly, that Internet access service can, and should be, segregated into separate information and telecommunications service components).

In the era of the dial-up Internet, all routing functions were performed by ISPs, not phone companies.  And even the most ardent supporters of reclassification have acknowledged that the ISPs of that time provided information services, not telecommunications services.   But, as the D.C. Circuit made clear in Verizon, the FCC cannot impose common carrier regulation on an information service.  As a consequence, reclassification of broadband Internet access services (or components thereof) as Title II telecommunications services is a road to nowhere that will not provide the FCC authority to adopt open Internet rules or even permit the imposition of common carrier-type net neutrality regulations pursuant to some other source of authority.

The second letter we filed today focuses on procedural infirmities with an attempt to reclassify ISPs as common carriers, even if the FCC finds that they are not information service providers. Under longstanding precedent, the FCC must make particularized findings with respect to the offerings of individual carriers in order for it to find that either they are operating as common carriers, or should be required to operate as common carriers. The FCC has not engaged in the kind of detailed analysis that would be needed to assess the offerings of every ISP that would be subject to its rules.

In order for the FCC to find that an ISP is operating as a common carrier, it would have to examine the terms on which that ISP holds itself out to customers to assess whether it offers to serve indifferently, or whether it retains the ability to decline to serve customers. The underlying record in this proceeding simply does not contain the level of detail needed for the FCC to determine that any ISP, let alone every ISP, holds itself out to serve customers indifferently. And in some markets, such as for peering and interconnection, the record is in fact quite clear that ISPs do not operate as common carriers, and expressly retain the right to refuse to provide service.  These services are unique carrier-to-carrier arrangements commercially negotiated in a robustly competitive market and it would strain all logic to find that they instead are offered indiscriminately to the public for a fee, the core requirement of common carriage.

The FCC cannot mandate that a service be offered on a common carrier basis without, at a minimum, a finding that a particular provider has market power in a particular geographic market. Needless to say the FCC has engaged in no analysis of market power on a geographic market basis. Accordingly, this option is simply not available to the FCC.

As I said, I have no illusions that any of this will change what happens on February 26th. But when the FCC has to defend reclassification before an appellate court, it will have to grapple with these and other arguments. Those who oppose efforts at compromise because they assume Title II rests on bullet proof legal theories are only deceiving themselves.

Comments (19)

The letter is well written but since the argument for back in 2011 in Verizon vs. The FCC. Verizon argued and won that they should have the right to slowdown internet traffic. Since AT&T “slows” down traffic for users they are in control of a service and final product. They are a common carrier. By their own actions they prove they are common carriers. If pay for unlimited data but I am slowed down after 10GB because AT&T needs bandwidth for another customer you are a common carrier. Lastly this change the FCC is pushing is after the outrage in 2011 by the internet community at large. We are party free and only want boundaries and equal prices for services.

Hassan Shariff February 3, 2015 at 6:12 pm

Hank, how are you able to argue that the peering market is competitive? Are you able to name a single wholesale ISP that is able to reach AT&T without congestion? I can’t, and I buy connectivity into ISPs for a living.

Tom D. February 4, 2015 at 8:47 am

You CANNOT have it both ways. If big telecoms want to implement metered broadband nationally, then TITLE II utility regulation will become law.

Luciano Nova February 4, 2015 at 9:01 am

Hank, your arguments are all excellent, but there are even more to be made. There have been more procedural infirmities, including insufficient disclosure of the proposed use of Title II in the NPRM, undocumented ex parte communications, and failure to undertake statutorily required due process and due diligence with respect to small ISPs. There is also the issue of a lack of authority under 706: 47 USC 230(b)(2) precludes Chevron deference. My small, competitive ISP could well be shuttered by onerous regulations and is willing to join you, to the extent its financial resources allow, in challenging this unprecedented regulatory overreach.

Brett Glass February 4, 2015 at 12:27 pm

Looking forward to my ATT contract expiring this year so I can dump you

Dave Shannon February 4, 2015 at 1:59 pm

The problem is that that the author of the article is trying to re-write the definition of telecommunication. To communicate at a / via distance. That is the essence of the internet.

Jason Zack February 4, 2015 at 3:13 pm

If AT&T wastes Taxpayer money by suing over this, I will drop EVERY AT&T service I currently use – Internet, cell phone, home phone etc. I’m a long-time customer and been happy with all services, but will drop you in a heartbeat over this.
And the Boycott AT&T movement will be HUGE. Better think twice about this – and any other provider thinking about doing it should as well.

Chili Palmer February 4, 2015 at 4:36 pm

IS this REALLY a wise thing to do with subscriber funds? The Communications Act of 1934 gave clear authority for the FCC to regulate communications services in the public interest. News flash: Telecoms don’t own the wireless spectrum they use; the PUBLIC, i.e. the TAXPAYERS own it. It is a public resource and should be treated that way. If AT&T has the money to go to court over this issue, then it’s indicative of one thing: AT&T is vastly overcharging its customers.

Isma’il Maxwell February 4, 2015 at 7:52 pm

This is exactly why Americans, by and large, hate and complain about the likes of AT&T, Verizon, Comcast, etc. It’s not exploitation, per se, as they provide a real service and value for money. But they consistently err on pushing for more and more exploitation of their customers. Try siding with the needs and desires of your customers once in a while and perhaps you’ll give us a reason to be loyal back.

Mike Schmidt February 4, 2015 at 8:17 pm

Obama’s FCC wants to regulate broadband Internet like telecom because they want to tax broadband Internet like telecom. This has nothing to do with ‘net neutrality,’ because the net is already singularly neutral. It’s about more $$ for Obamaphones and other subsidies to woo voters. That’s why every time the White House talks about ‘net neutrality,’ the next day they talk about their desire for more universal service monies. Bottom line: You’re broadband Internet bill is about ready to jump if this tax grab goes through.

John Sullivan February 4, 2015 at 10:47 pm

These kinds of moves are typical from AT@T regarding an open internet free from control from ISP’s like AT@T and Comcast. I used AT@T for years after they merged with my former ISP and watched my monthly phone and DSL bill climb higher and higher, while my DSL somehow became significantly slower. I dropped AT@T because I knew I was getting screwed. I found a local ISP/phone service in SF and was able to cut my bill almost in half and get 9X faster DSL speed and unregulated long distant service to boot. Your message AT@T? Stop trying to find ways to take advantage of us, and start improving service instead of using your lawyers and spin doctors to distort the truth while you are sticking it to the consumers.

Paul Guzman February 5, 2015 at 4:10 am

Always do what is in your customer’s best interest. Everything else will fall into place. Will most of your customers applaud the efforts put forth by the lawsuit? Or will most of your customers be disappointed in your actions?
Time will tell, but I can tell you from experience that it is difficult to meet your projections without revenues.
Do what will make your customers happy.
And yes, it really is that simple.

David Childers February 5, 2015 at 9:03 pm

It’s funny how Google fiber is deployed, (21st century stuff), and google has made strong public statements in support of title II. If they can offer something unlimited, hundreds of times faster, no paid prioritization and don’t have to resort to weird billing schemes and constant up-selling. They even give their lowest package away for free, with a one time low connection fee. All of this and they have no problem with the very reasonable rules under this Title II proposal. Perhaps ATT is trying to hold onto a 20th century vision of the future, they aren’t building self-driving automobiles, with working prototypes, are they? Nope…

Tony Irvin February 6, 2015 at 6:21 am

All I ask from my broadband provider is a common carrier “Internet dial tone”. The last thing on earth I would want is for it to try to become an information service.

Give up your fantasy of creating Internet slow lanes and holding start-up companies hostage, AT&T, and just focus on doing your job.

Cassady Kent February 6, 2015 at 3:27 pm

The end game for the radical twin peaks – the FCC and the FEC – is to eventually control political free speech and censor content online. That’s what this is all about; and note they’re always in such a friggin hurry! The FCC is “seizing” the Internet. No transparency. No analysis. No debate. Just as w Obamacare. I hope and pray some court slams these bullies to smithereens, but I won’t hold my breath.

Shawn O’Fallon February 25, 2015 at 4:30 am

Why does this company still have customers? They obviously do not care about their customers. I terminated my last service with them over two years ago and will never utilize their services again. Their practices, like these “closing arguments” are disgusting.

Mat Schulz February 27, 2015 at 8:01 am

I agree, they should do what is in customer’s best interest.

Shey March 6, 2015 at 3:02 pm

Hank, if you have no illusions that this frivolous lawsuit will change anything, why on earth would you do it? Why don’t you spend the money improving the services you provide instead? I hope you understand, I’m sure you do, that millions of people in this country flooded the FCC with correspondence regarding this issue and drastically changed the course that the ruling took. This is what the people want, this is what your customers want. By engaging in this territorial money throwing pissing match in order to make some kind of point, you are ostracizing the very people that keep your company afloat. It’s amazing to me that you are so arrogant and certain you are right that you are willing to do this. What you are doing is in direct conflict with the best interests of your customers. I hope your board takes note of that and you grow up.

Daniel Shramo April 10, 2015 at 1:10 pm

I think the FCC has overstepped its authority. I don’t think challenges to its decision are frivolous. The FCC’s action violates both the Administrative Procedure Act and the Communications Act.

Hank Hultquist April 10, 2015 at 1:47 pm

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