Phoenix Center Urges D.C. Circuit to Toss Open Internet Order

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By Brandon Ross

Oct. 13 — The U.S. Court of Appeals for the District of Columbia Circuit should vacate the Federal Communication Commission's Open Internet Order because the order ignores the court's precedent and violates established legal practices related to rate-making regulation, a nonprofit research organization said in a court filing.

Lawrence J. Spiwak, president and general counsel for the Phoenix Center for Advanced Legal and Economic Public Policy Studies, filed an amicus brief in support of a challenge by Internet service providers (ISPs) to the FCC's Open Internet Order on Oct. 13. The petitioners want the D.C. Circuit to vacate the order and subsequent agency rules. If successful, the challenge would mark the third time that net neutrality rules issued by the FCC were taken off the books by the court. The last time was in 2014 with Verizon v. FCC (Verizon Commc'ns Inc. v. FCC, D.C. Cir., No. 11-1355, 1/14/14).

The FCC's February order mandates that ISPs can't charge edge service providers like Netflix Inc. and Inc. fees to access the broadband providers' networks and reach the ISPs subscribers. The order also recognizes that the broadband Internet service market is a two-sided market; one side between edge providers and ISPs and another between ISPs and end-users.

However, with regard to the fees, known as zero ratings, the FCC is “lumping together the distinct services offered to edge providers on the one side and end users on the other,” Spiwak's filing said. And by doing so, “the Commission has conspicuously ignored the Court’s conclusion in Verizon [v. FCC] that “broadband providers furnish a service to edge providers.”

“[I]f edge providers are ‘customers' of BSPs (broadband service providers) as this Court found in Verizon [v. FCC], then this regulation, just as the Commission’s last incarnation of the zero-price rule, has the unambiguous effect of requiring BSPs to provide carriage to edge providers without any compensation,” the filing said.

Second Side of Market

The FCC order reclassifies retail broadband Internet service offered to end users as a telecommunications service under Title II of the Communications Act of 1934. The agency did not expressly reclassify the second side of broadband Internet service, between edge providers and ISPs, in the order.

However, the order says that Title II rules apply to the second side of the market, with the court previously saying edge providers are ISP customers.

“Under the plain terms of the Communications Act, if edge providers are in fact customers of a BSP and Title II applies to this service as the Order plainly states, then a BSP must be allowed to charge a positive “fee” for this termination service because a common carrier is ‘for hire,' ” Spiwak's filing said.

Under Title II, the positive fee must be “just and reasonable,” Spiwak said. But the agency doesn't give a justification for or evidence of how a $0 fee is just and reasonable, he said, which doesn't adhere to “basic ratemaking jurisprudence.”

“[A]s recognized by this Court in Farmers Union Central Exchange v. FERC, 734 F.2d 1486, 1504 (D.C. Cir.), cert denied sub nom., 469 U.S. 1034 (1984), the phrase ‘just and reasonable' is not ‘a mere vessel into which meaning must be poured,' Spiwak's filing said. “Rather, a ‘just and reasonable' rate must fall within a ‘zone of reasonableness—i.e., a rate cannot be ‘confiscatory' (i.e., ‘below cost') on the bottom-end and ‘excessive' on the high-end.”

FCC Broadband Deployment Mandate

The FCC has previously stated in court documents and its order that it has a congressional mandate to encourage broadband investment and increased deployment, which the court recognized in its Verizon decision.

To that end, the FCC said in a Sept. 14 court filing, the agency “concluded that preserving open access between consumers and edge providers was essential to a ‘virtuous cycle,' whereby innovations at the edges of the Internet increase consumer demand for broadband services, which, in turn, drive increased broadband investment and deployment in accordance with Section 706 [of the 1996 Telecommunications Act].”

The USTelecom Association, the National Cable and Telecommunications Association, CTIA-The Wireless Association, and the American Cable Association, among other parties, also filed briefs in the case on Oct. 13.

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The full Phoenix Center filing is available here: