Title II: The legal fallout
The wireless industry hasn’t exactly been thrilled with the FCC’s proposal to reclassify broadband Internet under Title II of the Communications Act. In fact, industry leaders have said it will do everything from endanger networks to threaten the financial footing of the wireless industry.
How much of this is a knee-jerk reaction to the prospect of more regulation versus genuine concerns about the fallout of net neutrality regulation is a matter of debate, and experts in telecommunications policy and law don’t have a uniform answer.
One of the central issues to the wireless industry’s concerns is that the FCC’s proposed Title II regulations will create “uncertainty” in the marketplace, which will then deter investors.
The wireless industry’s top three major players – CTIA, AT&T and Verizon Wireless – all make that claim, citing potential litigation over the proposed regulations and a hesitancy of investors to stake money on ventures that could be heavily regulated under the FCC’s new laws.
Jonathan Marashlian – a partner at Helein & Marashlian, The CommLaw Group, a Washington, D.C.-area law firm specializing in communications and broadband issues – says there is some credence to the industry’s concerns in this regard.
Marashlian concedes that the "chill on investment" argument is frequently used when the prospect of new regulation comes up, but he says new regulations can create uncertainty before they’re formally put into place. “What capital markets dislike more than any regulation ever passed is the uncertainty that exists prior to the adoption of a new rule,” he says. “There’s a nugget of truth to both arguments.”
Mike Kelley, a professor of telecommunications policy at George Mason University, agrees with Marashlian. “Investors, especially at this time, are already cautious,” he says. “If they’re being asked to invest in something that’s going to be illegal or regulated out of existence … they’re not going to invest.”
Another issue that could scare off investment is lawsuits over the new rules. Litigation over the proposed rules could create a good deal of uncertainty with investors, who will likely put their money elsewhere until the laws are clarified in court. Whether companies affected by the regulations will sue depends on the content of the final rules, which have not yet been issued by the FCC.
Law experts disagree on the likelihood of litigation because the content of the rules is not yet official, despite grumblings of mutiny coming from the wireless industry.
Mark Palchick, an attorney at Womble Carlyle, a firm specializing in communications law, is “very reluctant” to predict that industry players will file suit over the rules.
“Threatening litigation is a way to say to the Commission that [the industry] has serious concerns if the FCC varies from the path it’s been on … but I don’t think the Commission is likely to vary from that path,” he says, citing the pro-wireless stance taken by the FCC in its National Broadband Plan. “Take a look at the map of regulation created under the National Broadband Plan: It pins the future economy of the U.S. on a very vigorous broadband industry. That does not tie into heavy regulation … but that doesn’t stop all my clients from being concerned.”
Fred R. Goldstein, the principal of Ionary Consulting, calls FCC Chairman Julius Genachowski’s “third way” approach “litigation bait in the first order” and says the proposed rules are likely to end up in court.
Genachowski seemed to acknowledge the threat of litigation when he brought in FCC General Counsel Austin Schlick to explain the legal machinations behind his so-called third way approach to enforcing net neutrality regulations.
Schlick argued that by reclassifying broadband Internet under Title II while forbearing from applying the vast majority of Title II’s 48 provisions, the FCC could implement the consensus policy approach – and maintain substantively the same legal framework as under Title I – while moving forward with net neutrality regulations.
Goldstein is not impressed with this argument. “The proposal they’ve come up with goes out of its way to flagrantly violate the spirit of the D.C. Circuit’s order while living up to one technical point on which the case was decided,” Goldstein says. “The FCC is doing a complicated set of legal gyrations to address the Comcast order … what Genachowski is doing is trying to create a figment of a legal nexus that has no real power.”
The FCC has a spotty track record when it comes to court decisions on its regulatory authority and is especially vulnerable after the Comcast decision, which ruled the agency lacked authority to regulate broadband Internet under Title I.
Kelley says the FCC is trying to avoid litigation but suspects the agency will end up in court over the proposed net neutrality rules unless they take an exceptionally light-handed approach or unless the issue is addressed by Congress. He says the most likely litigants are likely to come from the wireless industry, a prediction backed up by the thinly veiled threats contained in comments from AT&T and Verizon on the FCC’s net neutrality proposal.
“The litigants are going to be from the wireless industry. The alarms they’ve raised may be a way of influencing the Commission to tone down whatever they do on net neutrality,” Kelly says. “This will end up in court unless the FCC has a light-handed way that doesn’t drive the wireless guys around the bend. … Perhaps the Commission can find a solution the wireless guys can live with while fostering its broadband mission during the comment period for the rules.”
Genachowski has indicated that the FCC is receptive to the wireless industry’s concerns on issues of network management arising from his proposed regulations, saying in his third way statement that “FCC policies should also recognize and accommodate differences between management of wired networks and wireless networks, including the unique congestion issues posed by spectrum-based communications.”
Genachowski had few options after the Comcast decision. The FCC could concede that its authority was limited and try to implement its broadband policies without a solid statutory basis, reclassify broadband as a telecommunications service under Title II and deal with the accompanying regulatory burden, or wait for Congress to deal with the issue and create likely delays in the FCC’s ability to move forward with the National Broadband Plan.
“[These] options would face challenges in the courts of appeals and have their own foundational shortcomings,” says Michael Donahue, a senior associate at Helein & Marashlian. “The third way provides a reasonable compromise that enables the FCC to provide regulatory certainty to the industry and investors and implement its broadband policy goals without burdening broadband with all of the Title II requirements.”
The outcome of Title II reclassification won’t be clear for some time to come; the FCC hasn’t even put out a notice on the rules yet. From there, the notice will be opened up to public comments, then reply comments, which will be considered before the agency issues its rules. Then there will likely be petitions for reconsideration and petitions for modifications. When the Commission acts on the reconsideration petitions, then the rules will be clear enough for disgruntled companies to file suit – starting a court process that could take years.
The wireless industry has experienced growth even during difficult economic times, and only time will tell whether the FCC’s proposed regulations will stymie that growth.