Private: The Open Internet as a Legal Chess Game

by Barbara A. Cherry, Professor, The Media School, Indiana University

*This post is part of ACSblog’s symposium on the FCC’s net neutrality rules.

The U.S. Open Internet Debate is a Legal Battle

The open Internet debate in the U.S. is essentially a legal chess game.  Americans need to understand the core legal battle at stake in order make sense of the rhetoric and media coverage related to the Open Internet debate as well as the importance of the FCC’s Open Internet Order adopted in early 2015.

Why is the open Internet a legal chess game?  Because it’s an ongoing legal battle – before the FCC, the courts, and potentially through Congressional legislation - over classification of broadband Internet access service (BIAS) under federal statutory law.  Is BIAS a “telecommunications service” and thus a common carriage service, or is BIAS an “information service and thus not a common carriage service?

To understand the core legal battle at stake, we need to start with some important historical content.  Since the early 20^th century, telecommunications carriers have borne two separate, special legal statuses in the United States – as common carriers and as public utilities. The origins of these two legal statuses arise from different bodies of law, and each imposes obligations for different reasons.  Throughout the 20^th century, telecommunications carriers have been common carriers under federal law, and public utilities under states’ laws.  For this reason, both the federal and state governments have regulatory jurisdiction over telecommunications carriers.

However, given this dual legal status for telecommunications carriers, over time these two bodies of law of common carriage and public utility have become confused and conflated – sometimes inadvertently.  However, since about 2000, the confusion generated between these two bodies of law has been purposeful – through misrepresentations by parties who perceive economic and political advantages to the confusion. These parties include some industry players who seek to profit from business models that depend on BIAS being NOT classified as a common carriage service under federal law.

An important result of the misrepresentations and confusion was the FCC decision in 2002 that classified cable modem Internet access service as an “information service”, which is NOT a common carriage service.  This classification was made even though DSL broadband service offered by telecommunications carriers was already a “telecommunications service”, which is a common carriage service.  This FCC 2002 order was ultimately upheld by the U.S. Supreme Court on the basis of a judicial doctrine of deference to an expert agency interpretation of the law.  Thereafter, in 2005, the FCC reclassified DSL as an “information service”.

The FCC’s ability to develop legally enforceable rules to preserve an open Internet has been problematic every since.  In 2008 and 2014, the D.C. Circuit Court of Appeals reversed important portions of two subsequent FCC rulings.  The Court reasoned that the FCC lacked jurisdiction to impose certain rules  - particularly related to non-discriminatory access - because the FCC had previously classified BIAS services as “information services” and not “telecommunications services”.

After the D.C. Circuit Court’s ruling in 2014, the legal battle continued as the FCC considered how to respond.  Throughout 2014, in both proceedings before the FCC and in extensive media coverage, the open Internet debate entered another phase.  The misrepresentations and confusion about common carriage and public utility laws continued anew.   But, they were now being repeated - albeit, inadvertently – as sound bites by extensive media coverage.

Distinction Between Common Carriers and Public Utilities

So, what is the distinction between common carriers and public utilities?  And what are the misrepresentations that cause confusion between common carriers and public utilities?

An entity is a common carrier because of the type of service it provides.  The type of service has to satisfy two types of functionality: a technical one and a commercial one.  In essence, the technical functionality is to provide a transmission service, in this case of information between or among points specified by the user and of information of the user’s choosing.  (Common carriers that provide transportation of tangible items include the postal system, railroads and airlines.) The commercial functionality is to provide the service for a fee directly to the public.  These functionalities are explained and applied to BIAS in a paper I co-authored with Prof. Jon Peha, an engineer at Carnegie Mellon University, titled “The Telecom Act of 1996 Requires the FCC to Classify Commercial Internet Access as a Telecommunications Service,” which was filed with the FCC in the Open Internet proceeding.

By contrast, an entity is a public utility because it obtained the grant of some government franchise to provide a specific service – such as electricity, gas, water, and telephony.  These franchises grant some privileges, such as exercise of eminent domain or access to public rights of way. These franchises also impose obligations, including an obligation to serve.  Importantly, these government franchises may or may not be exclusive.

Some entities may be a common carrier but not a public utility (e.g. trucking).  Some entities may be a public utility but not a common carrier (e.g. gas; electricity).  And some entities may be both common carriers and public utilities (e.g. telecommunications).

So what is the core misrepresentation being made in the context of the debate over classification of BIAS?

• That a common carrier bears that legal classification because it is a monopoly and thus has market power; and
• Therefore, since BIAS providers are not monopolies, they are not common carriers.

Both the premise and its conclusion, which I call the “false monopoly theory argument”, are simply false.

The initial appeal of this false monopoly theory argument derives from the dual status of telephone companies as common carriers and public utilities, and the fact that the public utility franchises for telephony were exclusive, i.e. monopolies, for much of the 20^th century.  (The franchise monopolies for telephone companies were not definitively eliminated in all states nationwide - giving rise to competition -until Congress enacted the Telecommunications Act of 1996.)  As a result, there has been a tendency to conflate or misassociate: (1) common carriage with public utility; (2) public utility with the existence of monopoly; and thus (3) common carriage with monopoly.

Unfortunately, throughout 2014-15, this conflation – or false equivalence – of common carriage with public utility has been repeatedly reinforced by opponents of network openness rules as well as by sounds bites in media coverage.  This, in turn, has reinforced a false equivalence of common carriage with monopoly.  As a result, those in favor of deregulatory policies assert and assume – often unaware of the false equivalence – that common carriage classification of BIAS under federal law is not appropriate.

There are further reasons why the false monopoly theory argument has been effective in the U.S., but a fuller discussion is beyond the scope of this essay. These reasons are explained in my comparative analysis of the U.S. with Canada, where the false monopoly theory argument has failed.  My analysis is published in the article, “Technology transitions within telecommunications networks: Lessons from U.S. v. Canadian policy experimentation.

Restoring Common Carrier Legal Status

The latest round of debate over classification of BIAS culminated in the FCC’s 2015 Open Internet Order.  In this Order, the FCC classified BIAS as a common carriage “telecommunications service”.  This is the proper legal classification - as Jon Peha and I explain in our paper, which is cited and quoted numerous times by the FCC in its Order.

However, the legal battle continues.  Opponents of this legal classification have challenged the Open Internet Order in court, and the appeal is currently pending before the D.C. Circuit Court of Appeals.  The case is currently being briefed, and oral argument is scheduled for Dec. 4, 2015. 

Even after the court rules on the appeal, the chess game will likely continue.  If the FCC’s legal classification is upheld, opponents will lobby Congress to override this outcome.  Legislation, in turn, will depend on the Presidential and Congressional elections of 2016 – and, importantly, on public opinion.  So, it’s important for all Americans to understand the legal chess game underlying the open Internet debate.  Don’t be misled – and insist that policymakers not be misled - by false misrepresentations of fundamental U.S. legal principles and history.