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FCC’s grab for new regulatory power could go beyond broadband providers

Internet application and content companies, what some refer to as “edge providers,” are increasingly concerned by the Federal Communications Commission’s (FCC) newfound ability to regulate the Internet, and rightfully so.

For years, edge providers — Pandora, Google, LinkedIn, Facebook, WhatsApp, to name just a few — have flourished from the government’s hands-off approach to the Internet. Both Republicans and Democrats championed a structure that allowed the “application layer” of Internet architecture to be free from government intervention, apart from occasional Federal Trade Commission activity. That is now subject to change.     

A very real threat is that edge providers could fall within the reach of the FCC’s newly invented authority to regulate the Internet under Section 706 of the Telecommunications Act of 1996.

Congress never intended to give the FCC that authority. I know because I was in the room, as a congressional staffer, when that deal was made. For years, the FCC held the same conclusion. But in 2010, when the FCC’s attempt to use other statutory provisions to regulate broadband providers failed, it re-interpreted Section 706 as a new legal basis to impose net neutrality restrictions. Although, the D.C. Circuit vacated most of those restrictions in January, the decision explicitly sanctioned Section 706 as an independent grant of regulatory authority. 

As a result, we now live in a world where the FCC can arguably adopt almost any rule that conceivably promotes broadband deployment. As Judge Laurence Silberman summarized in his dissent: “Presto, we have a new statute granting the FCC virtually unlimited power to regulate the Internet.” 

FCC Chairman Tom Wheeler recently announced the Commission will seek comment on proposed new net neutrality rules that will “meet the court’s test.” His focus may be on broadband providers, but edge providers shouldn’t be lulled into complacency. The notion of preserving an “open Internet” is so vague that any rules meant to accomplish that goal could unintentionally impact edge providers’ business models.

Ironically, the FCC could now start meddling with the very edge providers it has always claimed needed protection from meddling by broadband providers. And the FCC could try to use Section 706 to intervene in many other areas.      

Regulatory creep usually starts with calls for “regulatory parity.” The mantra will be, if you are going to impose certain regulations, then it is only fair to stick it to all market participants equally. We have already seen such arguments made in the context of the Text-to-911 rule-makings. And while ensuring a “level playing field” is a compelling argument and can be sound policy (albeit, in most instances, we should seek to ratchet down regulations not impose new burdens on everyone), it means that the wrath of government regulations could be coming for edge providers next. Expect clever regulatory attorneys to fill the record with arguments that using Section 706 to impose nondiscrimination rules on Google’s or Microsoft’s search algorithms or Apple’s operating system are needed to encourage broadband deployment.  

Or consider the contractual fight over programming between CBS and Time Warner Cable last year. During its retransmission dispute, CBS pulled its signal off of certain cable TV systems — and also blocked all Time Warner broadband customers from accessing CBS’s Web-based content, even outside the territory of dispute. This is precisely the kind of content-blocking broadband providers are so often accused of but aren’t actually doing.

The controversy was eventually resolved, but not before it prompted some calls for the commission to investigate supposed net neutrality “violations.” This pattern will likely recur as online streaming becomes even more popular.  What happens under a net neutrality regime if Netflix, YouTube, or Hulu flex their muscles in the marketplace?  Should the FCC similarly scrutinize their business decisions? The only intellectually honest conclusion for net neutrality supporters is to extend the burden to everyone: broadband providers and edge providers. 
Beyond the issue of net neutrality, the FCC is already using Section 706 as legal justification for other actions. In January, for example, the FCC moved to establish IP trials to examine issues related to the migration to all-IP networks, and that item cited Section 706 as a source of authority. It begs the question, what else could the FCC do under Section 706 in the name of advancing broadband deployment? The possibilities are endless — and could easily reach edge providers.     

More concretely, the FCC may claim authority to regulate cybersecurity. It would be a very deep stretch to suggest that the Communications Act gives the FCC jurisdiction over this subject matter. And yet, the FCC is interested in becoming a relevant player on the issue. The only way to achieve that seems to be creative use of Section 706. With every Internet site, service and application vulnerable to Internet security threats, these could readily come under the purview of the FCC. 

I view edge providers as a significant bright spot in our struggling economy. They are tirelessly innovating, growing, and meeting — often exceeding — consumer expectations. So I worry that the FCC is about to go down a slippery slope that will create burdensome regulations and uncertainty for broadband providers and edge providers alike. This will chill the needed investment and flexibility that is fueling innovation and job growth. Edge providers should demand that the FCC return Section 706 to its original intent and wait for Congress to provide the FCC with direction on how we should regulate, if at all, the networks and services of the digital age.