FCC’s Net Neutrality Rules Challenged in Appeals Court

The FCC’s long effort to establish net neutrality rules came before a D.C. appeals court on Friday, as a three-judge panel raised questions over the agency’s robust regulatory move to reclassify the Internet as a common carrier.

A collection of telecom and cable companies are challenging the rules, characterizing the FCC’s move last February as regulatory overreach. The FCC’s action reclassified Internet Service Providers as telecommunications services, from more lightly regulated information services.

But the FCC is defending the reclassification as legally sound and necessary to ensure that Internet remains open. Reclassification, its supporters say, is the legal footing it needs to make sure it can enforce rules that prohibit wired and mobile Internet providers from blocking or degrading service, as well as “paid prioritization,” or charging to prioritize content as it is transmitted to consumers.

Before the D.C. Circuit Court of Appeals, Judge David Tatel questioned Peter Keisler, the attorney representing USTelecom and one of the providers bringing suit, on just why the FCC didn’t have the authority to choose how to classify Internet service. Tatel cited a 2005 Supreme Court decision that said the FCC had the authority to interpret ambiguous provisions of the 1996 Telecommunications Act.

But Keisler argued that what ISPs are offering are information services, a contrast to those offered by other types of common carriers like phone companies. In that 2005 case, he argued, “None of the justices so much as suggested that there wasn’t an information service in what the ISP is doing.”

The FCC’s counsel, Jonathan Sallet, faced a series of questions from Judge Stephen Williams over paid prioritization. Williams asked whether there was some other means of imposing rules that would prevent Internet providers from creating so-called fast lanes and slow lanes.

Sallet, however, said that the FCC’s approach was “necessary to preserve the virtuous circle” of the Internet, where smaller start-up companies can still be assured that their content can get to consumers.

Questions also were raised over how the FCC’s extension of the rules to mobile broadband. And there were some queries over interconnection, or the agreements by which Internet providers agree to connect and carry traffic of content networks and providers like Netflix. The FCC did not extend the full weight of its rules to such arrangements, but did establish oversight on a case-by-case basis.

“The commission was being very careful here,” Sallet said.

Internet providers also have challenged the process by which the FCC adopted the rules. They argue that FCC chairman Tom Wheeler shifted course in favor of reclassification late in 2014 after earlier proposing rules with a lighter regulatory touch. That changed, however, after President Obama weighed in in favor of a stronger regulatory approach.

Sallet said that the FCC adopted its approach after a process in which it gathered an extensive public record. Some 4 million comments were filed in the proceeding.

“The policy explanation is as we listened and we learned from the record,” he said, concluding in the end that “bright line rules were necessary.”

Although the FCC reclassified the Internet as a common carrier, the agency still restricted itself from regulating such things as rates, imposing tariffs or forcing providers to ask for permission before introducing new products. As such, it has argued that it is not “heavy-handed, utility-style regulation.”

A decision is not expected until next year.

“Only a fool would predict from an oral argument how a panel of judges would rule,” said Pantelis Michalopulos, a partner at Steptoe & Johnson, who argued for intervenors such as Netflix, Dish Network and Comptel that are supporting the FCC’s approach.

He said that he was “cautiously optimistic” and the challengers to the rules encountered skepticism from the judges in arguing that the FCC exceeded its authority in reclassifying.

“I think just from my observation and experience, the petitioners encountered very rough weather on classification,” he said.

Michael Powell, president and CEO of the National Cable and Telecommunications Assn., which is also challenging the rules, said in a statement that they were “heartened that the court today held a serious and rigorous examination on the legality and merits of the FCC’s decision to subject the Internet to public utility-style regulation.”

“We have said repeatedly that this appeal is not about preserving an open Internet; it is about the FCC’s unnecessary and unlawful action to reclassify broadband Internet service as a common carrier.”

Tatel, an appointee of President Bill Clinton, wrote two prior opinions that sidelined FCC net neutrality rules, but his most recent 2014 majority opinion found fault with the legal grounds on which the agency imposed its rules, not that they were necessarily outside its scope of authority.

Williams is an appointee of President Ronald Reagan, and the other member of the panel, Judge Sri Srinivasan, is an appointee of President Obama.

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