The Legally Problematic Nature of a Title II Reclassification of Internet Services

The Legally Problematic Nature of a Title II Reclassification of Internet Services
May 13, 2014

Randolph J. May

Randolph J. May is President of The Free State Foundation in Potomac, Md. (read full bio)

I confess that I am more than a bit mystified at the way FCC Chairman Tom Wheeler and his Democrat colleagues, seemingly, are moving ever closer in the direction of embracing a Title II reclassification of Internet access services. No matter how loud the banging of pots and pans outside the FCC's headquarters, it would be terribly unsound as a matter of policy to subject Internet services to the same Title II public utility regulatory regime that applied to last century's POTS ("plain old telephone") service. 

The irony of the Free Press organization urging protesters to bring pots to the FCC to make noise in the cause of imposing on today's Internet providers the same public utility regulation that applied to Ma Bell's POTS-era service seems to have escaped the protesters.

But put aside my mystification as to why Chairman Wheeler and his Democrat colleagues would want to align themselves with such a backwards-looking policy.

What also mystifies me is how little discussion there has been concerning the likelihood of success, or not, that a Title II reclassification would be sustained. As a said in my May 9 blog, "Pots and Pans and the Neutrality Mess," the "FCC's legal case would be fairly problematic."

Here is the way I explained why this is so:

"While it is true enough that, under established administrative law principles, an agency may change its mind, it nevertheless must provide a well-reasoned explanation for such a change. Pointing to the number of protesters banging on pots and pans outside the FCC's doors is not likely to suffice. Neither is pointing to the agency's disappointment at already having been twice rebuffed by the DC Circuit under alternative theories.

The main reason the FCC's case for sustaining a Title II challenge would be problematic is this: In defending its decision to classify Internet service providers as information service providers - thereby removing them from the ambit of Title II regulation - the Commission argued that, from a consumer's perspective, the transmission component of an information service is integral to, and inseparable from, the overall service offering. This functional analysis of ISPs' service offerings was the principal basis upon which the Supreme Court upheld the FCC classification determination in 2005 in its landmark Brand X decision.

I don't think the integrated, inseparable nature of ISPs' service offerings, from a functional standpoint, and from a consumer's perspective, has changed since the Brand X decision, so it won't be easy for the Commission to argue that it is changing its mind about the proper classification based on changed consumer perceptions of the service offerings' functionality. And to the extent that the Brand X Court cited favorably to the FCC's claims concerning the then-emerging marketplace competition and the dynamism in the broadband marketplace, those factors, if anything, today argue even more strongly for a non-Title II common carrier classification.

I understand the role that so-called Chevron deference can play in upholding agency decisions. Indeed, it played an important role in the Court's decision in Brand X. But invoking Chevron deference won't relieve the FCC of the need to provide persuasive reasoning in support of an abrupt about-face on a point the agency litigated - successfully - all the way up to the Supreme Court."

As I've been puzzling over the lack of comment concerning the lawfulness of a potential FCC switcheroo regarding Title II, I reviewed once again the FCC General Counsel's Memorandum dated May 6, 2010, in which Austin Schlick, the then-GC, set out to bolster the case for a Title II reclassification of Internet services should the Commission choose to adopt that course. Of course, the then-commissioners did not choose the Title II route.

Nevertheless, given its clear intent to bolster the legal justification for a Title II reclassification, the General Counsel's memorandum is instructive. As I acknowledged in my blog last Friday, Mr. Schlick rightly observes that the FCC may well receive substantial Chevron deference for a reclassification determination and that an agency is entitled to change its mind if it offers persuasive reasoning for doing so.

I agree with these points of administrative law. But I think if Mr. Schlick's memo is read closely, it indicates that it will not be so easy for the Commission to supply such persuasive reasoning. This is because, as Mr. Schlick readily acknowledges, in his opinion for the Supreme Court in Brand X, Justice Thomas declared: "The entire question is whether the products here are functionally integrated (like the components of a car) or functionally separate (like pets and leashes).  That question turns not on the language of the Act, but on the factual particulars of how Internet technology works and how it is provided, questions Chevron leaves to the Commission to resolve in the first instance...."

Having already resolved in the first instance the question of "the factual particulars of how Internet technology works and how it is provided," it won't necessarily be so easy for the Commission now to do an about-face. For as Mr. Schlick went on to say, an agency reassessment of the classification issue would have to include:

"[A] fresh look at the technical characteristics and market factors that led Justice Scalia to believe there is a divisible telecommunications service within broadband Internet access.  The factual inquiry would include, for instance, examination of how broadband access providers market their services, how consumers perceive those services, and whether component features of broadband Internet access such as email and security functions are today inextricably intertwined with the transmission component.  If, after studying such issues, the Commission reasonably identified a separate transmission component within broadband Internet access service, which is (or should be) offered to the public, then the consensus policy framework for broadband access would rest on both the Commission's direct authority under Title II and its ancillary authority arising from the newly recognized direct authority."

In other words, as Mr. Schlick understood, it won't suffice for the Commission simply to bemoan the fact that the D.C. Circuit twice has held that the agency lacked authority for its earlier forays into net neutrality regulation. Instead, the Commission will need to show, as a factual matter, from a functional standpoint and from the consumer's perspective, why its earlier technical analysis concerning the integrated nature of Internet service - that is, the inseparability of the transmission and information services components - is no longer "operative."

Mr. Schlick quotes heavily from Justice Scalia's dissenting analysis to bolster his case. But Justice Scalia's analysis was accepted by only two other Justices. He was on the losing side of a 6-3 decision.

I am not saying that the Commission could not prevail if it ever decides to go the Title II route - as unwise as such a decision would be. But I am not aware that the functional nature of Internet access services has changed since the Commission initially classified Internet access as an information services. Nor am I aware that consumers perceive the way these services are offered, from a functional standpoint, any differently today than they did at the time of the agency's initial classification determination.

That being so, I remain mystified at how little discussion there has been concerning the lawfulness, or not, of a potential Title II reclassification.

[Originally published at The Free State Foundation]

Randolph J. May

Randolph J. May is President of The Free State Foundation in Potomac, Md. (read full bio)