Can a FCC Semi-Circle of Innovation be as Virtuous as a Full Circle?

Does the FCC’s concept of a “virtuous circle of innovation” mean fostering a full and true “circle of innovation,” of not only edge provider innovation, but also ISP innovations of zero-rating pricing plans that lower users’ bandwidth costs and better fund more broadband deployment?

Please consider how the FCC’s eventual treatment of the many ISP plans for zero-rating pricing innovations could impact ultimate appellate review of the FCC’s Open Internet Order.   

The D.C. Circuit Court of Appeals in Verizon v. FCC said that the FCC’s 2010 justification -- for imposing net neutrality rules via its Section 706 authority, for the purpose of promoting broadband deployment and the “virtuous circle of innovation” that fuels Internet growth -- was reasonable and justified by the evidence.  

In the FCC’s 2015 Open Internet Order, the FCC effectively rejected the Verizon Court’s grant of Section 706 authority to promote broadband investment as legally insufficient to justify bright line net neutrality rules (like a ban on paid prioritization), and consequently reclassified broadband service providers as Title II common carriers.

In the oral arguments December 4th, Judge Tatel indicated he “couldn’t find” in the order, “the reason” or “the policy explanation” for why the FCC “changed its mind” and directly asked: “What drove the Commission to conclude that the authority it had over 706 wasn’t adequate and that it mattered to reclassify?  

What does Judge Tatel’s question have to do with the FCC’s “circle of innovation” and the many ISP zero-rating pricing innovations?

A core reason the Verizon Court generously granted that the FCC had affirmative authority under section 706 was that: first the judges read section 706 law and found it to be about Congress expressly urging that the FCC “shall encourage the deployment… of advanced telecommunications capability [broadband],” and second, that the FCC put forth a reasonable “virtuous circle of innovation” justification for its assertion of 706 authority that was supported by the facts presented to Verizon court.

When Judge Tatel grilled the FCC’s General Counsel for what “drove” the FCC’s decision-making that he “couldn’t find in the Order,” FCC General Counsel Sallet responded that section 706 wasn’t sufficient, and Title II was legally necessary to impose the bright-line net neutrality rules that the FCC believed necessary.

This lack of an explanation in the order combined with the FCC’s self-serving answer in the oral argument could prove important to the outcome of this case.

The Verizon Court gave the FCC more deference than many expected concerning its revised interpretation of its 706 authority, because clearly: Congress wanted something done i.e. “reasonable and timely” broadband deployment; Congress clearly wanted the FCC to do it; and the FCC justified its net neutrality rules based on the “virtuous circle of innovation” to promote investment and more broadband “deployment.”   

The apparent risk the FCC may have here is that in its 2015 order, Judge Tatel found no apparent reason or text in the law that indicated Congress wanted the FCC to assert and use its Title II authority in the way that it did, and when asked repeatedly in court, the FCC did not tie its reason for asserting Title II to what Congress clearly wanted the FCC to do with Title II; it tied its reason for asserting Title II to what the expert FCC wanted and needed.  

To the extent these judges expect that an administrative agency must tether itself and its desired outcomes and purposes to Congress’ delegated authority, stated limits, and policy direction, the FCC appears vulnerable, because it appears that the FCC is doing someone else’s will, more than it is doing Congress’.  

Simply, the FCC appears to have taken its proverbial eye-off-the-ball of Congress, and focused on what the FCC wanted and needed to impose a “bright line rule” for banning paid prioritization.

That FCC desire for more authority is problematic when Congress never reasonably envisioned total permanent price bans in Title II -- belied by the fact that no FCC Title II precedent in decades ever concluded that Congress intended for Title II to enable the FCC to compel a service from a common carrier permanently with no cost recovery.

Circling back now, Judge Tatel also interpreted the FCC’s “virtuous circle on innovation” to include the logical existence of a two-sided market of consumers on one side and edge providers on the other. The reason the Tatel Verizon court largely vacated and remanded the FCC’s net neutrality rules to the FCC for a do-over, was that Congress did not expect information services provider to be treated like telecommunications common carriers.  

The encircling point here is Judge Tatel apparently envisioned the “virtuous circle of innovation” justification to be a complete circle, with two sides, a user side and an edge side, not a semi-circle of just edge provider innovation.

That’s problematic for the FCC’s 2015 order because it only recognizes the existence of the half circle of traffic that flows out upstream from the consumer via the broadband provider to the edge provider, while denying the existence of the half-circle of traffic that circles back downstream from the edge provider via the broadband provider to the user. Simply, how legally virtuous can a circle of innovation be, when the FCC legally argues no circle actually exists?

Could this common sense flaw in the FCC’s justification of its assertion of authority prompt the judges to wonder if the FCC is more interested in circling the wagons to protect the edge providers and it, more than the users that Congress directed the FCC to protect under Title II?

In closing, the outcome of USTelecom could hinge on whether or not the judges believe the FCC’s purpose in asserting Title II authority was based on Congress’ purpose for that authority, or if it was based on the other purposes in conflict with Congress’ limits and policy direction.

At bottom, does this panel of judges believe Congress envisioned Title II regulation of the Internet to protect the FCC’s asserted “virtuous circle of innovation,” or does it believe it is now caught in a “vicious circle” of the FCC overreaching, the court overturning, the FCC overreaching more, the court overturning, the FCC overreaching yet even more? Lather rinse repeat?

To close this circle, let’s consider who the FCC’s net neutrality rules are designed to serve under Title II.

Title II’s purpose is protecting users from unreasonable prices, terms and conditions.

If that is Title II’s purpose, how can it be reasonable under Title II or Section 706, for the FCC to throttle, block, or ban, ISP zero-rating pricing innovations that lower users’ costs of bandwidth and better fund broadband deployment?  


Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.