Net Neutrality Rules ‘in Big Legal Trouble,’ McDowell Says

The FCC’s proposed net neutrality rules are “in big legal trouble” in the wake of the recent decision by the U.S. Court of Appeals for the D.C. Circuit in Comcast v. FCC, Commissioner Robert McDowell told reporters Friday. “The concept of a new regulatory regime is in real trouble.” McDowell is skeptical the commission should get more involved in the retransmission consent process, thinks TV spectrum reallocation won’t be held up by Comcast and hopes the regulator deals with an indecency complaint backlog, he said.

McDowell said any FCC order making broadband a Title II service faces being overturned on appeal. A regulatory agency “can change its mind, but only if that change of mind is supported by a change of fact or a change in law,” he said. “If we say broadband services, for the first time, are now just like common carriage voice services, but at the same time they are very different from them, therefore we are going to forbear … whatever the proposal might be, that to an appellate court I think is going to start to smell like arbitrary and capricious behavior."

Most of the questions to McDowell focused on Comcast, net neutrality and the National Broadband Plan. McDowell said he hasn’t counseled Chairman Julius Genachowski to pull the net neutrality rulemaking in light of that ruling. “It’s completely the chairman’s prerogative to tee things up for an agenda and I don’t tell him what to post or what to pull,” he said. “It’s his job.”

McDowell repeated past comments that the FCC need not impose net neutrality rules, but can take other steps to accomplish the same goals of an open Internet. Replies on the net neutrality notice are due next week. “I've been calling for a couple of years now for a different way to go because I have been concerned all along about our legal authority here,” he said: “Can the FCC work with already established non-governmental groups to help spotlight allegations of anti-competitive conduct and allow the Internet to continue to be governed in the way it has been successfully governed since its inception?"

McDowell said the FCC’s vote last week on a rulemaking on data roaming was a “compromise,” since some at the commission wanted to go directly to an order. The Comcast decision led him to believe the FCC had to seek comment before issuing rules, he said. “I have been calling for quite some time … for discussion of what people’s legal theories are regarding what authority, if any, we have after the Comcast decision of a couple of weeks ago to mandate data roaming.” Language was inserted “late in the game” seeking comment on FCC authority in light of Comcast, he said. The notice as circulated by Genachowski contained language “saying that we believe, several times over, without any recognition of the Comcast case, we believe we have authority,” McDowell said.

Whether the FCC can address changes called for in the broadband plan depends on the area in question, McDowell said. “The broadband plan flags net neutrality, for instance, I think there are big problems there,” he said. “But if you look at the appellate history we can do things provided it is really correctly and clearly tied to statutory authority” the FCC has, he said. “Bringing more spectrum to market and reforming universal service are the two biggest pillars of the broadband plan. Those I do not believe are affected by the Comcast decision.”

McDowell said Genachowski should be applauded for making USF reform a “top drawer priority.” Two years ago, the FCC had some consensus but a move to make changes to the USF died in the last days of Kevin Martin’s chairmanship, he noted. The leadership is different now and “we're still on the front end of the chairmanship,” McDowell said. “Where it’s going to end up I don’t know.”

Taking on USF and intercarrier compensation are “a bit like fixing a watch,” he said. “You open up the back cover of the watch and see lots of moving parts. You tinker with one moving part and it affects all the other moving parts. It’s very complicated and takes a long time.” The agency needs to start with a recognition that “carriers should be justly compensated for traffic that’s on their networks,” he said. “But let’s also try to make sure that’s just and not unjust compensation."

The FCC also need not address classification issues before reallocating spectrum from TV stations for wireless broadband and other uses, McDowell said: “I don’t think we need to worry.” Whatever approach the FCC uses to try to get broadcasters to put up some spectrum for auction, “we really need to focus on voluntary, and voluntary should be voluntary, and not coercive,” he said. “I'm optimistic that we may be pleasantly surprised by making some proposals and working in a constructive manner with broadcasters to see what we can do -- whether it’s repacking, or whatever the case might be” to “see what that yields."

McDowell said it’s unclear whether the network management techniques Comcast was censured for would run afoul of FCC rules given the D.C. court’s rejection of the order. “As a matter of law, we don’t know what Comcast did,” he said. “I think there are laws on the books right now that help to prevent anti-competitive conduct.”

The FCC might do well to avoid increasing its involvement in deals between TV stations and subscription-video providers, McDowell said. DirecTV, Time Warner Cable and Verizon are among the pay-TV providers and public interest groups that asked the commission to require arbitration of contract disputes. “The statute is actually very clear: We are limited to looking at good faith versus bad faith behavior, and the statue says that merely asking for more money by either party … does not constitute bad faith,” McDowell said. “Maybe 99 percent of all retrans agreements are signed without incident. So we want to continue to encourage parties to come to an agreement of their own. And I do have concerns should the commission set up a regime for arbitration here at the commission, that may not survive on appeal."

"Getting it right” on the media ownership review is more important than finishing quickly, and the work would have been completed sooner if the FCC hadn’t sought a stay of an appeal of the previous quadrennial review, McDowell said. With the stay lifted by the 3rd U.S. Circuit Court of Appeals in Philadelphia, “I would like to see guidance from the court” before proceeding, he said. “As a general matter, I think the record will probably reflect that the media landscape is more competitive, there are more outlets, there are more voices” for the 2010 review, he said. “Journalism is in a period of adolescence. It’s going through a lot of growing pains, and we are seeing a period of [some] destruction in journalism itself.” He said he hopes anything that the commission does reflects “that market reality.” Genachowski still hopes to finish the review this year (CD April 22 p15).

McDowell said he hopes that a backlog of indecency complaints gets reduced. “This is a matter of good government, if nothing else,” he said. McDowell hopes to speak soon with “relevant” bureau chiefs about the problem, he said. The Office of General Counsel and other staffers were reviewing how to proceed in light of a Supreme Court decision upholding the FCC’s authority to find a single expletive uttered on a broadcast to be indecent, commission officials have said.

McDowell opened the news conference saying he wanted to dispel the “myth” that broadband had ever fallen under Title II. Rather than “reclassification,” the commission is looking at whether to classify broadband under Title II for the first time, he said. “The 1996 Act did not say that information shall be classified as Title II,” McDowell said. “You have to go back to the Computer Inquiry, which really started in the 1970s, into the 80s. Enhanced services as they were called back then were treated differently. They became information services and Internet services fall under that and broadband of course follows out of that.”

An April 1998 report to Congress on universal service issues released under then Chairman William Kennard, a Democrat, “was very explicit” that “Internet services were not regulated as telecom services,” McDowell said. “It goes on to say it could be harmful to treat them as telecom services.” Cable services in general have been classified under Title VI and wireless under Title III of the Communications Act, but never Title II. The only confusion comes with DSL, McDowell said. “The service has never been regulated under Title II,” he said. “The facility, the copper loop, of course, was … but the actual service riding on top of that never was.”