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Digital Business Lawyer
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Changes at the US FCC and what they mean for the internet

A new Chairman - Ajit Pai - has taken the helm at the US Federal Communications Commission (‘FCC’). Chairman Pai has already made news for his actions in initiating deregulatory measures targeting the internet, including in regards to net neutrality and ISP data security. Francisco R. Montero and Keenan P. Adamchak of Fletcher, Heald & Hildreth, PLC, assess the FCC's change in direction under Pai's leadership.

Pai was first appointed to the FCC by President Obama. While a conservative, as FCC Chairman, Pai’s main goals affecting the internet are closing the digital divide and increasing broadband deployment - while removing regulatory roadblocks hindering entrepreneurship and economic growth.

Following Clinton’s loss in the 2016 Presidential election, then-FCC Chairman Wheeler announced that he would be stepping down upon Trump’s Presidential inauguration. When Democratic Commissioner Jessica Rosenworcel’s term expired, and President Trump withdrew her re-nomination, the FCC was left with only three commissioners: Republicans Pai and Michael O’Rielly, and Democrat Mignon Clyburn. Upon becoming President, Trump named Pai the new FCC Chairman. Accordingly, Pai now enjoys a 2-1 Republican majority at the FCC, and with it he has already initiated sweeping deregulatory initiatives impacting the internet.

Net neutrality

Wheeler’s landmark regulation was the 2015 reclassification of internet service providers (‘ISPs’) as common carriers under Title II of the Communications Act 1934 to enact a regulatory scheme commonly known as ‘net neutrality.’ This regulatory framework subjects fixed, mobile, and wireless broadband providers to a variety of regulations prohibiting access and content discrimination while bolstering competition and free enterprise. Reclassifying ISPs as common carriers, however, was extremely controversial. In 2010, former Democratic FCC Chairman Genachowski implemented net neutrality regulations for ISPs pursuant to Section 706 of the Act’s less stringent ancillary authority. The Genachowski FCC did so despite the fact that the FCC had previously classified internet services as ‘information services’ - a category subject to looser regulatory requirements than common carriers. In 2014, however, the U.S. Court of Appeals for the District of Columbia held that Section 706 did not provide the FCC with the requisite authority to impose common carrier-like regulations on ISPs because internet services were classified as information services.

Nevertheless, Wheeler was initially reluctant to reclassify ISPs as common carriers under Title II of the Communications Act. It was only after the Obama White House’s apparent intervention that Wheeler regulated ISPs as common carriers through the 2015 Net Neutrality Order. In response, the Republican minority of Pai and O’Rielly criticised the Net Neutrality Order, suggesting it was a common carrier-style regulation masquerading in Title II-lite clothing.

Now, Pai clearly has his sights on rescinding Wheeler’s ISP reclassification, and has wasted no time. At the FCC meeting on 3 February 2017, Pai set aside and rescinded an earlier order regarding ‘zero-rated’ content (i.e., content, applications, and services that end users can access without data consumption counted toward their operator’s usage allowances or data caps). Under Wheeler, the FCC investigated whether these practices violated the 2015 Net Neutrality Order. As a result of Pai’s decision, however, the FCC has ended oversight and investigations of ISP zero-rating practices for the foreseeable future.

Then on 23 February, the Pai FCC exempted small broadband internet access service (‘BIAS’) providers from the Net Neutrality Order’s enhanced reporting requirements for a period of five years from 17 January 2017. The FCC asserted that the exemption gave small BIAS providers the regulatory certainty necessary for broadband investment, while enabling the FCC to review the costs and benefits of enhanced reporting requirements.

While Pai asserts support for a “free and open internet,” he opposes regulating ISPs as Title II carriers, and will revisit the net neutrality proceeding “as soon as possible.” However, given the politically-charged nature of net neutrality, Pai has to be careful. He has already been accused, somewhat unjustifiably, of intending to roll back net neutrality. But this may be more political posturing than anything else. Instead, Pai sees net neutrality’s reliance upon Title II as a regulatory roadblock to economic growth, entrepreneurship, and extending “the benefits of the digital age to all Americans.” Nevertheless, it remains to be seen how Pai will declassify ISPs as common carriers while assuring critics that a free and open internet will be preserved.

ISP data security regulation

The 2016 Privacy Order of the Wheeler FCC subjected ISPs to additional privacy standards than those promulgated by the US Federal Trade Commission (‘FTC’). Beginning on 2 March 2017, the 2016 Privacy Order would have required BIAS providers and telecommunications carriers to reasonably protect customer proprietary information from unauthorised use, disclosure, and access. On 1 March, however, the Pai FCC granted a temporary stay of the 2016 Privacy Order, allowing the FCC to act on pending petitions for reconsideration of the Order, and to enable the FCC and the FTC to create a comprehensive framework for protecting online privacy. However, the FCC noted that during the stay, ISPs must comply with other applicable federal and state privacy laws and regulations.

On 23 and 28 March, Republicans in the US Senate and House of Representatives, respectively, approved a resolution to undo most of the FCC’s privacy regulations for ISPs, and further prohibited the FCC from adopting privacy rules in the future. If the resolution is signed into law by President Trump, only the FTC’s less stringent privacy regime would be left to govern the ISPs - in line with Pai’s belief that internet privacy regulation should be consolidated within the FTC.

Broadband deployment

Pai clearly wants to emphasise broadband, which he sees as a tool for spurring economic growth and improving Americans’ access to the internet. Pai’s Democratic predecessors also placed a major emphasis on the deployment of wired and wireless broadband. However, Pai does not want to be seen as taking the country backward technologically while deregulating many aspects of internet services. Pai has begun to implement initiatives spurring broadband deployment. On 31 January, the FCC announced the formation of the Broadband Development Advisory Committee to provide advice and recommendations to the FCC on broadband deployment by “reducing and/or removing regulatory barriers to infrastructure investment,” and providing model deployment regulations for state and local governments. The Committee will operate for a period of at least two years beginning sometime this spring.

Furthermore, in a recent blog post following a tour of rural middle-America, Pai demonstrated his commitment to expanding broadband deployment. Pai explained that “the challenge of broadband deployment isn’t limited to urban areas.” Instead, Pai supports expanding rural broadband deployment as evidenced by his support for the FCC’s recent commitment of $170 million to improving broadband deployment in Upstate New York. Pai’s proposed ‘Gigabit Opportunity Zones’ initiative aims at spurring high-speed broadband deployment by removing regulatory roadblocks and providing tax incentives. It is no coincidence that Pai’s focus on middle-American rural broadband deployment tracks his own Midwestern roots as well as the geographic core of the Trump conservative constituency. In Pai’s own blog post titled On the Road in the Industrial Midwest, he writes, “We must bring the benefits of the digital age to all Americans, not just those living on the coasts.”

Lifeline broadband

In Pai’s first remarks as Chairman, he stressed that one of his top priorities was to close the “digital divide” between “those that can use cutting-edge communications services and those who do not.” On 3 February, however, the FCC revoked the recently granted Lifeline Broadband Provider (‘LBP’) designations of nine carriers. LBP designations would have permitted these carriers to provide Lifeline Broadband services to low-income consumers. As a result, the nine carriers have been reverted to LBP designation petitioners, and were removed from streamlined treatment.

Many commentators have criticised the decision as contradictory to Pai’s stated commitment to close the digital divide between rich and poor. In a recent blog post, Pai took great lengths to defend the decision on several grounds, including that: (1) the vast majority of LBPs and customers were unaffected by the order; (2) the Wheeler FCC disregarded procedural norms in issuing the decision; (3) strong safeguards against waste, fraud, and abuse in the Lifeline programme must be established before issuing new LBP designations; and (4) it is questionable whether the FCC has any authority to designate LBPs in the first place.

It remains to be seen whether Pai will take concrete action to promote his announced goal that low-income consumers be assured sufficient access to reasonably priced broadband services through the Lifeline programme. Given his concern with the potential budgetary excesses of that programme, however, Pai may prefer broadband deployment as a preferable regulatory tool in achieving the same goals as Lifeline - ensuring that all Americans have access to high-speed internet.

Conclusion

Pai seems eager to put his own deregulatory imprint on the internet landscape, while seeking to increase broadband deployment. However, he likely will seek to do so by limiting the FCC’s regulatory tools. Given the difficulty that his Democratic predecessor ran into as a result of the Communications Act’s limitations and anachronistic language, it remains to be seen what Pai - even with a Republican majority - can accomplish without a congressional overhaul of the Communications Act.

Francisco R. Montero Managing Member

montero@fhhlaw.com

Keenan P. Adamchak Associate Attorney

Fletcher, Heald & Hildreth, PLC, Virginia

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