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US appeals court vacates FCC sanction on Comcast for broadband traffic management

April 15, 2010

The US Court of Appeals for the D.C. Circuit has ruled that the FCC, the US telecoms regulator, lacked the legal authority, in the absence of any applicable law, to censure cable operator Comcast for breaching principles in the 'internet policy statement'.

Following a disclosure order by the FCC in August 2008, Comcast admitted throttling traffic that used BitTorrent - a peer-to-peer (p2p) protocol for exchanging a range of large files from software programs to videos. The cableco responded that degrading a minority of users' BitTorrent traffic was necessary to maintain the speed and reliability of the majority of users' connections. In September 2009, Comcast appealed the regulator's ruling.

The policy statement contains four principles issued in August 2005 by the FCC, with two more added in September 2009. These form the basis for planned legislation on net neutrality. Specifically, the FCC took issue with the cable operator's violation of the principle that users should be allowed free access to online services of their choice (content access). Two further principles are also relevant in this case: that ISPs should not discriminate against particular online services or types of content or traffic (non-discrimination); and they should be clear and open about traffic management policies (transparency).

To be clear, the court ruling does not invalidate the net neutrality principles. The court confirmed its support for the preservation of a free and open internet. Comcast itself revoiced its commitment to the existing principles and to working constructively with the regulator to develop them. Rather, the decision overthrows the FCC's sanctioning without legal backing and signals the FCC needs to consider different methods to achieve its goals.

From here there are two options for the regulator to ensure it can enforce its net neutrality principles in future:

i) Push Congress to grant it specific authority to rule in net neutrality matters. The FCC may encourage ISPs to collaborate on a detailed network management agreement and publish legally-binding practices in their service terms

ii) Reclassify broadband access as a 'telecommunications' (tile II) service, subject to common carrier regulation, from an 'information' (title I) service; this would reverse the decisions made by the FCC on the status of broadband access in 2002 (for access via cablecos) and in 2005 (for access via telcos). Reclassification would enable the regulator to bring in legal requirements for broadband provision, including open access (e.g. obliging Verizon or AT&T to give 3rd party ISPs wholesale access to their next-generation networks) and pricing controls (e.g. monthly fees to 3rd party ISPs for wholesale access).

This second option risks a fierce legal backlash from telcos and cablecos, a chilling in investment in broadband networks (due to uncertainties on ROI under regulation), and a lengthy and costly process to bring in and maintain regulatory requirements. Instead, the option could serve more as a background threat in case ISPs fail to co-operate in drawing up and responding to net nautrality laws.

Supporting net neutrality is necessary to protect consumers and competition in online services. Without clear-cut legal obligations, there is a potential for ISPs, which typically also control access to pay-TV and voice services, to abuse their position as access gatekeepers in order to protect revenue from these other key business areas. The rapid growth in online video popularity, particularly of standalone services offering premium free-to-view content (Hulu, broadcasters' own outlets), combined with emerging over-the-top (OTT) video delivered directly to the living room TV, constitute the largest threat to pay-TV subscription revenue.

Forms of network management abuse could include hampering delivery of specific services, or creating toll lanes by charging service providers for guaranteed reliability and quality in delivery. One example would be Comcast hindering or imposing fees on online video services, such as CBS.com, seen as rivals to its own Fancast Xfinity service and NBC.com, following the cableco's decision to buy a majority stake in NBCU in 2009.

A lack of ISP competition in areas in the US limits some users' power to churn if they disagree with their providers' traffic shaping measures. According to the FCC, 13% of the US population has only one option for fixed broadband provider - for this segment, regulation may be necessary to protect their interests.

However, safeguarding net neutrality does not discount ISPs imposing any form of traffic shaping, which is frequently necessary to avoid overloading network capacity. Users tend to be more accepting of traffic management policies if they see clear indications in service terms of specific monthly data caps beyond which they can expect to pay per MB, or times of day at which they may see traffic slowed. They are less accepting of ISPs degrading traffic based purely on its type or the service associated with it.

More broadly, the court ruling raises questions about the legal authority of the FCC to successfully implement proposals set out in its National Broadband Plan (NBP) aimed at strengthening competition and adoption. These recommendations include the publication of ISPs' commercially sensitive information, such as actual consumer speeds and detailed retail product prices. Whether or not the regulator will need to return to Congress for legal powers to enforce these NBP proposals, should ISPs fail to co-operate, remains to be seen.

 

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Countries: USA
Companies: FCC Comcast
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