Concurrent FCC rulemakings would bar redlining for Internet service

One month after proposing a rulemaking to classify Internet protocol-based advanced telecommunications as a common carrier utility subject to universal service and non-discrimination mandates, the U.S. Federal Communications Commission will take up a similar rulemaking. The FCC’s proposed rulemaking Preventing Digital Discrimination is set for a vote at its November 15 meeting. It is primarily intended to remedy disparate impact (versus intentional) discrimination by providers that affects neighborhoods based on their demographics: income level, race, ethnicity, color, religion and national origin.

According to the FCC, the rulemaking implements section 60506 of the Infrastructure Investment and Jobs Act of 2021. It states federal policy that “insofar as technically and economically feasible— subscribers should benefit from equal access to broadband internet access service within the service area of a provider of such service.” Section 60506 defines equal access as “the equal opportunity to subscribe to an offered service that provides comparable speeds, capacities, latency, and other quality of service metrics in a given area, for comparable terms and conditions.”

Since IP telecom is currently classified as lightly regulated optional information service under Title I of the Communications Act, providers are free to deploy delivery infrastructure wherever they wish and at rates of their choosing. They naturally prefer denser, higher income neighborhoods that will produce faster return on capital investment (ROI) and where households are less price sensitive and more inclined to subscribe to higher priced services, thereby maximizing average revenue per unit (ARPU).

The proposed rulemaking gives providers an out by allowing them to defend deployment and pricing decisions based on technical and economic feasibility. They could conceivably argue that they must be more conservative in building infrastructure in lower income neighborhoods and charge more for comparable services than those offered in higher income communities in order to feasibly meet their ROI and ARPU targets. The higher rates in turn would be out of reach of some lower income households, making them less likely to sign up for services and perpetuating an unvirtuous cycle. Similarly, they could argue middle mile infrastructure isn’t adequate to serve a given community, thus making delivery infrastructure deployment technically unfeasible. It's entirely logical to segment markets and pricing in a market-based scheme under Title I regulation. Disparate market impact will be a natural outcome. Additionally, providers choosing to build fiber in higher income areas but not in lower income areas could be seen as intentional discrimination based on income, i.e. disparate treatment.

The proposed rulemaking apparently contemplates a comparison of deployment activity to help regulators establish a pattern of market conduct demonstrating discrimination. That assessment would be based on a mandate on providers annually report on their deployment activities:

We propose that each annual report must address the following components to provide a
comprehensive picture of each major deployment, maintenance, and upgrade project completed or substantially completed for each state and territory within its service area or footprint: (1) the nature of each project completed or substantially completed in the calendar year immediately preceding the submission of the report (i.e., deployment, upgrade, maintenance, or a combination thereof); (2) the number of housing units affected by the project (i.e., the number of housing units whose broadband availability or quality is positively impacted by the project) by census tract (utilizing the system presently used in the BDC); and (3) a narrative description of the project and of the areas served by the project, to allow for greater precision and clarity regarding what the project is designed to accomplish and what communities are served by the project. 

While the language of the proposed rulemaking includes providers’ more proscriptive term to describe where they have built infrastructure and offer advanced telecommunications services , i.e. “footprint,” should the FCC reclassify Internet protocol telecommunications as a utility under Title II of the Communications Act as proposed in a separate notice of proposed rulemaking issued September 28, 2023, Safeguarding and Securing the Open Internet, 47 U.S.C. 214(e)(5) affords state public utility commissions and the FCC authority to develop their own geographic parameters for the purpose of Title II’s universal service mandate requiring providers to offer service to all serviceable addresses within the service area:

(5) “Service area” defined

The term “service area” means a geographic area established by a State commission (or the Commission under paragraph (6)) for the purpose of determining universal service obligations and support mechanisms. In the case of an area served by a rural telephone company, “service area” means such company’s “study area” unless and until the Commission and the States, after taking into account recommendations of a Federal-State Joint Board instituted under section 410(c) of this title, establish a different definition of service area for such company.

Similar to the FCC’s Preventing Digital Discrimination rulemaking, reclassification of IP services under Title II would give regulators additional statutory authority to sanction discriminatory conduct under 47 U.S.C. 202, titled Discrimination and Preferences. While FCC is forbearing rate regulation in the proposed Title II reclassification rulemaking, this provision makes it unlawful for common carriers engage in “unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.” The statute allows for fines of $6,000 for each violation and $300 daily penalties for ongoing violations.

Amid fading federalism in U.S. telecommunications policy, states on deck to regulate

For Plain Old Telephone Service (POTS), federalism underpins a scheme of shared regulatory oversight between the federal government (the Federal Communications Commission specifically) and state public utility commissions. It operates under the framework of Title II of the Communications Act of 1934 that regards telecommunications networks as a natural monopoly. Accordingly, voice telephone service is regulated as a common carrier utility to ensure it is accessible (universal service) and affordable (rate regulation by state PUCs) given the absence of market forces and buy side market power to assure that it is.

This federalist regulatory scheme does not exist for advanced, internet protocol (IP) telecommunications. Since 2018, federal policy promulgated by FCC administrative law regards it as a lightly regulated information service under Title I of the Communications Act similar to dialup services like CompuServe and America Online that were widely used in the early 1990s. Congress has not weighed in on the matter of how IP telecom is to be regulated since the 1996 Telecommunications Act, which similarly adopted a light touch, wait and see stance. Recent court rulings have cleared the path for states to move forward.

In the absence of regulatory federalism for IP-based telecommunications, one leader state is considering legislation that would regard IP telecommunications as a common carrier utility. AB 1714 would amend California’s Public Utility Act to include “broadband service” offered by a corporation (defined in the statute as including a corporation, company, an association, and a joint stock association) within the definition of a public utility. “Broadband Internet access service is defined at California Civil Code Section 3100(b) as “a mass-market retail service by wire or radio provided to customers in California that provides the capability to transmit data to, and receive data from, all or substantially all Internet endpoints, including, but not limited to, any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.”

“Just as the infrastructure of water and electricity grew at the end of the 19th century and led to the creation of regulation to make sure that these technologies were available to everyone, the internet has grown to a point that demands it be regulated as a public utility subject to the same regulatory process to make sure that everyone has access to this technology, moving us closer to digital equity,” said the bill’s author, Assemblymember Jim Wood in a news release. 

The proposed legislation comes as AT&T California petitioned the California Public Utilities Commission to relieve it of its POTS universal service obligations as carrier of last resort in parts of the state where there are alternatives such as VOIP (Voice Over Internet Protocol) or mobile wireless.

ISPs want to be hotels because luxury accomodations aren't meant for the masses

Net neutrality activists, state officials are taking the FCC to court. Here's how they'll argue the case. | National and International | napavalleyregister.com: But tech companies and consumer groups told the court Monday that third-party services routinely carry out those same functions, and that ISPs cannot lay claim to lighter regulation just because a portion of their business is involved in performing them. "The FCC could not have reasonably concluded that a drop of DNS and caching in a sea of transmission transformed the service into something that could properly be called an information service," the brief said. The overall impression, the group said, is that of trying to deregulate all roads that lead to hotels by simply reclassifying the roads themselves as hotels.

Hotels are often seen as luxury accommodations compared to say Motel 6. The analogy here fits nicely with the legacy incumbent telephone and cable company opposition to being regulated as a common carrier telecommunication utility -- and thus barred under the now repealed FCC Title II rulemaking from redlining and discriminating against neighborhoods they choose not to serve.

San Antonio’s size proving to be a challenge for Google Fiber - San Antonio Business Journal

San Antonio’s size proving to be a challenge for Google Fiber - San Antonio Business Journal: One of the challenges for Google is developing the infrastructure needed to support a new fiber-optic network, including a system of equipment shelters. That process is complicated because of land mass and topography.

But Google officials insist that the company continues to work with San Antonio officials and expects to have a progress report on the Alamo City’s expansion status before the end of the year.

Reading between the lines, it appears Google Fiber is facing the classic demand muni officials have made of cable providers in franchise negotiations, i.e. that the providers serve all addresses and not just some per Google Fiber's walled garden "fiberhood" infrastructure deployment strategy.

As Google Fiber looks to expand, it will likely increasingly confront this demand and choose to walk away, especially if state public utility commissions back up local governments by enforcing the U.S. Federal Communications Commission's recently adopted rules designating Internet services as common carrier utilities subject to a universal service mandate. That factor along with its limited financial resources to build costly telecommunications infrastructure will significantly limit Google Fiber's U.S. expansion under its current "own the customer" business model.

FCC adopts Internet universal service obligation

Finding the United States needs improved Internet access, the U.S. Federal Communications Commission today released a report and order classifying Internet service as a common carrier telecommunications service under Title II of the Communications Act. That subjects Internet service providers (ISPs) to the same common carrier universal service obligations under which telephone companies operate, requiring them to provide connections to all customers requesting service in their service territories. Harold Feld of Public Knowledge recently termed universal service “the quintessential common-carrier obligation.”

Under prior FCC rules, Internet service was classified as an information service under Title I of the Act, relieving ISPs of the obligation to provide Internet service to any premise requesting it. Consequently, for more than a decade ISPs have effectively redlined communities, neighborhoods and even portions of roads and streets by not building out their infrastructures to serve them.

The FCC's reclassification of Internet as a Title II telecommunications service invokes Section 201(a) of the Communications Act:

"It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor..."

The FCC's order and rulemaking also applies Section 254(b)(3) of the Communications Act that requires ISPs to provide access to advanced telecommunications in all regions of the nation:

(3) Access in rural and high cost areas

Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.

The report and order also applies Section 214(e)(3) of the Communications Act, which empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof."

In addition, within the scope of the FCC's action is Section 202 of the Act, which contains an anti-redlining provision barring providers from discriminating against localities in providing service. The report and order notes complaints of violations will be addressed on a case-by-case basis.

In applying most of Section 254 of the Act to ISPs, the FCC noted it rejected calls to delay or phase in its enforcement:

“Even prior to the classification of broadband Internet access service adopted here, the Commission already supported broadband services to schools, libraries, and health care providers and supported broadband-capable networks in high-cost areas. Broadband Internet access service was, and is, a key focus of those universal service policies, and classification today simply provides another statutory justification in support of these policies going forward. Under our broader section 10(a)(3) public interest analysis, the historical focus of our universal service policies on advancing end-users’ access to broadband Internet access service persuades us to give much less weight to arguments that we should proceed incrementally in this context… We therefore conclude that these universal service policy-making provisions of section 254, and the interrelated requirements of section 214(e), give us greater flexibility in pursuing those policies, and outweighs any limited incremental effects (if any) on broadband providers in this context. Because forbearance would not be in the public interest under section 10(a)(3), we apply these provisions of section 254 and 214(e) and our implementing rules with respect to broadband Internet access service.”

For consumers, Title II common carrier universal service obligation far more important than net neutrality

U.S. Federal Communications Commission Chairman Tom Wheeler’s trial balloon proposing to place monopolistic Internet service providers under Title II of the Communications Act and subjecting them to common carrier utility regulation has generated considerable discussion and media coverage of net neutrality – the principle that all Internet traffic be handled equally by Internet Service Providers (ISPs). The net neutrality issue applies at the deeper layers of the Internet affecting business relationships between core content providers like Netflix and Yahoo and so-called “transport layer” players like Level 3 Communications, Verizon and AT&T. Wheeler proposes that Title II regulation would enable the FCC to place rules on these arrangements to ensure they are “just and reasonable” and prohibit blocking, throttling and paid prioritization.

All the discussion over net neutrality however has overshadowed a far more important element of Title II that would apply to common telecommunications carriers -- which ISPs would be deemed if the FCC ultimately adopts rules later this month placing ISPs under Title II. ISPs would no longer be able to serve only parts of communities and even portions of roads and streets, a problem the FCC recognizes leaves millions of Americans unserved by wireline Internet connections in a report issued last month. Like telephone providers currently subject to universal service mandates under Title II regulation, any premise would be able to order Internet service meeting specified standards. ISPs aren’t going to like the disruption that brings to their business models based on market segmentation and redlining less densely populated – and desirable -- neighborhoods. Even municipally-operated ISPs don’t relish the prospect, filing a letter this week with the FCC opposing a potential Title II rulemaking:

“[W]e fear that Title II regulation will undermine the business model that supports our network, raises our costs and hinders our ability to further deploy broadband…Our ability to repay current debt obligations and raise capital at attractive rates could well be adversely affected if we lose control over our retail rates or the use of and access to our networks.”

Some believe the universal service requirement will be applied only relative to eligibility for federal infrastructure subsidies for high cost areas offered through the FCC’s Connect America Fund (CAF). If that ends up being the case in whatever rules the FCC ultimately adopts, it won’t likely move the needle much to speed up infrastructure deployment to these areas since there is little business incentive for ISPs to tap into the grossly underfunded CAF as they concentrate on select wireline market segments and mobile wireless services.

Common carrier utility regulation appears a near certainty in 2015

Legacy incumbent telephone and cable companies have threated to sue the U.S. Federal Communications Commission if as expected the FCC follows President Barack Obama’s call to classify Internet services as a common carrier utility under Title II of the Communications Act. The incumbents hope the specter of prolonged litigation and uncertainty will give the FCC pause before it acts next month.

The problem for the incumbents however is even if they make good on the threat, it may not buy them the degree of uncertainty and delay they would like. Any litigation arising from the expected regulatory action by the FCC would likely be disposed of in relatively short order. The courts operate under a doctrine of judicial deference to how regulators interpret and apply statutory law such as the Communications Act. They are loath to put themselves in the place of regulators and second guess administrative rulemaking, reasoning the regulators and not the courts hold the requisite expertise when it comes to figuring out how to apply the finer points of statutory law. 

Possibly realizing this, the incumbents’ lobbying corps is implementing a backup strategy in Congress to amend the Communications Act to carve out Internet service on the grounds that it doesn’t function as a market monopoly – the underlying rationale for classifying it as a common carrier utility like telephone service. Demerits of that legislative rationale aside, that nascent effort also isn’t likely to be productive since even if passed it would face a likely presidential veto.

The outlook for 2015 is common carrier utility regulation of the Internet is coming and isn’t likely to be derailed.

Back to the future: How Title II litigation could spark antitrust actions against AT&T and Verizon

In 1984, AT&T was split into seven regional companies under a consent decree to settle a 1974 antitrust lawsuit brought by the U.S. federal government, United States v. AT&T, aimed at busting Ma Bell’s monopoly over local and long distance telephone service. Three decades later, AT&T has through a series of mergers and acquisitions reassembled itself into a telecommunications behemoth, rivaled in size only by Verizon, which was formed out of NYNEX and Bell Atlantic, two of the AT&T regional operating companies.

Now as the U.S. Federal Communications Commission considers classifying Internet-based telecommunications as a common carrier utility service under Title II of the Communications Act, the stage is being set for another potential massive antitrust court case.

Here’s how it might play out. Both AT&T and Verizon vow they will litigate to block the FCC if it opts to put in place common carrier regulation as recently urged by President Barack Obama. If that happens, it could spark complaints to Obama’s Justice Department from core content providers like Netflix and transport layer providers like Level 3 Communications that the monopolies that AT&T and Verizon enjoy over residential Internet service in their respective service territories violate the Sherman Antitrust Act and restrain interstate commerce. The Justice Department could then opt to initiate antitrust lawsuits as logical counter actions to the telcos' lawsuits against the FCC.

In the antitrust actions, the complainants could conceivably point to disputes with the two big telcos over interconnection arrangements and allege the telcos are engaging in anti-competitive behavior by deliberately degrading services delivered to their end user consumers while wholly denying other consumers services by redlining landline-delivered Internet services in selected neighborhoods and streets. They could demand the courts order the FCC to require the telcos to open their last mile networks to competitors pursuant to the 1996 amendment of the Communications Act. Or sell them off to smaller regional providers or local governments or telecom cooperatives.