US Net Neutrality Overturned: the recent Court of Appeals decision and what it means for Australia

The United States Court of Appeals for the District of Colombia Circuit (“Court of Appeals”) ruled on Tuesday 14 January 2013 that the US Federal Communications Commission (“FCC”) rules on net neutrality are invalid.  The decision has again stirred the debate as to whether Australia should regulate for net neutrality.

Net neutrality

Net neutrality is the term commonly given to the idea that internet providers should treat all internet traffic in the same way and not block or favour some.

The principle of net neutrality requires that internet providers not:

• block access to particular sites, content or services (eg those of their competitors);
• shape (or slow) particular internet traffic (eg peer-to-peer or BitTorrent traffic);
• charge more for particular internet traffic; or
• prioritise some internet traffic over other traffic (eg a company might pay an internet provider to deliver their content to users faster than content from their competitors).

The idea is to ensure fair competition between internet providers and between content providers, and to ensure that users have similar access to all lawful content on the internet.

The FCC Rules

Following a decision in 2010,[1] in which the Court of Appeals held that the FCC lacked statutory authority to support the enforcement of its net neutrality policy, the FCC issued the Open Internet Order.[2]

The Open Internet Order provides three net neutrality rules:

1. (Transparency) broadband internet providers must publicly disclose information about their network management practices, performance and commercial terms, sufficient for consumers to make informed choices;
2. (No blocking) broadband internet providers must not block lawful content, applications, services or non-harmful devices; and
3. (No unreasonable discrimination) broadband internet providers must not unreasonably discriminate in transmitting lawful network traffic.

In making the Order, the FCC relied on a very broad interpretation of their statutory power.  The FCC primarily relied upon its power to enact measures encouraging the development of broadband infrastructure.[3]

The decision

Ultimately, the whole court decided that the two central provisions of the Open Internet Order, the “no blocking” and “no unreasonable discrimination”, were invalid.

The majority (Circuit Judges Rogers and Tatel) accepted the FCC’s broad interpretation of their statutory power, holding that the FCC is empowered to “promulgate rules governing broadband providers’ treatment of internet traffic”, as such rules “preserve and facilitate the … innovation that has driven the explosive growth of the internet”.

However, the majority held that the two rules contravene an express statutory restriction which only allows the FCC to regulate providers as “common carriers” to the extent that they provide “telecommunications services”.  The Court found that both the “no blocking” rule and the “no unreasonable discrimination” rule amount to regulation of providers as “common carriers”.  The problem for the FCC is that it previously made the determination that broadband providers are providers of “information services” not “telecommunications services”.[4]

Senior Circuit Judge Silberman rejected the majority’s view that the FCC has such broad statutory power as to “regulate the Internet” and found that the Open Internet Order falls outside the scope of the FCC’s powers.

What now?

Commentators on both sides of the net neutrality debate are unhappy with the decision.  Those who support net neutrality are obviously unhappy that central provisions of the Open Internet Order are invalid; while many of those who oppose it are unhappy with the broad power the majority found that the FCC has.

The FCC has since stated that it is looking into whether or not it will appeal the decision and that it remains committed to an open internet.[5]

Given the majority’s finding that the FCC indeed has the power to make such regulation, instead of an appeal, we may soon see the FCC propose new rules that avoid the problem identified in this case, by re-classifying broadband providers as providers of “telecommunications services”, a decision that is itself likely to be subject to legal challenge.

Net neutrality in Australia

Net neutrality is much more of a hot topic in the US than it is in Australia for several reasons:

• unlike in the US, customers in Australia pay for a particular usage allowance, which reduces the incentive for internet providers to seek to restrict usage;
• competition in the internet provider market is much healthier than in the US, with the vast majority of Australian customers having a choice between two or more internet providers;
• Australia has telecommunications specific competition laws that prohibit any abuse of market power that substantially lessens competition (a key arguments for net neutrality regulation); and
• Australia also has a general prohibition on misleading and deceptive conduct (which may indirectly require internet providers to publicly disclose network management practices where to not do so would be misleading to consumers).

The decision does not directly impact Australia as we do not have any laws specifically regulating net neutrality, but it does re-ignite the debate as to whether or not we should.  In Australia it is common for internet providers to exclude certain content from counting towards a customer’s usage allowance.[6]  Such offerings may benefit consumers.  Some internet providers reportedly shape certain peer-to-peer traffic like BitTorrent traffic.[7]  This might dissuade some customers, but helps to reduce the cost of services for others.

Such practices may promote rather than hinder competition in the Australian internet provider market.  Users can change to a service which allows unlimited access to content they like and that does not shape or restrict certain internet traffic.

In a post-NBN Australia, so long as internet providers adequately provision their networks, differentiating between internet providers will become increasingly difficult.  Perhaps non-net-neutral offerings will form the basis of competition in the internet provider market.

The decision (Federal Communications Commission v Independent Telephone & Telecommunications Alliance (DC Cir, 11-1355, 14 January 2014)) can be read in full here.