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New Rules for Internet Service and Related Matters Wind Through Courts and May Impact Arkansas

If you follow Internet news, you may have heard the words “net neutrality.” On February 26, 2015, the Federal Communications Commission (FCC) issued new rules called Open Internet Rules. While the FCC has voted on similar rules previously, the courts subsequently struck those down. The U.S. Court of Appeals for the District of Columbia upheld the latest set of rules on June 14, 2016. Although the matter will likely be appealed to the U.S. Supreme Court, it was a significant victory for the FCC and the rules merit consideration. Most media outlets, such as the New York Times, reported that this means the Internet will now be regulated like a public utility. While that is correct to some extent, the reality is more beneficial to the public. Most notably, unlike regulated utilities, broadband Internet providers’ rates will not be subject to any regulation. In this blog post, I’ll explain the new Open Internet Rules and a few other related rules that may impact Arkansans.

For Arkansas, somewhat overshadowed by the Open Internet Rules was an FCC order preempting a state’s attempt to prohibit municipal broadband. In Arkansas, only a city with a municipal electric system is able to establish a municipal broadband Internet service. (An electric cooperative is also permitted to offer broadband service, and at least two in Arkansas have published plans to do so.) Thus, under the current law, Arkansas’s largest cities—including Little Rock, Fort Smith, Fayetteville, and Springdale—are prohibited from establishing municipal broadband. In the case before the FCC, both Tennessee and North Carolina enacted laws allowing a city with a municipal electric system to provide broadband services, but limited the broadband Internet service area to the area served by the municipal electric system or to the county in which the municipal electric system is based. The FCC preempted both of the Tennessee and North Carolina laws, finding that they were barriers to increased infrastructure investment. The Arkansas prohibition on cities without a municipal electric system could easily be construed as a barrier to infrastructure investment, as well. While the FCC did not address the Arkansas issue in this order, it is possible that a city subject to this restriction might successfully appeal to the FCC to preempt Arkansas law.

Many people in Arkansas get broadband Internet service through a cable company like Comcast or Cox, but not all of those customers choose to purchase cable television subscriptions. With the availability of online streaming services, such as Hulu and Netflix, along with smart TVs and other devices that stream Internet content on your television set, people are increasingly opting to forego cable television. In order to make up for the lost revenue, cable companies used to “throttle” or slow down streaming content from Netflix and other online providers. Either the customer would become frustrated with the slow, low-quality Internet video and subscribe to cable television, or the online provider could pay the cable company to allow faster streaming of its content in a virtual “fast lane.” The same applies to companies that offer both broadband Internet and telephone service: the company could downgrade the quality of calls made using Skype or Google Voice to promote the use of its phone service.

The FCC recently put an end to these practices by implementing its Open Internet Rules. These rules accomplished three main things.

  • No blocking: Broadband providers cannot block content unless it is illegal or harmful. This part of the rule also prohibits blocking based on devices, so a cable company couldn’t provide broadband access that works on a home computer but not on a smart TV.

  • No throttling: Broadband providers are also prohibited from impairing or degrading Internet traffic based on content, services, or devices.

  • No fast lanes: A broadband provider also cannot degrade or impair ALL service and extort payments from content providers to prioritize their service and speed it back up. This rule closes a loophole that would exist with only the other two rules.

By classifying broadband Internet service as a telecommunications service, and thus a common carrier (not a public utility), the FCC changed the nature of the way broadband service is regulated. As a common carrier, a broadband provider is prohibited from unreasonably interfering or disadvantaging the ability of consumers to choose content and the ability of providers to make content available. This broad language allows the FCC the flexibility to respond to complaints on a case-by-case basis. Broadband providers have criticized the language as too vague, claiming it might subject them to penalties without sufficient notice that their conduct was unreasonable. Additionally, broadband providers are now required to disclose all limitations on an advertised rate including promotional rates, fees, surcharges, and data caps. When advertising a download speed, the broadband provider must include packet loss as a measure of network performance and provide notice of other factors that might affect the speed of the service.

While these changes are substantial, there are significant parts of the regulatory scheme that the FCC chose not to apply to broadband Internet service. The decision to refrain from applying part of the law is called “forbearance,” and it is a common practice for the FCC. Similar rules were adopted for mobile voice service in 1993. The FCC determined that 27 provisions of Title II and over 700 regulations are not relevant to broadband Internet service at this time.

In addition to the absence of any rate regulation, there are other ways in which the new designation will differ from the popular ideas about what constitutes a utility and some of the concerns that were reported prior to the publication of the final rule. Broadband Internet providers will not have to file tariffs with the FCC. The FCC also declined to enforce last-mile unbundling, a regulation that many were advocating. Last-mile unbundling would have required existing broadband providers to make their infrastructure available to new broadband providers so that the new providers do not have to run a separate line to each customer. Instead, the new rules require only that interconnection agreements be just and reasonable. The Internet Tax Freedom Act prohibits state and local taxes on broadband Internet service regardless of the classification of the service, so the Open Internet Rules will have no effect on state and local taxes. Finally, while blocking and throttling that target competitors or specific content are prohibited, broadband providers are still permitted to engage in practices aimed at “reasonable network management.” The rules specify that any such practices must have a legitimate technical or engineering purpose, and not a business or commercial purpose.

While the large broadband providers continue to object to the new rules, they are not the drastic changes that were feared. Smaller providers may benefit from the new rules governing fair interconnections, and online content providers will benefit from being treated equitably by their traditional cable television competitors. Finally, the rules bring substantial benefits for consumers, who now have the assurance of the Internet speed they purchase regardless of the content or device and greater transparency when choosing a broadband Internet plan or provider. All of these parties will be watching closely as the case makes its way to the Supreme Court.

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