Economics and Technology, Inc. -- Views and News, May 2010

May 2010

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Why Broadband Internet Access Should
be Reclassified as a Title II Telecommunications Service

In its 2005 Broadband Wireline Internet Access (BWIA) Order, the FCC, building on its earlier Cable Modem Order and the Supreme Court's Brand X decision that affirmed it, concluded that broadband Internet access service involved close integration of a telecommunications and an information service, and held that the entire integrated package should be treated as an "information service" and be entirely deregulated. The Commission reasoned at that time that it could continue to supervise the practices of Internet access providers, including their compliance with the FCC's policies regarding net neutrality, by means of its "ancillary jurisdiction" under Title I of the Communications Act. And in 2009, the FCC asserted such ancillary jurisdiction in an Order prohibiting Comcast from engaging in certain traffic management practices with respect to its Internet access customers, which the FCC determined to violate its "net neutrality" principles.

Comcast appealed, and in April 2010 the D.C. Court of Appeals ruled that the FCC, having disavowed Title II regulation of even the telecommunications component of Comcast's broadband Internet access services, could not reach the network management practices at issue via the Commission's "ancillary" regulation. Aimed primarily at restoring its legal authority to enforce net neutrality requirements, the FCC has responded to the Comcast decision by announcing plans to reclassify the telecom component of broadband Internet access as a telecommunications service, subject to regulation under Title II. In that same announcement, FCC Chairman Julius Genachowski sought to reassure the incumbent providers of broadband Internet access services (the ILECs and cable companies) that, were it to succeed in restoring its Title II authority over broadband Internet access, the FCC would limit its use of this authority to the enforcement of net neutrality policies and would forbear from reinstating other common carrier obligations.

Apparently not mollified by FCC assurances, the incumbents have criticized this proposed change as unsupportable revisionism. We not only disagree, but believe that the FCC had unreasonably diverged from a longstanding and well-supported legal and policy course when, in 2005, it first adopted the rationale for classifying BWIA as an information service.The dichotomy between "telecommunications" and "information services" contained in the 1996 Telecommunications Act (TA96) is a direct reflection of the rules adopted by the FCC its 1980 Second Computer Inquiry (CI2). Until 2002 – that is, for the first 22 of the 30 years that CI2 rules have been in place – the FCC succeeded in applying this framework to the continuously evolving telecommunications network.

Then, as the FCC looked first to avoid regulation of cable modem service and then extended its rationale "in parity" to wireline providers of broadband Internet access, the Commission decided to treat broadband Internet access as a unique instance of a service in which the transmission component and the information service component were too "integrated" to treat separately. It is, in reality, this radical departure from the time-tested principles of CI2 that has undermined the FCC’s ability to ensure non-discrimination and an open Internet and to foster competition for services requiring the use of Internet access facilities. The FCC’s current initiative would actually restore the integrity of the line between telecommunications and information services, consistent with the flexible and time-tested principles of CI2.

The Broadband Internet Access market is highly concentrated

Another criticism of the proposed reclassification is that it would saddle the Internet with policies created for regulation of archaic technology platforms. But that claim seems to be driven by a gross misunderstanding of what the "reclassification" entails: Only the telecommunications components of the Internet would become subject to Title II regulation; there is no suggestion that content or content providers fall within the scope of FCC jurisdiction. On the other hand, clear benefits arise from permitting the FCC to oversee the broadband transmission platforms used for Internet access where competition is and will remain limited. As the United States Department of Justice recently advised the FCC in comments regarding the National Broadband Plan:

We do not find it especially helpful to define some abstract notion of whether or not broadband markets are "competitive." Such a dichotomy makes little sense in the presence of large economies of scale, which preclude having many small suppliers and thus often lead to oligopolistic market structures. ...

Reclassification of the telecom component of broadband Internet access would work to protect content, content providers, and competition in the content markets from efforts by the "last mile" broadband Internet access oligopolists to leverage their considerable market power into the adjacent and (currently) highly competitive content markets.

Internet access is telecom

Finally, one critic has alleged that since "nothing has changed" since the FCC modified its legal stance with regard to broadband Internet access (in the 2002 to 2005 period), a subsequent modification of those policies (presumably even to restore the earlier framework) would be impermissible as a legal matter. But the facts have changed. In the case of the earliest retail commercial "online services" as offered by companies such as Prodigy, Compuserve, AOL and Lexis/Nexis, most, or in some cases all, of the content that the end user could access resided on the host computers of these (as the FCC had referred to them) "enhanced service providers" or "ESPs." The arrival of the Internet has totally changed this paradigm.

Precisely because the Internet gave users access to rich content and applications offered by independent providers, over time Internet access providers have become increasingly less involved with Internet content and other "enhancements," and content providers no longer bundle their content with telecommunications. Today, very little, if any, of the content accessed by end users is provided by or resides on their ILEC or cable access provider’s host platforms, and the role of Internet access providers (misleadingly renamed as "Internet Service Providers" (ISPs)) is confined mainly to creating and providing a transport path – i.e., pure telecom – between the end user and the various host websites as the end user may request. Thus, whether or not the enhanced functionalities or the level of "integration" that the FCC had ascribed to broadband Internet access services actually existed in 2002 or 2005, these conditions certainly do not exist today. The crux of the service provided by both ILEC and cable incumbents is transmission, pure and simple, and such "content" as these incumbents may offer to their access subscribers amounts to little more than a "throw-away."

A second basis for the "integration" theory underlying the FCC’s BWIA Order was that broadband Internet access service also included "Domain Name Services" (DNS) which the FCC mistakenly believed to be an "information service." DNS involves translating web addresses into IP addresses for routing over the Internet. Compounding this misunderstanding, the FCC concluded that the provision of DNS (the "information service") together with the telecom component of the Internet access service rendered the entire integrated package an "information service." But DNS is not an "information service" as the concept has evolved under the CI2 and Telecommunications Act paradigms. DNS provides a routing function that is in every material sense analogous to numerous database-supported routing arrangements that operate within the traditional public switched telephone network (PSTN) and that have never been viewed as anything other than "basic services." Examples include 800 Database Service, which performs translations of dialed toll-free numbers into physical PSTN or special access addresses; Local Number Portability (LNP), which redirects dialed calls to the appropriate terminating carrier and central office switch, and customized toll-free routing arrangements that provide dynamic routing based upon the identity or geographic location of the caller and/or traffic conditions extant at particular call centers.

In CI2, the FCC established the correct distinction between "basic" and "enhanced" services:

We find that basic service is limited to the common carrier offering of transmission capacity for the movement of information, whereas enhanced service combines basic service with computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber’s transmitted information, or provide the subscriber additional, different, or restructured information, or involve subscriber interaction with stored information.

This same fundamental distinction, renamed "telecommunications" and "information services," is maintained in TA96. Did the FCC correctly apply this distinction when it classified broadband Internet access as an "information service" back in 2005? Is the BWIA classification correct today, as the Internet and its use have evolved? As to the inclusion of certain bundled services that might qualify as "enhanced services" under the CI2 rules, the answers are Maybe and No. As to the use of DNS to route Internet traffic, the answers are clear: No and No. Broadband Internet access was then, certainly is now, and will continue to be in the future, a telecommunications service, and treatment of it as a Title II telecommunications service is clearly the correct response.

Read the rest of Views and News, May 2010.

About ETI. Founded in 1972, Economics and Technology, Inc. is a leading research and consulting firm specializing in telecommunications regulation and policy, litigation support, taxation, service procurement, and negotiation. ETI serves a wide range of telecom industry stakeholders in the US and abroad, including telecommunications carriers, attorneys and their clients, consumer advocates, state and local governments, regulatory agencies, and large corporate, institutional and government purchasers of telecom services.