On April 6, 2010, the DC Federal Court of Appeals issued an important decision in a case involving Comcast and the FCC, which could have profound impacts on the FCC’s broadband proposals and future rules concerning the deployment of Internet services. The case arose from a decision by Comcast to choke down service by a peer to peer content provider that Comcast thought was using a disproportionate amount of bandwidth that resulted in network congestion. Ultimately, the FCC ruled that Comcast has acted inappropriately and that it could not discriminate among Internet users. To a large degree, the FCC’s decision was based on traditional rules of discrimination related to regulated carriers. The unanimous decision by the three judge panel of the DC Circuit Court essentially reverses the FCC and holds that the FCC acted beyond the scope of its authority. Although the court acknowledged that the FCC has wide latitude to keep pace with rapidly evolving technology, it ruled that such wide latitude is “not the equivalent of untrammeled freedom to regulate activities over which the statute fails to… give Commission authority.”

Although further legislative or judicial action is possible, the decision, at least at this point, establishes some further guidelines over the long debated issue of “net neutrality,” which has been the subject of considerable controversy between content providers and providers of the Internet pipelines. On the one hand, content providers have argued that treatment of Internet customers should be neutral and pricing distinctions based on usage should be discouraged. Internet providers, on the other hand, argue that prices should be reflective of costs and that limiting pricing flexibility in the emerging Internet market will discourage innovation and investment. For Coalition member companies, the Comcast decision may be welcomed news since it will permit additional pricing flexibility for Internet services.

However, to some degree, the decision could paint a good news and bad news scenario for rural telephone companies. Just recently, the FCC announced its ten year plan that, in part, established high-speed Internet as the primary communications vehicle for the United States. Part of that proposal involved reform of the Universal Service Fund (USF), to make resources for that fund available for Internet service support as well as telephone support. The USF of approximately $8 billion annually is financed by surcharges on the telephone bills of telephone consumers. If, as the DC Circuit Court has ruled, the FCC’s authority to regulated Internet services is limited, it calls into question whether the FCC has the authority to implement the ambitious plans that it has announced..

When the Telecommunications Act of 1934 was amended in 1996, the industry envisioned a convergence of technologies in which telephone companies would provide cable television and cable telephone companies would provide telephone service. To some extent that has happened although many argue that progress has been slow. In the meantime, industry participants have argued that information service providers should be treated like telephone companies when they provide services functionally equivalent to voice telephone service. Similarly, others have argued that telephone companies should have the same freedom as information services providers when they provide information services. Although the FCC has often promised a resolution of those issues, definitive action has never been taken. Perhaps the Comcast decision is a sign that the FCC should have acted sooner to clean up the regulatory confusion that has existed.

The public policy debates are further complicated by the rapidly changing technology in the industry. Although the Telecommunications Act of 1996 was supposed to be the new telecommunications plan for the nation, it fails to address the role that wireless and Internet services play in this new telecommunications world. If the Comcast decision is upheld and the FCC’s jurisdiction over broadband is limited, it is at least arguable that the agency will not be able to address the increasingly complex telecommunication world in a comprehensive manner. At least, at this point, the FCC does not appear to be deterred from at least initiating further action. On April 21, 2010, the agency released a Notice of Inquiry (NOI) and Notice of Proposed Rulemaking (NPRM), which e appear to be the beginning of the long process of attempting to implement a National Broadband Plan and addressing the many issues associated with USF reform. If, however, the FCC has limited authority to exercise influence over broadband policy, Congressional action may be required. However, experience suggests that Congress rarely acts expeditously. In fact, there are some who suggest that the Telecommunications Act of 1996 became obsolete quickly because some of its provisions were actually proposed as early as 1982. In the meantime, this vital industry, which is so important to the role of the United States in the global economy, will continue to play a guessing game.

Last session, the legislature took another step in the long process of deregulating the telecommunication industry with the passage of House Bill 1180. Following its adoption, the Utilities Commission was charged with developing rules to implement the bill. On March 30, 2010 the Commission released its Order concerning the implementation of House Bill 1180. The Commission created a “working group” consisting of interested parties to help determine the rules for executing House Bill 1180. Following its ruling, several parties requested reconsideration of several issues. The Commission issued its final order on April 8, 2010.

The Commission ruled that with respect to filing for deregulation a LEC or CLP must make a sworn statement that its territory is open to competition, that it commits to provide basic service at comparable rates for both urban and rural customers, that it will continue to provide stand-alone residential service and that rate increases for such lines will not exceed the GDP-PI.

The Commission also considered the role of CLPs and whether they may elect for deregulation under 1180. The Commission concluded the CLPs were eligible for deregulation so long as they complied “to the extent applicable” with the requirements of the new legislation.

The Commission further considered what powers it maintains under HB 1180. The Commission ruled that it still had power to enforce a company’s compliance with the requirements for deregulation under HB 1180, including stand alone rate increases, and urban/rural price parity.

The Commission declined to determine whether or how it may revoke an election of a company to enter into alternative regulation. While concerns about House Bill 1180 and its implementation remain, the Commission has taken a important step in executing what the legislature intended by passing House Bill 1180. It is likely that more time will bring more clarity to the situation. The two orders consist of more 35 pages and numerous appendixes. If you wish to view the orders they are available here.

AT&T has filed a letter with the FCC complaining about Google’s alleged blocking of telephone calls to rural areas from consumers that use its Google Voice service. The allegation is that, in order to reduce its costs, Google blocks calls to certain phone numbers with high access charges in rural areas, violates “network neutrality”. The letter argues that Google receives an inherent advantage by blocking these calls, which traditional phone companies are prohibited from doing. This is not the first time AT&T and Google have tangled over the concept of “network neutrality”, but it seems this time AT&T is the one attempting to enforce network neutrality.

AT&T argues that Google Voice should be required to accept the same call blocking limitations as traditional providers because Google Voice provides the middle connection for calls between landline and mobile phones. While Google acknowledges the call blocking, it argues that the rules do not apply to Google Voice because it is a free Internet application and users need an existing land line or cellular phone to use it. Richard Witt, counsel for Google, noted, “The FCC's open Internet principles apply only to the behavior of broadband carriers—not the creators of Web-based software applications. Even though the FCC does not have jurisdiction over how software applications function, AT&T apparently wants to use the regulatory process to undermine Web-based competition and innovation." AT&T argued in its letter, "The Commission cannot, through inaction or otherwise, give Google a special privilege to play by its own rules while the rest of the industry, including those who compete with Google, must instead adhere to Commission regulations."

This is not the first time these two giants of the industry have clashed. Network neutrality continues to be a major issue for all companies and will likely continue to be so, as innovations in technology create more Internet based applications which compete with traditional phone companies. In many respects, this is but another variation of the continuing problem between the regulatory disparity between traditional telephone companies and entities that provide voice service through the Internet or other technologies. Although the Telecom Act of 1996 contemplated a convergence of technologies, little has been done to adapt the regulatory oversights to recognize the technological convergence. Eventually, the FCC will have to modernize the regulatory rules under which this competition game will be played.