Net(flix) Neutrality No More

Yesterday’s ruling by the D.C. Circuit Court of Appeals (DCCA) in favor of Verizon is a loss for American consumers. It is, however, the correct verdict. The DCCA struck down the anti-discrimination and anti-blocking provisions in the “Open Internet Order” of 2010, which largely contains the language that promotes “net neutrality,” because these provisions overstep the Federal Communication Commission’s (FCC) legal authority to regulate “information-service providers,” which the Commission has classified broadband providers. Don’t fret quite yet – the FCC must only reclassify broadband providers as “telecommunications carriers,” which is, in my opinion, the correct classification, to regain regulatory authority.


Current net neutrality rules include the requirement that Internet Service Providers (ISPs), such as Verizon Communications, Inc. (Verizon) and Comcast, provide consumers with equal access to all accessible, albeit lawful, content. Specifically, ISPs cannot impose certain restrictions and/or variable charges on different segments of the consumer base, such as video streaming sites.

These net neutrality rules, which the FCC issued in 2010 per the Open Internet Order, were struck down by the U.S. Court of Appeals for the District of Columbia Circuit Court on January 14, 2014. Please see their most recent opinion on Verizon v. FCC [11-1355]. Verizon argues that the FCC does not have “regulatory authority” over their broadband services. The DCCA ruling acknowledges the FCC’s authority in regulating broadband access, but asserts the FCC lacks the authority to regulate “information-service providers” per the Telecommunications Act of 1996. The Act plainly states that “information-service providers” are not subject to “Title II common carrier regulations.”  Telecommunications carriers, however, are subject to governmental regulations.

Per the DCCA, the FCC has displayed an “apparent inconsistency with the agency’s prior interpretation [of broadband providers].” In 1998, the FCC “classified Digital Subscriber Line (DSL) services — broadband internet service furnished over telephone lines — as “telecommunications services.” … Four years later, … the Commission determined that cable broadband providers … provide a ‘single, integrated information service’ … [and are] entirely exempt from Title II regulation.”

The Telecommunications Act’s definition of “information-service providers” versus “telecommunications carriers” is based on an earlier set of FCC rules dating back to 1980, known as the “Computer II regime.” It is in the Computer II rules that the FCC “drew a line between “basic” services, which were subject to regulation under Title II of the Communications Act of 1934 as common carrier services, … and “enhanced” services, which were not.” The FCC determined that “pure” transmissions services constituted “basic” service while “services that involved ‘computer processing, applications … used to act on the content, code, protocol, and other aspects of the subscriber’s information'” are considered “enhanced” services. Likewise, telecommunications carriers provide basic services while information services providers fall under enhanced services.


There are growing concerns over the potential development of a “two tier internet” whereby ISPs can charge companies, such as those with streaming/downloadable content (e.g. Netflix or Hulu), more for faster access to their content. Comparatively, this also allows the ISPs to slow down and/or block access to particular websites and/or services.

This is especially alarming in cases such as Comcast, which makes TV shows and movies available for subscribers through Comcast Xfinity. In this example, though Comcast and other ISPs have pledged not to restrict consumer access (so we need not worry, right? Right!?), Comcast could increase/maintain the internet speed for connecting to Comcast Xfinity and/or slow down/block access to Netflix. Subsequently, Comcast subscribers would potentially drop Netflix and move over to Comcast Xfinity, unfairly benefiting Comcast and penalizing Netflix. Let’s hope the ISPs maintain equivalent access to the content provided by Netflix and that there aren’t higher monthly charges associated with this newly gained corner on the streaming video market.


Following this ruling, the FCC now has two options to regain regulatory authority. The first option entails appealing the ruling to the full appeals court or the U.S. Supreme Court. Otherwise, the FCC can choose to reclassify broadband providers as telecommunications carriers which are subject to Title II regulation. The DCCA’s opinion is worded such that it is implied that the DCCA wishes the FCC to reclassify broadband providers as telecommunications carriers. I concur with this opinion.

The FCC showed a willingness to reclassify when, in 2010, they lost Comcast Corp. v. FCC, with the DCCA holding that the Commission lacked the authority to regulate “network management practices.” The Commission then “sought comment on whether and to what extent it should reclassify broadband Internet services as telecommunications services. … Ultimately, however, rather than reclassifying broadband, the Commission adopted the Open Internet Order,” popularly known as the Net Neutrality Act that was struck down yesterday, January 14, 2014.

It is my hope the FCC moves to reclassify broadband Internet service as a telecommunications service, subject to regulation. An ISP (should) operate at OSI layers 1, 2, and 3. Layer 1 is physical access, the network cable itself; Layer 2 provides a direct connection; and Layer 3 provides network service/routing. Layers 4-7, layers which process and interpret the information moving across the network, are all the responsibility of the end users. In fact, Layers 1-3 clearly concentrate on “pure” transmission, a term the FCC uses to define “basic” services provided by telecommunications carriers. Even Layer 4 is a transmission layer, although the definition is little murky at this point. TCP & UDP reside at Layer 4, the transport layer, which is responsible for data delivery. To me, this sounds like “data transmission.” Is “pure” data transmission guaranteed? Or does it simply mean “stick the bits in the pipeline and hope they arrive?” TCP does some additional data processing to guarantee the data arrives, intact, on the other side. Because of this additional data processing, I can see Layer 4 being considered an “enhanced” service as it is “used to act on the content, code, protocol, and other aspects of the subscriber’s information.” Similarly, I can see Layer 4 being considered part of the “pure” transmission as it is, per the FCC’s criteria for a “basic” service, “virtually transparent in terms of its interaction with customer supplied information.” However, as the ISP does not (should not) touch Layer 4 and above, broadband service should undoubtedly be considered a “basic” service provided by a telecommunications carrier and therefore subject to Title II regulations.

Presented by RJ Nunnally in collaboration with Jared Frank.