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As widely reported and commented upon, in Verizon v. FCC decided on January 14, 2014, the U.S. Court of Appeals for the District of Columbia vacated the anti-blocking and anti-discrimination rules adopted in the FCC’s Open Internet Order, but declined to vacate the network disclosure rules (pertaining to Internet access services providers’ network management practices).

The court vacated these rules on the basis that inasmuch as the FCC has classified  and continues to maintain that facilities-based, high speed Internet access services providers are “information services providers,” as distinct from “telecommunications carriers,” the Commission cannot impose common carrier obligations—principally the nondiscrimination obligations of Title II of the Act—upon information services providers.

On the other hand, and almost as important, the court rejected Verizon’s primary argument that Section 706 of the Act does not provide the FCC with substantive authority to regulate high speed Internet access providers.  This aspect of the court’s opinion was the focus of Judge Silberman’s dissent, explaining that both the majority opinion and the FCC’s arguments cannot be squared with the text of Section 706:

So much for the terms [in Section 706(a)] “promote competition in the local telecommunications market” or “remove barriers to infrastructure investment.” Presto, we have a new statute granting the FCC virtually unlimited power to regulate the Internet. This reading of § 706, as we said in Comcast Corp. v. FCC, “would virtually free the Commission from its congressional tether.”

The significance of the court’s decision regarding Section 706 was duly noted by Chairman Wheeler in his brief statement that was coupled with the obligatory rejoinder  that the agency will be considering “all available options, including those for appeal,” even though Republican Commissioners Pai and O’Rielly urge the FCC to refrain from further attempts to regulate Internet services providers absent a clear grant of authority from Congress.

Next Steps.  While the FCC may have lost this challenge, however significant, it secured an affirmation of its authority to regulate Internet access services providers under Section 706.  The FCC might be better advised to accept this affirmation and determine how to exercise this authority in connection with industry practices that run roughshod over the intent and spirit of the anti-blocking and anti-discrimination rules.  As Farhad Manjoo maintains, in the absence of such rules, the potential exists for the major Internet access services providers to impair the ability of the next Facebook or Netflex to gain traction in the online environment.

One path the agency could pursue, however challenging, is the approach taken in the Data Roaming Order:  adopt rules, guidelines and policies that address anti-competitive practices while avoiding Title II implications.

The more controversial option is to revisit the classification of Internet access service as an “information service” and thereby eliminate arguments that the anti-blocking and anti-discrimination rules can only be applied to telecommunications carriers.  The FCC considered and rejected this option in 2010.  This is not viable when viewed in terms of (i) the likely “no-holds barred” opposition from the major cable and telecom services providers, or (ii), as noted by former Commissioner McDowell, the efforts of the United States and other countries resisting the push of many developing nations and autocratic regimes to regulate the Internet under the guise of the ITU’s telecommunications regulatory framework.

Either a hearing en banc before the D.C. Circuit or review by the Supreme Court could lead to an even less favorable outcome for the FCC.  As noted by Verizon (recall the “triple-cushion shot”) and Judge Silberman, the strained logic and Chevron-based deference underlying the Commission’s substantive Section 706 authority are readily assailable.  Such an appeal could fail squarely within the crosshairs of Chief Justice Roberts’ dissenting opinion in City of Arlington v. FCC that emphasized the courts, not the agency, are the final arbiters of the scope and extent of an agency’s jurisdiction.