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The real surprise of the D.C. Circuit’s opinion in Verizon v. FCC was not that the anti-discrimination and anti-blocking rules of the Open Internet Order were vacated, but that the court found the FCC has jurisdiction to regulate Internet access services providers under Section 706 of the Act.  Chairman Wheeler has made clear the FCC will exercise this authority as required, though the manner for so doing remains an open question.  Legislation has been introduced to resuscitate the largely vacated order, but the odds for enactment are slim.

A primary motivation underlying the Open Internet Order is that a handful of services providers deliver high speed Internet access service to the vast majority of businesses (enterprises and SMBs), all levels of government, schools and libraries, and residential customers: the major cable operators and the price cap ILECs.  Today, the best case scenario for many customers is a duopoly of landline broadband services providers.  Moreover, the two largest price cap ILECs are the two largest wireless carriers.

In many areas of the country, high speed Internet access service is not available.  In these communities, net neutrality is an abstract concept of limited value, a point not lost on the FCC leadership.   In its future networks/IP migration proceeding, the FCC has proposed a program to fund “rural broadband experiments” to deliver last mile broadband connectivity to communities that lack baseline broadband service by re-purposing some CAF funds, calling for “expressions of interest” in early March.  Chairman Wheeler has outlined a series of steps to re-focus the E-Rate program funds to support broadband connectivity to unserved schools and libraries.

For the balance of the country, the Commission could “move the needle” on broadband competition by resolving two matters.  The first is the special access proceeding.  The second is a relatively obscure USF contribution issue.

As special access services become available at market-based rates, 2nd tier and 3rd tier ISPs can access these “last mile” connections and deliver a highly commoditized service to a broad range of customers at far better price points.  The so-called “private cable operators” that struggle in the MDU market to compete with the triple play offerings of the local cable operator and price cap ILEC, could offer MDU residents a far more competitive offering for which high speed Internet access service is rapidly becoming the pre-eminent component.

The second item is parity in USF contribution obligations for providers of high speed Internet access services.  By virtue of the Cable Modem and Wireline Broadband proceedings, the telecommunications component of facilities-based, high speed Internet access services of cable operators and local telcos is “inextricably linked” with the Internet access component, is not a standalone telecommunications service, and is not subject to USF contribution obligations.

Conversely, the wholesale telecommunications services component – special access service—acquired from ILECs by unaffiliated ISPs is subject to USF contribution obligations. (Nominally this is the ILEC’s USF contribution obligation, but the ILECs can and do recover this surcharge from their ISP customers.) With the USF contribution factor at 16.4%, ISPs that must secure “last mile” wholesale telecommunications services are seriously handicapped in competing with the major cable operators and price cap ILECs.