Don’t look now OTT fans but the net neutrality rules expected to be enacted Thursday by the FCC may turn out to be not as OTT-friendly as it originally appeared they would be.
When FCC chairman Tom Wheeler unveiled his “fact sheet” on the upcoming rules on Feb. 4, it looked as if the commission was poised to adopt the “strong” version of net neutrality pushed by Netflix and others. According to the fact sheet, the rules would treat interconnection arrangements between ISPs and third-party edge providers as a Title II service subject to the same “just and reasonable” standard that will apply to ISPs’ management of their last-mile networks.
Since then, however, as noted in a previous post here, even some net neutrality advocates have raised questions about the legal and statutory grounds for extending Title II to interconnection arrangements. In a letter to the commission dated Feb. 11, Free Press policy director Matthew Wood warned the interconnection arrangements were unlikely to qualify as Title II services as defined by the Communications Act, creating an opening for a legal challenge to the new rules:
On the statutory definition question, as we noted in our earlier letter, services purportedly offered to a “remote” edge provider – when there is no physical connection between that edge provider and the carrier in question – are not services offered “directly” to the edge provider according to any precedent we could find. If there is no physical connection, and thus no obvious “direct” relationship between the carrier and the remote edge provider, it is hard to imagine how the service can qualify as a telecom service under Section 153(53) of the Act. That subsection stipulates that a telecom service must be offered “directly” to the recipient.
Likewise, as we also noted in our letter, even in the rare case where there is a direct interconnection with an edge provider this is likely private carriage. Such arrangements are negotiated on an individual basis with the broadband provider, not offered indiscriminately on a common carrier basis “to the public” under the same definition in subsection (53).
Google has raised similar concerns, warning in a filing earlier this week that defining interconnection arrangements between ISPs and edge providers as a separate Title II service distinct from retail internet access service could, paradoxically, encourage ISPs to try to create a two-sided market by treating each side as a separate business:
[T]his issue must be viewed in light of the efforts by some ISPs, particularly abroad, to claim that they provide a service to content providers for which they should be able to charge under a “sender pays” model—while still charging their retail customers for the same traffic. To the extent the Commission encourages the falsehood that ISPs offer two overlapping access services instead of just one, or the fiction that edge providers are customers of terminating ISPs when they deliver content to the Internet, it may encourage such attempts at double-recovery. That could do serious, long-term harm to the virtuous circle of Internet innovation, thus greatly undermining the benefit of adopting net neutrality rules.
Now, Democratic FCC commissioner Mignon Clyburn is reportedly also having doubts about applying Title II to interconnection. According to a report Tuesday by the Capitol Hill newspaper The Hill Clyburn is seeking eleventh-hour changes to the proposed rules, including dropping plans to classify interconnection as a distinct Title II service.
Clyburn’s vote is crucial to the rules being adopted. With the two Republicans on the commission certain to vote ‘no,’ Chairman Tom Wheeler needs to hold onto both other Democratic votes, Clyburn’s and Jessica Rosenworcel for the proposal to pass.
Neither Clyburn’s nor Wheeler’s office is commenting on the report. And if push comes to shove, it’s hard to imagine Clyburn voting against net neutrality. But given the high stakes and the late hour Wheeler might be willing to accommodate her concerns, particularly in light of the concerns raised by Free Press and Google.
Dropping the plan to extend Title II to interconnection would not necessarily leave such arrangements totally unregulated. As both Free Press and Google point out, discriminatory interconnection policies by ISPs could be deemed harmful to consumers and stuck down by the FCC on those grounds. But it would eliminate a mechanism by which OTT providers could appeal directly to the commission if they feel they are being treated unreasonably by ISPs.
As Netflix said in a statement when the proposal to regulate interconnection arrangements under Title II was first announced, “If such an oversight process had been in place last year, we certainly would’ve used it when a handful of ISPs opted to hold our members hostage until we paid up.”
The change would represent another setback for OTT providers if, as expected, the new rules are also silent on zero-rated services. As we reported in our previous post, OTT services, startups and VCs have all raised concerns with the FCC that allowing ISPs and wireless carriers to offer zero-rated services, in which traffic from certain applications is not counted toward a subscriber’s data cap, either for a price or for their own proprietary services, could open the door for ISPs and carriers to create precisely the sort of two-sided market that extended Title II to interconnection arrangements was meant to preclude, albeit by other means.
Losing both those protections could leave edge providers with much less leverage with ISPs than many hoped the new net neutrality rules would provide.