Inside Verizon’s attack on network neutrality

Verizon is taking aim at network neutrality regulations enacted by the Federal Communications Commission with an outsized legal appeal. The company’s 116-page tome filed on Monday evening has a glossary, 53 pages of legal argument, inflammatory prose on regulating the Internet and even a claim that the FCC is trampling the First Amendment rights of ISPs. It’s all a bit much but Verizon may prevail.
That’s because, underneath all the bluster, Verizon has a strong core argument that the FCC overstepped its bounds in enacting these net neutrality rules. The FCC, you see, can regulate the physical pipes over which packets travel on the network pretty stringently, but less so the actual service or content those packets are meant to deliver. Consider that the FCC can regulate roads but not the mail delivery using those roads.

Did the FCC neuter its ability to regulate the Internet?

At least that’s how the same court that will hear the Verizon case ruled back in 2010 when it handed a victory to Comcast (s cmcsa) after the FCC censured it for blocking peer-to-peer packets. At the time, the court’s ruling set off a huge debate over the FCC’s regulatory authority over the Internet and arguments over whether the FCC needed to reclassify broadband as a telecommunications service rather than an in information service.

FCC chairman Julius Genachowski’s net neutrality efforts are getting closer to their day in court.

The grist for these debates was a series of decisions beginning in 2002 in which the FCC basically said cable, DSL and wireless were information services — which the FCC doesn’t regulate as stringently — as opposed to a telecommunications service which it does. But because it really wanted to focus on the net neutrality regulations as opposed to this dull reclassification issue, the FCC dropped the idea of reclassifying broadband entirely and went ahead with what it dubbed “the third way” approach where broadband would be considered telecommunications but it wouldn’t be subject to onerous rules associated with telecommunications services outline in the 1996 Telecommunications Act.
Now the FCC’s lack of action on reclassification may haunt it in court. Verizon is prepared to beat the snot out of the agency in hopes the United States Court of Appeals for the District of Columbia will find that the FCC is overstepping its bounds set by the 1996 Act and its own rulings. The Verizon suit argues that if given the freedom to regulate broadband, the FCC might move all the way up to regulating “all sectors of the Internet, from website, application, search engine, and content providers to Internet backbone companies,” according to the filing.

Did someone say the Telecommunications Act of 1996?

Verizon also brings up the 1996 Act to argue that the FCC overstepped its bounds because the net neutrality rules force ISPs to give away access to other providers on their pipes for free. Verizon interprets this as forcing ISPs to let others use its pipes at a cost of zero and the 1996 Act says that the FCC can’t set prices in this area.
These are the twisted and arcane arguments that lawyers come up with, but what it boils down to is that Verizon and other ISPs are upset because they can’t implement the so-called “two-sided business model” where an ISP charges a customer as well as a service provider like Google (s goog) or Netflix (s nflx). Let’s call it the Ed Whitacre argument after SBC’s (now AT&T) former CEO who famously said that Google and others shouldn’t be able to use his pipes for free.
The net neutrality rules tell wireline ISPs they can’t charge people trying to use their pipes and say that, on the wireless side, carriers can’t charge or block other providers who want to offer voice and video services that the carrier may also offer. This is the fundamental point of network neutrality — the idea that an ISP can’t discriminate against the bits flowing over its pipes. Consumer advocates and web companies would argue that forcing the likes of Google to pay for transit does result in discrimination. Here’s what the suit has to say on this topic:

The FCC’s rules constitute classic common-carrier obligations because they compel broadband providers to carry the Internet traffic of all comers, and at a uniform, nondiscriminatory price of zero. The no blocking rule denies broadband providers discretion in deciding which traffic from so-called edge providers to carry, except for unlawful material.

And what about Freedom of Speech?

Verizon’s primary source of firepower is the argument that the FCC doesn’t have authority to enact net neutrality in the first place, and that the FCC regulations violate the spirit of the 1996 Telecommunications Act. But for good measure, the company is also claiming the regulations impinge ISPs’ freedom of speech and take their property without due process. From the filing:

Third, the rules are unconstitutional. Broadband networks are the modern-day microphone by which their owners engage in First Amendment speech. The FCC thus must identify an actual problem, and narrowly tailor its solution to solve that problem. The FCC’s “prophylactic” rules cannot pass that test. The Fifth Amendment likewise protects broadband network owners from government compulsion to turn over their private property for use by others without compensation, especially in light of their multi-billion-dollar investment-backed expectations.

That’s right. Verizon is arguing that with the network neutrality rules, the government is both preventing ISPs from sharing their opinions over their networks by somehow blocking the opinions of others and is also seizing their pipes for use without compensation. The first ignores the fact that under net neutrality mandated non-discrimination Verizon’s packets and speech are just as likely to reach the end user as Netflix’s or Google’s, and the second ignores the fact that consumers pay ISPs for the use of their pipes.
Plus, without some sort of network neutrality Verizon could very well block others’ ability to exercise their freedom of speech as it did back in 2007 when it blocked texts from NARAL. Granted, Verizon is a corporate entity and not the government, but if we accept that broadband is indeed the “modern-day microphone by which their owners engage in First Amendment speech,” then the government does seem to have an obligation to protect it, especially if in doing so it doesn’t actually put Verizon’s first amendment freedoms at risk.

So now what?

The previous three items are the big arguments Verizon (and Metro PCS) have made against network neutrality, although there are pages and pages of arguments tied to those. But the question of the FCC’s authority to regulate broadband is the biggest issue and likely the one on which the case will hinge. This same court has already rejected the FCC’s authority to regulate broadband in the 2010 Comcast case, and it may again.
The FCC’s response to the suit is due in September, so we’ll have to wait until then to see the agency’s response and until December or January 2013 for the case to be heard before the court. The hope is we’ll have a ruling in spring of 2013.