Lessons For Rural Industry From FCC Comcast Decision

Initial Comments on the FCC’s Comcast Decision
by Robert H. Jackson, Esq.

The Rural Local Exchange Carrier (“RLEC”) industry should view the FCC’s August 1, 2008 decision against Comcast, the nation’s largest cable TV operator, as a strong signal for RLECs to become more involved in the Network Neutrality debate and to begin contemplating its potential impacts on their businesses.

The FCC, in a 3-2 vote that split party lines, concluded that Comcast had unlawfully impeded its customers’ ability to use third-party applications enabling file sharing. Many Comcast broadband customers use BitTorrent software to download and share movies, television shows, music and other software. BitTorrent software permits peer-to-peer transfers of large files more quickly than earlier technologies, through the downloading of content in parallel from multiple sources.

In response to this application that consumes significant bandwidth, Comcast apparently uses several network management techniques, including Deep Packet Inspection, to slow its customers’ file transfers. Deep Packet Inspection employs equipment to examine the contents of data packets in an attempt to determine the subject of the transmission. It examines a packet’s content against known patterns. Once an “undesirable” data pattern was indentified (e.g., a movie or television show), Comcast apparently operates other equipment to disrupt the communications at its endpoints.

The Commission concluded that this practice has anticompetitive aspects since the high-quality video files obtained with BitTorrent technology were a competitive alternative to Comcast’s video-on-demand product line. The FCC also determined that Comcast’s practices “substantially imped[ed] consumers’ ability to access the content and to use the applications of their choice.” The majority was also critical of Comcast’s failure to alert customers of its practice. Comcast had claimed that it was merely managing its network to ensure that all subscribers could have adequate network access. That claim was rejected by the Commission majority.

GOP Commissioners Tate and McDowell dissented. McDowell indicated his belief that the practice was a legitimate method of managing network capacity and not an attempt to disadvantage competitors. He also stated that, in his view, the FCC did not have the legal authority to take such action because it had never issued formal regulations on network neutrality.

Comcast was not fined, but was directed to: disclose the details of its “discriminatory network management practices”; submit a compliance plan to prevent future occurrences; and inform its customers and the FCC of the network management practices Comcast uses.

Comments

• While Comcast has not indicated whether it would appeal the FCC’s decision, it may well do so. Comcast would likely argue in favor of Commissioner McDowell’s dissenting position that the FCC cannot sanction a party for failing to follow a policy unless it has been adopted by the FCC as a formal rule. While that argument may seem attractive, courts have held that an agency’s policy statements, which announce its enforcement intentions for the future, need not be adopted in a rulemaking proceeding so long as the agency remains free to exercise informed discretion in deciding how to apply the policy. Iowa Power & Light Co. v. Burlington Northern Rwy, 647 F.2d 796 (8th Cir. 1981), cert. denied, 455 U.S. 917 (1982). See also, McKenzie v. Heckler, 602 F. Supp. 1150 (D.Minn. 1985). In other words, under this doctrine, the FCC would apparently have the power to announce its intention to enforce a network neutrality policy (assuming it was otherwise lawful) without first adopting rules to that effect, so long as the FCC did not automatically take enforcement action against a party based on the policy statement alone and without considering all of the implications and facts. How a court would apply the doctrine in the Comcast case is, of course, unknown at this time.

• This case is an enormous victory for network neutrality advocates, especially as it was achieved with votes from both political parties. Thus, supporters can be expected to take every action to preserve their win, whether in court, other FCC proceedings or through new legislation in Congress. Network neutrality opponents, such as AT&T, are likely to attempt to contain the decision to the Comcast facts. AT&T, for example, is now arguing that the Comcast decision proves the FCC’s network neutrality policies work, such that no further rules or laws are needed.

• The Comcast decision may spur the efforts of network neutrality supporters to push for legislation that would make network neutrality requirements a part of the Communications Act of 1934 and/or other federal statutes to protect against any appeals court overturning the Comcast decision.

• With the Comcast case decided, it is less likely that the FCC will adopt network neutrality rules now. However, in the event that network neutrality supporters fear their victory is in jeopardy from a successful court challenge by Comcast and, if Congress does not appear ready to pass legislation, supporters might push the FCC to adopt specific network neutrality rules. That effort would likely be a fairly slow process.

• VoIP providers and Internet-based video providers, may consider filing “network neutrality” complaints against those companies that use network management techniques and have competing service offerings. Those targets could include RLECs in appropriate cases.

• The biggest risk for RLECs s remains, however, becoming subject to network neutrality policies, however adopted, which are designed to address large service providers, such as the BOCs, Comcast and Time Warner, and which do not take account of differences in rural markets.

If you have any questions about this analysis, please feel free to contact me at 202-465-3290 or jacksonrh_wdc@yahoo.com.