Verizon v. Federal Communications Commission
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Full Opinion
Opinion for the Court filed by Circuit Judge TATEL.
For the second time in four years, we are confronted with a Federal Communications Commission effort to compel broadband providers to treat all Internet traffic the same regardless of source — or to require, as it is popularly known, “net neutrality.” In Comcast Corp. v. FCC, 600 F.3d 642 (D.C.Cir.2010), we held that the Commission had failed to cite any statutory authority that would justify its order compelling a broadband provider to adhere to open network management practices. After Comcast, the Commission issued the order challenged here — In re Preserving the Open Internet, 25 F.C.C.R. 17905 (2010) (“the Open Internet Order”) — which imposes disclosure, anti-blocking, and anti-discrimination requirements on broadband providers. As we explain in this opinion, the Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here — that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet — is reasonable and supported by substantial evidence. That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order.
I.
Understanding this case requires an understanding of the Internet, the Internet marketplace, and the history of the Commission’s regulation of that marketplace.
Four major participants in the Internet marketplace are relevant to the issues before us: backbone networks, broadband providers, edge providers, and end users. Backbone networks are interconnected, long-haul fiber-optic links and high-speed routers capable of transmitting vast amounts of data. See In re Verizon Communications Inc. and MCI, Inc. Applications for Approval of Transfer of Control, 20 F.C.C.R. 18433, 18493 ¶ 110 (2005). In
These categories of entities are not necessarily mutually exclusive. For example, end users may often act as edge providers by creating and sharing content that is consumed by other end users, for instance by posting photos on Facebook. Similarly, broadband providers may offer content, applications, and services that compete with those furnished by edge providers. See Open Internet Order, 25 F.C.C.R. at 17915 ¶ 20.
Proponents of net neutrality — or, to use the Commission’s preferred term, “Internet openness” — worry about the relationship between broadband providers and edge providers. They fear that broadband providers might prevent their end-user subscribers from accessing certain edge providers altogether, or might degrade the quality of their end-user subscribers’ access to certain edge providers, either as a means of favoring their own competing content or services or to enable them to collect fees from certain edge providers. Thus, for example, a broadband provider like Comcast might limit its end-user subscribers’ ability to access the New York Times website if it wanted to spike traffic to its own news website, or it might degrade the quality of the connection to a search website like Bing if a ■ competitor like Google paid for prioritized access.
Since the advent of the Internet, the Commission has confronted the questions of whether and how it should regulate this communications network, which, generally speaking, falls comfortably within the Commission’s jurisdiction over “all interstate and foreign communications by wire or radio.” 47 U.S.C. § 152(a). One of the Commission’s early efforts occurred in 1980, when it adopted what is known as the Computer II regime. The Computer II rules drew a line between “basic” services, which were subject to regulation under Title II of the Communications Act of 1934 as common carrier services, see 47 U.S.C. §§ 201 et seq., and “enhanced” services, which were not. See In re Amendment of Section 61.702 of the Commission’s Rules and Regulations, 77 F.C.C.2d
By virtue of their designation as common carriers, providers of basic services were subject to the duties that apply to such entities, including that they “furnish ... communication service upon reasonable request,” 47 U.S.C. § 201(a), engage in no “unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services,” id. § 202(a), and charge “just and reasonable” rates, id. § 201(b). Although the Commission applied no such restrictions to purveyors of enhanced services, it imposed limitations on certain entities, like AT & T, which owned the transmission facilities over which enhanced services would be provided. Second Computer Inquiry, 77 F.C.C.2d at 473-74 ¶¶ 228-29. These restrictions included, most significantly, requirements that such entities offer enhanced services only through a completely separate corporate entity and that they offer their transmissions facilities to other enhanced service providers on a common carrier basis. Id.
For more than twenty years, the Commission applied some form of the Computer II regime to Internet services offered over telephone lines, then the predominant way in which most end users connected to the Internet. See, e.g., In re Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, 17 F.C.C.R. 3019, 3037-40 ¶¶ 36-42 (2002). Telephone companies that provided the actual wireline facilities over which information was transmitted were limited in the manner in which they could provide the enhanced services necessary to permit end users to access the Internet. Id. at 3040 ¶ 42. They were also required to permit third-party Internet Service Providers (ISPs), such as America Online, to access their wireline transmission facilities on a common carrier basis. Id.
It was against this background that Congress passed the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56. Tracking the Computer II distinction between basic and enhanced services, the Act defines two categories of entities: telecommunications carriers, which provide the equivalent of basic services, and information-service providers, which provide the equivalent of enhanced services. 47 U.S.C. § 153(24), (50), (51), (53); see National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967, 976-77, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). The Act subjects telecommunications carriers, but not information-service providers, to Title II common carrier regulation. 47 U.S.C. § 153(53); Brand X, 545 U.S. at 975-76, 125 S.Ct. 2688.
Pursuant to the Act, and paralleling its prior practice under the Computer II regime, the Commission then classified Digital Subscriber Line (DSL) services— broadband Internet service furnished over telephone lines — as “telecommunications services.” See In re Deployment of Wire-
Four years later, however, the Commission took a different approach when determining how to regulate broadband service provided by cable companies. Instead of viewing cable broadband providers’ transmission and processing of information as distinct services, the Commission determined that cable broadband providers— even those that own and operate the underlying last-mile transmission facilities— provide a “single, integrated information service.” Cable Broadband Order, 17 F.C.C.R. at 4824 ¶ 41. Because cable broadband providers were thus not telecommunications' carriers at all, they were entirely exempt from Title II regulation. Id. at 4802 ¶ 7.
In National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005), the Supreme Court upheld the Commission’s classification of cable broadband providers. The Court concluded that the Commission’s ruling represented a reasonable interpretation of the 1996 Telecommunications Act’s ambiguous provision defining telecommunications service, see id. at 991-92, 125 S.Ct. 2688, and that the Commission’s determination was entitled to deference notwithstanding its apparent inconsistency with the agency’s prior interpretation of that statute, see id. at 981, 1000-01,125 S.Ct. 2688.
Following Brand X, the Commission classified other types of broadband providers, such as DSL and wireless, which includes those offering broadband Internet service for cellular telephones, as information service providers exempt from Title II’s common carrier requirements. See In re Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, 20 F.C.C.R. 14853, 14862 ¶12 (2005) (“2005 Wireline Broadband Order”); In re Appropriate Regulatory Treatment for Broadband Access to the Internet Over Wireless Networks, 22 F.C.C.R. 5901, 5901-02 ¶ 1 (2007) (“Wireless Broadband Order”); In re United Power Line Council’s Petition for Declaratory Ruling Regarding the Classification of Broadband over Power Line Internet Access Service as an Information Service, 21 F.C.C.R. 13281, 13281 ¶ 1 (2006). Despite calls to revisit these classification orders, see, e.g., Open Internet Order, 25 F.C.C.R. at 18046 (concurring statement of Commissioner Copps), the Commission has yet to overrule them.
But even as the Commission exempted broadband providers from Title II common carrier obligations, it left open the possibility that it would nonetheless regulate these entities. In the Cable Broadband Order, for example, the Commission sought comment on whether and to what extent it should utilize the powers granted it under Title I of the Communications Act to impose restrictions on cable broadband providers. Cable Broadband Order, 17 F.C.C.R. at 4842 ¶ 77. Subsequently, in conjunction with the 2005 Wireline Broadband Order, the Commission issued a Policy Statement in which it signaled its intention to “preserve and promote the open and interconnected nature of the public Internet.” In re Appropriate
The Commission did just that when, two years later, several subscribers to Com-cast’s cable broadband service complained that the company had interfered with their use of certain peer-to-peer networking applications. See In re Formal Complaint of Free Press and Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, 23 F.C.C.R. 13028 (2008) (“Comcast Order ”). Finding that Comcast’s impairment of these applications had “contravene[d] ... federal policy,” id. at 13052 ¶43, the Commission ordered the company to adhere to a new approach for managing bandwidth demand and to disclose the details of that approach, id. at 13059-60 ¶ 54. The Commission justified its order as an exercise of what courts term its “ancillary jurisdiction,” see id. at 13034-41 ¶¶ 14-22, a power that flows from the broad language of Communications Act section 4(i). See 47 U.S.C. § 154(i) (“The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions.”); see generally American Library Ass’n v. FCC, 406 F.3d 689, 700-03 (D.C.Cir.2005). We have held that the Commission may exercise such ancillary jurisdiction where two conditions are met: “(1) the Commission’s general jurisdictional grant under Title I covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” American Library Ass’n, 406 F.3d at 691-92.
In Comcast, we vacated the Commission’s order, holding that the agency failed to demonstrate that it possessed authority to regulate broadband providers’ network management practices. 600 F.3d at 644. Specifically, we held that the Commission had identified no grant of statutory authority to which the Comcast Order was reasonably ancillary. Id. at 661. The Commission had principally invoked statutory provisions that, though setting forth congressional policy, delegated no actual regulatory authority. Id. at 651-58. These provisions, we concluded, were insufficient because permitting the agency to ground its exercise of ancillary jurisdiction in policy statements alone would contravene the “ ‘axiomatic’ principle that ‘administrative agencies may [act] only pursuant to authority delegated to them by Congress.’ ” Id. at 654 (alteration in original) (quoting American Library Ass’n, 406 F.3d at 691). We went on to reject the Commission’s invocation of a handful of other statutory provisions that, although they could “arguably be read to delegate regulatory authority,” id. at 658, provided no support for the precise order at issue, id. at 658-61.
While the Comcast matter was pending, the Commission sought comment on a set of proposed rules that, with some modifications, eventually became the rules at issue here. See In re Preserving the Open Internet, 24 F.C.C.R. 13064 (2009). In support, it relied on the same theory of ancillary jurisdiction it had asserted in the Comcast Order. See id. at 13099 ¶¶ 83-85. But after our decision in Comcast undermined that theory, the Commission sought comment on whether and to what extent it should reclassify broadband Internet services as telecommunications services. See
The Open Internet Order establishes two sets of “prophylactic rules” designed to “incorporate longstanding openness principles that are generally in line with current practices.” 25 F.C.C.R. at 17907 ¶4. One set of rules applies to “fixed” broadband providers — i.e., those furnishing residential broadband service and, more generally, Internet access to end users “primarily at fixed end points using stationary equipment.” Id. at 17934 ¶ 49. The other set of requirements applies to “mobile” broadband providers — i.e., those “serv[ing] end users primarily using mobile stations,” such as smart phones. Id.
The Order first imposes a transparency requirement on both fixed and mobile broadband providers. Id. at 17938 ¶ 56. They must “publicly discldse accurate information regarding the network management practices, performance, and commercial terms of [their] broadband Internet access services.” Id. at 17937 ¶ 54 (fixed providers); see also id. at 17959 ¶ 98 (mobile providers).
Second, the Order imposes anti-blocking requirements on both types of broadband providers. It prohibits fixed broadband providers from “blockfing] lawful content, applications, services, or non-harmful devices, subject to reasonable network management.” Id. at 17942 ¶ 63. Similarly, the Order forbids mobile providers from “blocking] consumers from accessing lawful websites” and from “blocking] applications that compete with the provider’s voice or video telephony services, subject to reasonable network management.” Id. at 17959 ¶ 99. The Order defines “reasonable network management” as practices designed to “ensur[e] network security and integrity,” “address! ] traffic that is unwanted by end users,” “and reducfe] or mitigatfe] the effects of congestion on the network.” Id. at 17952 ¶ 82. The anti-blocking rules, the Order explains, not only prohibit broadband providers from preventing their end-user subscribers from accessing a particular edge provider altogether, but also prohibit them “from impairing or degrading particular content, applications, services, or non-harmful devices so as to render them effectively unusable.” Id. at 17943 ¶ 66.
Third, the Order imposes an anti-discrimination requirement on fixed broadband providers only. Under this rule, such providers “shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.” Id. at 17944 ¶ 68. The Commission explained that “[u]se-agnostic discrimination” — that is, discrimination based not on the nature of the particular traffic involved, but rather, for example, on network management needs during periods of congestion— would generally comport with this requirement. Id. at 17945-46 ¶ 73. Although the Commission never expressly said that the rule forbids broadband providers from granting preferred status or services to edge providers who pay for such benefits, it warned that “as a general matter, it is unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard.” Id. at 17947 ¶ 76. Declining to impose the same anti-discrimination requirement on mobile providers, the Commission explained that differential treatment of such providers was warranted because the mobile broadband market was more competitive ■ and more rapidly evolving than the fixed broadband market,
As authority for the adoption of these rules, the Commission invoked a plethora of statutory provisions. See id. at 17966-81 ¶¶ 115-37. In particular, the Commission relied on section 706 of the 1996 Telecommunications Act, which directs it to encourage the deployment of broadband telecommunications capability. See 47 U.S.C. § 1302(a), (b). According to the Commission, the rules furthered this statutory mandate by preserving unhindered the “virtuous circle of innovation” that had long driven the growth of the Internet. Open Internet Order, 25 F.C.C.R. at 17910-11 ¶ 14; see id. at 17968, 17972 ¶¶ 117, 123. Internet openness, it reasoned, spurs investment and development by edge providers, which leads to increased end-user demand for broadband access, which leads to increased investment in broadband network infrastructure and technologies, which in turn leads to further innovation and development by edge providers. Id. at 17910-11 ¶ 14. If, the Commission continued, broadband providers were to disrupt this “virtuous circle” by “[rjestricting edge providers’ ability to reach end users, and limiting end users’ ability to choose which edge providers to patronize,” they would “reduce the rate of innovation at the edge and, in turn, the likely rate of improvements to network infrastructure.” Id. at 17911 ¶ 14.
Two members of the Commission dissented. As they saw it, the Open Internet Order rules not only exceeded the Commission’s lawful authority, but would also stifle rather than encourage innovation. See Open Internet Order, 25 F.C.C.R. at 18049-81 (Dissenting Statement of Commissioner McDowell); id. at 18084-98 (Dissenting Statement of Commissioner Baker).
Verizon filed a petition for review of the Open Internet Order pursuant to 47 U.S.C. § 402(a) as well as a notice of appeal pursuant to 47 U.S.C. § 402(b). Because “we plainly have jurisdiction by the one procedural route or the other,” “we need not decide which is the more appropriate vehicle for our review.” Cellco Partnership v. FCC, 700 F.3d 534, 541 (D.C.Cir.2012) (internal quotation marks omitted).
Verizon challenges the Open Internet Order on several grounds, including that the Commission lacked affirmative statutory authority to promulgate the rules, that its decision to impose the rules was arbitrary and capricious, and that the rules contravene statutory provisions prohibiting the Commission from treating broadband providers as common carriers. In Part II, we consider Verizon’s attacks on the Commission’s affirmative statutory authority and its justification for imposing these rules. We consider the common carrier issue in Part III. Given our disposition of the latter issue, we have no need to address Verizon’s additional contentions that the Order violates the First Amendment and constitutes an uncompensated taking.
Before beginning our analysis, we think it important to emphasize that although the question of net neutrality implicates serious policy questions, which have engaged lawmakers, regulators, businesses, and other members of the public for years, our inquiry here is relatively limited. “Regardless of how serious the problem an administrative agency seeks to address, ... it may not exercise its authority in a manner that is inconsistent with the administrative structure that Congress enacted into law.” Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 91, 122 S.Ct. 1155, 152 L.Ed.2d 167 (2002) (internal quotation marks omitted). Accordingly, our task as a reviewing court is not to assess the wisdom of the Open Internet
II.
The Commission cites numerous statutory provisions it claims grant it the power to promulgate the Open Internet Order rules. But we start and end our analysis with section 706 of the 1996 Telecommunications Act, which, as we shall explain, furnishes the Commission with the requisite affirmative authority to adopt the regulations.
Section 706(a) provides:
The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.
47 U.S.C. § 1302(a). Section 706(b), in turn, requires the Commission to conduct a regular inquiry “concerning the availability of advanced telecommunications capability.” Id. § 1302(b). It further provides that should the Commission find that “advanced telecommunications capability is [not] being deployed to all Americans in a reasonable and timely fashion,” it “shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.” Id. The statute defines “advanced telecommunications capability” to include “broadband telecommunications capability.” Id. § 1302(d)(1).
Verizon contends that neither subsection (a) nor (b) of section 706 confers any regulatory authority on the Commission. As Verizon sees it, the two subsections amount to nothing more than congressional statements of policy. Verizon further contends that even if either provision grants the Commission substantive authority, the scope of that grant is not so expansive as to permit the Commission to regulate broadband providers in the manner that the Open Internet Order rules do. In addressing these questions, we apply the familiar two-step analysis of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). As the Supreme Court has recently made clear, Chevron deference is warranted even if the Commission has interpreted a statutory provision that could be said to delineate the scope of the agency’s jurisdiction. See City of Arlington v. FCC,—U.S.-, 133 S.Ct. 1863, 1874,—L.Ed.2d - (2013). Thus, if we determine that the Commission’s interpretation of section 706 represents a reasonable resolution of a statutory ambiguity, we must defer to that interpretation. See Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. The Chevron inquiry overlaps substantially with that required by the Administrative Procedure Act (APA), pursuant to which we must also determine whether the Commission’s actions were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); see National Ass’n of Regulatory Utility Commissioners v. Interstate Commerce Commission, 41 F.3d 721, 726-27 (D.C.Cir.1994).
This is not the first time the Commission has asserted that section 706(a) grants it authority to regulate broadband providers. Advancing a similar argument in Comcast, the Commission contended that section 706(a) provided a statutory hook for its exercise of ancillary jurisdiction. Although we thought that section 706(a) might “arguably be read to delegate regulatory authority to the Commission,” we concluded that the Commission could not rely on this provision to justify the Comcast Order because it had previously determined, in the still-binding Advanced Services Order, that the provision “‘does not constitute an independent grant of authority.’ ” Comcast, 600 F.3d at 658 (quoting Advanced Services Order, 13 F.C.C.R. at 24047 ¶ 77). We rejected the Commission’s claim that the Advanced Services Order concluded only that section 706(a) granted it no forbearance authority — authority to relieve regulated entities of statutory obligations to which they would otherwise be subject, see 47 U.S.C. § 160— over and above that given it elsewhere in the Communications Act. Comcast, 600 F.3d at 658. Indeed, the Advanced Services Order was clearly far broader, explicitly declaring: “section 706(a) does not constitute an independent grant of forbearance authority or of authority to employ other regulating methods.” Advanced Services Order, 13 F.C.C.R. at 24044 ¶ 69 (emphasis added). Because the Commission had “never questioned, let alone overruled, that understanding of section 706,” we held that it “remain[ed] bound” by its prior interpretation. Com-cast, 600 F.3d at 659.
But the Commission need not remain forever bound by the Advanced Services Order’s restrictive reading of section 706(a). “An initial agency interpretation is not instantly carved in stone.” Chevron, 467 U.S. at 863, 104 S.Ct. 2778. The APA’s requirement of reasoned decision-making ordinarily demands that an agency acknowledge and explain the reasons for a changed interpretation. See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129 S.Ct. 1800, 173 L.Ed.2d 738 (2009) (“An agency may not ... depart from a prior policy sub silentio or simply disregard rules that are still on the books.”); Brand X, 545 U.S. at 981, 125 S.Ct. 2688 (“Unexplained inconsistency is, at most, a reason for holding an interpretation to be an arbitrary and capricious change from agency practice under the Administrative Procedure Act.”). But so long as an agency “adequately explains the reasons for a reversal of policy,” its new interpretation of a statute cannot be rejected simply because it is new. Brand X, 545 U.S. at 981, 125 S.Ct. 2688. At the time we issued our Comcast opinion, the Commission failed to satisfy this requirement, as its assertion that section 706(a) gave it regulatory authority represented, at that point, an attempt to “ ‘depart from a prior policy sub silentio.’ ” Comcast, 600 F.3d at 659 (quoting Fox, 556 U.S. at 515, 129 S.Ct. 1800).
In the Open Internet Order, however, the Commission has offered a reasoned explanation for its changed understanding of section 706(a).’ To be sure, the Open Internet Order evinces a palpable reluctance to accept this court’s interpretation of the Advanced Services Order, as the Commission again attempts to reconcile its current understanding of section 706(a) with its prior interpretation. See Open Internet Order, 25 F.C.C.R. at 17969 ¶ 119 (characterizing the Advanced Services Order as being “consistent with [the Commission’s] present understanding”). Of course, such reluctance hardly makes the Commission’s decision unreasonable, as it is free to express its disagreement with
In any event — and more important for our purposes — the Commission expressly declared: “To the extent that the Advanced Services Order can be construed as having read Section 706(a) differently, we reject that reading of the statute for the reasons discussed in the text.” Open Internet O