States are trying to bring back net neutrality

CYBERSLEUTH

In the wake of the Federal Communications Commission's decision to remove net neutrality rules, some state legislatures, including California's, have stated they are considering passing replacement legislation. On Monday, Montana Gov. Steve Bullock issued an executive order that would require all internet service providers that are vendors for the state to not block websites or charge for faster delivery of content. The executive order sets up a potential legal conflict with the FCC's effort to block such state or local regulations.

Earlier this month, the FCC issued an order expressly preempting states from enacting their own regulations that might require any semblance of controls over internet service provider conduct. The order precludes "economic regulation" and "public utility-type regulation," which is defined as "requirements that all rates and practices be just and reasonable; prohibitions on unjust or unreasonable discrimination; tariffing requirements; accounting requirements; entry and exit restrictions; interconnection obligations; and unbundling or network-access requirements."

The FCC's preemption is focused on requirements placed directly on ISPs regarding their provision of service. By focusing instead on eligibility requirements for ISPs who want to do business with the state of Montana, Gov. Bullock's executive order may not run afoul of the FCC's attempt to stop states from replacing net neutrality rules. How a state government spends its money and the eligibility criteria is imposes on vendors has long been the exclusive province of local legislators.

Many forget there was a raging debate at the dawn of the web over the correct jurisdictional classification of the internet. At that time, internet access was limited to dial-up connections, which meant calling through a traditional land line via a modem and connecting to the service of an ISP. Those servers were virtually always local servers, often located in the same dialing area as the calling party, but certainly within the same state. The ISP server then determined the destination of the internet query and switched the call onto either local or long distance lines.

Many argued that because the dial-up connection "terminated" at the ISP initially, internet access was predominantly local and should be subject to state regulation entirely, or at least in conjunction with the FCC. The FCC rejected such arguments in the 90s and determined that because the ultimate destination of the call, the server hosting the website being queried, was frequently located across state boundaries, all internet traffic should be considered interstate for jurisdictional purposes.

Although the internet is now accessed predominantly via broadband connections, the same traffic pattern continues -- the broadband connection goes to the ISP server, which routes the traffic to its ultimate destination. If this first termination point is used to determine jurisdictionality, much if not all internet traffic is intrastate, meaning the FCC lacks the authority to impose its will on, or to preempt, states from regulating it.

While some may argue that it's far too late to revisit the jurisdictionality of internet traffic, the FCC seems concerned. Between the draft and final order removing net neutrality rules, the FCC added a footnote rejecting arguments that internet traffic could be separated into interstate and intrastate for purposes of jurisdiction (and potentially regulation), and that internet jurisdiction should be based on traffic routing. Footnote 745 acknowledges that the New America's Open Technology Institute submitted comments arguing if "the closest ISP headend, tower, or other facility to the customer" is in the same state as the customer, then the customer's Internet communications are all intrastate," but then brushes aside this argument. It is interesting that the FCC felt compelled to add footnote refuting the argument since the commission claims its jurisdiction over internet traffic is "well-settled."

While the FCC's determination that internet traffic is jurisdictionally interstate is old, that doesn't mean the decision was correct. For decades, states have been willing to let the FCC take the lead on internet regulation rather than fight a costly legal battle. But given that the importance of the internet is orders of magnitude greater than in it was the 1990s when the FCC was debating jurisdiction, states might just be willing to fight that battle. The FCC's reasoning that it has jurisdiction to preempt state regulation of the internet was based on the notion that the internet is interstate jurisdictional because "a substantial amount of Internet traffic begins and ends across state lines."

The FCC builds on that premise to conclude that it wouldn't be possible to comply with both federal and state regulations. State regulation would interfere with "our federal policy of non-regulation," it claims. And that the FCC says it has authority under 47 U.S.C. Section 160(e) to prevent states from regulating an area for which the FCC had decided to "forbear."

But Section 160(e) only prevents states from issuing regulations where the FCC has decided to forebear because regulations are not needed to ensure that practices of telecommunications carriers are just and reasonable, that consumers are protected, and that the public interest is served. 47 U.S.C. Section 160(a). Now that the FCC has reclassified ISPs as "information service providers," not "telecommunications carriers," it's unclear whether the Section 160(e) even applies.

If states were able to make a case in court that the FCC may not preempt all regulation of internet traffic, what's the likely effect? A patchwork of 50 state regulations would probably interfere with the efficient functioning of the internet. But there likely wouldn't be that many different regulations. Many states might simply enact the same FCC rules that were removed. Still, that could lead to an all-or-nothing result where some states (maybe most) would have robust rules preventing blocking of websites, or throttling of traffic for content from sources not preferred or affiliated with the ISP, while other states might follow the FCC lead and have no constraints at all.

It is not practical or economic for ISPs to reconfigure their networks to locate all servers in states without net neutrality regulations. So many ISPs might simply decide to comply universally with the most demanding state requirement rather than trying to develop an approach that distinguishes between jurisdictions. Would that really be so bad?