The DC Circuit Court threw us a curveball (or maybe a Mo Rivera cutter) in upholding the FCC’s argument that Section 706 of the Communications Act provides it with jurisdiction over high-speed broadband networks (“advanced communications” in the language of the Act) but nonetheless struck down most of the Agency’s “Open Internet” rules on consistency grounds yesterday. Some folks anticipated this outcome, but I wasn’t one of them.

The consistency problem relates to the fact that the FCC classified broadband services provided over telephone wire, coaxial cable, and optical fiber (including combinations like AT&T’s and Qwest’s VDSL2+ copper/fiber hybrids) as de-regulated Title I Information Services in 2002. Having done that, the court said, the FCC cannot impose traditional telephone network common carriage regulations on these networks, which is what the anti-blocking and anti-Quality of Service (AKA “non-discrimination”) regulations in the Open Internet Order did. The court didn’t opine on Verizon’s arguments that it is a First Amendment speaker since it didn’t need to, so those arguments will live to fight another day if they’re needed.

The court split the baby in such a way that the FCC can declare victory – its authority was upheld – but so can Verizon, since the rules that forbade the sale of advanced network services were struck down. For consumers, this is good news.

The court uphold the transparency requirements in the Open Internet order that permit consumers to make well-informed and rational choices between broadband providers, and the court said that the FCC has broad authority over broadband that it can use to prevent actual harm to consumers.

The champions of net neutrality suffered a big loss, on the other hand, because they now have the challenge of convincing the public that the FCC needs to move broadband into the regulatory category designed for the old telephone network at the same time that the FCC is trying to phase out traditional telephony in favor of the Internet.  That’s right, the FCC is starting to move consumers off the telephone network in favor of IP everywhere, but the net neutrality fans (they were on Reddit yesterday chatting about what happens next) want to move Internet-oriented broadband networks into Title II, the obsolete regulatory framework designed for monopoly telephone networks.

It’s not at all clear that the things the net neutrality people want are actually forbidden by Title II in any case; if a carrier wants to offer low-latency broadband transmission to Vonage, for example, to enable it to be a better competitor in the VoIP space, Title II permits them to do so as long as the carrier offers the same service to other firms with similar goals and coverage. Another aspect of Title II reclassification relates to the sticky matter of “forbearance.”

While most of Title II is a laughably poor fit for broadband, the Communications Act allows the FCC to forbear (to simply not apply) certain portions of the Act under certain conditions, but forbearance is a lot harder to pull off as a practical matter than the advocates are willing to admit: the FCC would have to seek public comment and run a rule-making for each item of forbearance, and there’s no guarantee that a long list of forbearance items would survive this multi-year process. So we need to think about Title II as essentially an all-or-nothing deal.

It has become quite clear that one of the underlying goals of the net neutrality advocates is zero-cost peering between service providers and ISPs. This decision didn’t help them on this quest, and may have made it more difficult. Zero-cost interconnection is a major issue for the corporate sponsors net neutrality, a dwindling cast of characters that still has deep pockets.

An interesting aside in the decision relates to a “third way” on net neutrality similar to the approach the European Commission has taken, which allows ISPs to sell Differentiated Services as long as they guarantee a base level of service at every interconnection point. This notion is a lot more complicated than most policy advocates realize, because the Internet is a statistically-multiplexed system in which everyone’s Quality of Service depends on what everyone else is doing at any given time. A baseline QoS rule would be more difficult to write coherently than the entire Open Internet order was.

Nobody knows if the FCC or Verizon is going to appeal the order, although FCC chairman Tom Wheeler has said that all options are on the table, including appeal. It would seem more prudent for the FCC to examine its options for creating a more durable order within the confines of Title I, as the court indicated it could have done a better job of writing and justifying its rules than it did.

At least for the time being, Internet Freedom once again applies to network operators, which is a good thing. Given the threats of appeal, reclassification, and a re-write of the rules, there is still some regulatory overhang on the broadband sector, which is unfortunate. An interesting implication of the more heavily regulated Internet that Title II reclassification would create is international; if the US reclassifies the Internet’s last mile as a traditional telephone service, we lose any leverage we ever had with nations like China and Saudi Arabia who disdain Internet Freedom.  That’s the problem with freedom: you either have it or you don’t, and arbitrarily singling out one part of the Internet for over-regulation doesn’t make the rest of the ecosystem more free, it simply establishes a precedent for the erosion of the rights we’d all like to take for granted.

Not surprisingly, the people who are invested in promoting net neutrality as the solution to all the world’s problems are claiming the court decision is the end of the Internet. Perhaps the worst outcome for that point of view is exactly what we’ve seen over the last five four years: steady improvement in America’s broadband networks, an explosion of new apps, and an employment boom in Silicon Valley that’s raised housing prices through the roof. All that prosperity is hard to handle.

Ultimately, these rules are unnecessary because no ISP wants to lose customers for doing the things the net neutrality advocates claim they secretly want to do. That’s why consumers have nothing to fear.

To see some of the official reaction to the decision, go to these sources:

Chairman Wheeler’ Statement On Court Opinion On Open Internet Rules
Commissioner Pai’s Statement on DC Circuit’s Net Neutrality Decision
Commissioner O’Rielly’s Statement on Net Neutrality DecisionCommissioner Clyburn’s Statement on DC Circuit Open Internet Decision
Commissioner Rosenworcel’s Statement On Court Opinion On Open Internet Rules
Broadband for America Statement on U.S. Court of Appeals for the District of Columbia Circuit Decision in the case of Verizon v. FCC

For the AEI Google Hangout on the decision, go here.