Net Neutrality: FCC Declares Open Internet

Posted by Rini O'Neil, PC on December 22, 2010

It seems fitting that the Federal Communications Commission took advantage of yesterday’s winter solstice to shine new light on its plans to regulate the “Open Internet.”  By a 3-2 vote along party lines, the FCC adopted “net neutrality” rules that will govern how fixed and mobile broadband providers do business with their subscribers and others that use the Internet.  Only Chairman Julius Genachowski seemed happy about the rules, calling them a “strong and balanced” approach to Internet governance that avoided the extremes of his colleagues.

At first blush, the rules appear to strike a balance between two extremes – intrusive government micromanagement and toothless requirements that have little practical effect. There are, however, open issues that give rise to concern.

Once it became clear that net neutrality rules would be adopted and the government would be involving itself in Internet access, some fixed wireless broadband providers (WISPs) feared that their small, capacity-constrained networks would buckle under the strain of the same rules that would apply to Comcast, Verizon and other large ISPs operating on high-capacity wired platforms.  As a general matter, broadband providers will not be permitted to block consumers’ access to lawful content, applications and devices and cannot engage in “unreasonable discrimination.”  These rules are subject to “reasonable network management,” a key phrase for any ISP and small WISPs in particular.

As with any regulation, words matter.  And in this case, how the FCC defines “reasonable network management” is especially crucial.  Providers will be given “meaningful flexibility” to manage network issues such as congestion and security.  “Reasonable” is defined generally along the lines of what is appropriate and tailored to achieving a legitimate network management purpose, taking into account such factors as network architecture and technology.  Examples of legitimate network management purposes include ensuring network security and reducing the effects of network congestion.  In this regard, the rules may be interpreted to recognize the unique challenges that WISPs face in operating small businesses in small communities with small networks.      

Not only do words matter, but how the FCC will enforce its rules and applies its definitions will be important to watch.  Given the FCC’s decision to allow consumers to file informal complaints, broadband providers hopefully will not be required to respond to ongoing, time-consuming complaints that may force ISPs to be overly cautious in the way they manage legitimate network issues.  It would not be surprising to see consumer groups spearheading enforcement efforts that create uncertainty in network management.

This is not the last we will hear of net neutrality and the Open Internet. Some have raised serious questions about the legality of the new rules and about whether the FCC has sufficient authority to adopt them.  Republican Commissioners Robert McDowell and Meredith Attwell Baker issued strenuous oppositions in line with their recent statements in the press.  Calling the FCC's failure to learn from the past as “regulatory hubris,” McDowell sharply criticized the majority's reliance on Section 706 of the Communications Act as a legal authority and essentially laid out an analytical roadmap to overturn the rules in court.  Baker also stated that unelected officials should not be making decisions with such far-reaching consequences.  Echoing concerns from House Republicans, McDowell and Baker accused the majority of acting where no competitive harm is present--a position set forth by AT&T. One Republican Senator has already introduced an amendment to an appropriations bill that would strip the FCC of funding for anything related to implementing and enforcing the net neutrality rules.

It will likely be a long time before the full impact of the FCC’s rules can be assessed.  In the meantime, Internet businesses of all kinds will need to account for the potential new costs and the regulatory burdens that may follow.

Court Recognizes Privacy Rights for Email Subscribers; Addresses the Role of Internet Service Providers

Posted by Rini Coran, PC on December 21, 2010

Just in time for the holiday season, a federal appeals court has presented Internet Service Providers (ISPs) with a “worry issue” that’s as welcome as a re-gifted fruitcake.  How should ISPs respond to law enforcement requests for copies of their subscribers’ email when the government doesn’t provide a search warrant?  While the issue isn’t new, thanks to the court’s recent decision, the ISP’s concerns have become more complicated.

In U.S. v. Warshak, a panel of the U.S. Court of Appeals for the 6th Circuit found that an ISP subscriber had a reasonable expectation of privacy in his emails and thus was entitled to the Fourth Amendment’s protections against unreasonable searches and seizures by the government.  The case involved a complex federal criminal prosecution involving the principals of a company that distributed “an herbal supplement purported to enhance male sexual performance.”  The Appeals Court found that the government violated the defendant’s constitutional rights by compelling the ISP to turn over the defendant’s emails without first obtaining a search warrant supported by probable cause. 

The defendant sought to have the trial court exclude thousands of emails obtained by the government.  Warshak held that the defendant enjoyed a reasonable expectation of privacy in the emails due to his subjective expectations (because the emails contained sensitive material) and because the ISP served as an intermediary for the defendant’s messages, not as an intended recipient.  Prosecutors argued that government agents acted in reliance on a federal statute (the Stored Communications Act [“SCA”]) that permits disclosure of the contents of electronic communications in certain circumstances.  The Appeals Court found the SCA to be partially unconstitutional but declined to exclude the emails, finding that the government agents acted in good faith reliance on the SCA.

The case has several important takeaways for ISPs.  First, ISPs may need to take a fresh look at their potential liability to their subscribers if they provide the subscriber’s emails to the government.  Even if the ISP controls the emails and the service agreement provides it with limited rights of access, a court may find that a subscriber likely has a “reasonable expectation of privacy” and therefore Fourth Amendment protections.

Such an expectation does not exist in all cases – the Appeals Court noted that an ISP’s expressed intention to “audit, inspect, and monitor” emails may render the expectation of privacy unreasonable.  Accordingly, ISPs may wish to review their service agreements to determine what they are telling subscribers about the ISP’s inspection of emails, about how the ISP will respond to legal processes designed to access subscriber emails and what notices, if any, will be given to subscribers in these instances. 

Second, the ruling also impacts business issues.  Consumers demand private, secure communications and more generally, privacy concerns permeate many aspects of Internet services.  An enhanced expectation of privacy by consumers may translate into additional costs for service providers. 

Third, many federal and state laws address privacy in electronic communications, so the contours of this privacy right are a work in progress, particularly in light of technological changes.  For example, the SCA was enacted in 1986 -- years before email was widely used and available.  As a result, don’t expect the Warshak decision to be the last word.  While the ruling applies directly in states within the 6th Circuit (i.e., Kentucky, Michigan, Ohio and Tennessee), it can be deemed persuasive authority elsewhere, but other jurisdictions also may reach different conclusions.  The U.S. Supreme Court also may be expected to weigh in at some point given the importance of the issue.

Congress to FCC: More Low Power FM ("LPFM") Stations, Please

Posted by David G. O’Neil on December 18, 2010

Passage of the Local Community Radio Act of 2010 (“LCRA”) by the Congress authorizes the FCC to issue new licenses for thousands of LPFM radio stations across the country, providing new outlets for new voices in new areas. Specifically, the LCRA: 

  • Eliminates the requirement that a proposed LPFM station protect full power radio stations operating on the third adjacent channel, unless the full power station broadcasts radio reading services.
  • Allows LPFM stations to operate in closer proximity to full power stations operating on the second adjacent channel.  The LPFM station must cease operation if there is any complaint of the LPFM station causing interference to the full power station.
  • LPFM stations will remain secondary services and must cease operation if the LPFM station causes interference to public reception of a full power radio station.
  • A full power radio station may still displace a LPFM station; presumably the elimination of the third adjacent channel protection will make it easier to find a new channel for a displaced FM station. 
  • LPFM stations will have co-primary status with FM Translator and FM Booster Stations; meaning that a LPFM station must protect a previously authorized FM Translator or Booster Station and vice versa. 

This new law is important because the FCC has been given authority to grant licenses for new LPFM stations across the country in markets previously unavailable to LPFM stations. This is expected to help further the diversity goals of the FCC and the broadcast industry. The LCRA provides clarity for full power, FM Translator, FM Booster and LPFM stations by setting in stone their interference rights vis-à-vis each other.  This is a “big win” for the National Association of Broadcasters (or NAB) because it provides solace to incumbent broadcasters concerned that LPFM stations might gain priority over full power and secondary stations. 

It remains uncertain when the FCC will issue a filing window for the public to submit applications for construction permits for new LPFM stations; and whether the FCC will proceed with a new filing window before or after dealing with the backlog of thousands of FM translator applications pending before the FCC since March 2003. Early resolution of the pending FM translator stations could make it possible for the FCC to grant even more LPFM stations, thereby providing additional outlets to promote diversity.

Incentive Auctions of TV Spectrum for Broadband May End Up Not So Voluntary

Posted by Rebecca Rini on December 03, 2010

The FCC has begun its long anticipated rule making proceeding to reallocate 120 MHz of TV spectrum from wireless broadcast to wireless broadband services. Just a few days ago, the Commission voted 5-0 to consider three different approaches for reclaiming this spectrum, relying mostly on voluntary participation by TV broadcasters who wonder openly how truly voluntary this process will be if not enough TV stations agree to trade spectrum for cash and possibly, a smaller slice of shared spectrum to continue broadcasting.

The first approach is to encourage broadcasters to return 120 MHz of spectrum to be auctioned for wireless broadband service, with broadcasters receiving some portion of the auction proceeds. These incentive auctions would require Congressional approval. The second approach is adoption of rules to encourage two or more television stations to share the same 6 MHz TV channel. The third approach is adoption of new engineering rules to improve the VHF band with the hope that some television broadcasters would relinquish their stations in the UHF band in exchange for stations in the VHF band. The FCC likely will order TV spectrum auction winners to pay the costs to repack the TV Band to clear contiguous blocks of spectrum to auction.

Broadcasters are less than enthusiastic about the third approach because of concerns about impulse noise from electrical power lines, signal quality issues in the VHF band and the costs associated with moving a station from the UHF to the VHF band. The Commission believes the continued growth and importance of wireless broadband services requires allocation of spectrum from other services. The Commission has identified television broadcast spectrum as the most suitable candidate, arguing that television broadcasters do not use their spectrum efficiently, that less than 10% of the nation receives broadcast television through over-the-air reception and that broadcasters will still have 300 MHz of spectrum remaining after the FCC takes away and auctions the reclaimed spectrum.

TV stations question whether the Commission’s proposals will degrade the quality of HD signals because shared spectrum is insufficient to broadcast in HD. It is unclear what costs TV stations would have to bear (and in this economy, the costs of the auction transaction itself could be daunting). There is also fear that this approach could undermine the legal basis for the must carry/retransmission regime. Fundamentally, many question the necessity of reclaiming that much spectrum, pointing out that the demand for spectrum is greatest in the largest metropolitan markets where TV stations are not likely to voluntarily participate in auctions. The quickest path to freeing up more spectrum for broadband applications would be to give broadcasters more flexibility to use their spectrum for broadband services by reforming the technical rules and allowing secondary leasing rules to govern rather than the outmoded command and control model now favored by FCC regulators only with respect to broadcasting.

In an ironic twist, broadband providers are now touting the benefits of a “broadcast type” service over broadcast spectrum. This is allegedly the most efficient use of spectrum to deliver video programming consumers are demanding in greater numbers. At the end of the day, broadcasters are expected to go along with the proposals so long as they are truly “voluntary.” As anyone who has negotiated voluntary conditions as part of an FCC merger review knows, some things in DC are more voluntary than others.

 

"Do Not Track" Gains Momentum in Washington

Posted by Rini Coran, PC on December 03, 2010

As the Federal Trade Commission considers addressing Internet privacy through “Do Not Track” proposals, these efforts recall a line from Jack Lemmon’s 1960s film The Apartment: “that’s the way it crumbles … cookie-wise.” With the Internet economy’s heavy reliance on targeted advertising as a revenue generator, overregulation in this space could leave crumbs everywhere.

In this particular cautionary tale, the notion of personal space is more fluid than in The Apartment’s darkly comic fable about the repeated invasions of a clerk’s apartment by his bosses. In the Internet space, the innovation and functionality that consumers demand requires reasonable compromises as far as consumer data is concerned. Companies that engage in behavioral advertising and/or the collection, use and dissemination of online browsing data – often through the use of Internet “cookies” – work to generate revenues amid their users’ expectations of privacy. Advertising and tracking services deploy new and complex ways to follow users’ steps through the Internet, such as monitoring purchasing behavior and other activities. These efforts often benefit consumers as well -- content can be tailored to those users’ browsing habits and may provide a level of personalization through storing commonly used information, site preferences or other methods.

Nevertheless, despite efforts by many websites to craft privacy policies to address users’ concerns, some consumers are unaware of these tracking methods or of the data being collected. Some advocates support a “Do Not Track” approach to permit consumers to reject the collection and use of their data, and the FTC has weighed in with its support. In its December 1, 2010 report on Consumer Privacy, the FTC proposes a framework for enhancing consumer privacy on the Internet. Existing FTC regulation focuses on increasing notice to consumers about privacy practices, on promoting consumer choice for data practices and on consumer protection through FTC enforcement. The FTC’s new approach has several components: 1) Companies should adopt a “privacy by design” approach toward building privacy protections into their business practices; 2) Companies should provide simpler and more streamlined notice to consumers about data practices, and consumers should be afforded the opportunity to make informed and meaningful choices; and 3) Companies should make data practices more transparent to consumers.

Most significantly, the FTC supports the use of “Do Not Track” as part of the enhanced “notice” approach. “Do Not Track” would involve the use of a “persistent setting” on the consumer’s browser that would prevent tracking and targeted ads as the user browses or searches the Internet. In concept, the approach takes it cue from the wildly popular “Do Not Call” registry adopted by Congress several years ago. The impact of “Do Not Track” – and the potential unintended consequences – may be more significant. Early reports indicate that there are many technical challenges to implementation of a universal approach, and some useful website functionality may be disabled. More importantly, the potential for systemic blocking of targeted ads threatens the ad-based revenue model that dominates Internet commerce.

The FTC’s proposals are sure to draw much attention in the industry and among policymakers. As with “Do Not Call,” implementation and enforcement of “Do Not Track” likely requires some sort of federal legislation, and Congress has begun holding hearings on the matter in recent days. Expect “Do Not Track” to be a hot button issue in 2011, and keep an eye on the cookie jar.