Moving on out?

New York’s Public Service Commission on Friday set the stage for ‘an orderly transition’ ending Spectrum’s brief life in New York, to be replaced with a ‘to be announced’ new cable operator to serve the needs of New York subscribers.

Or so the New York Public Service Commission hopes.

Although Friday’s 4-0 unanimous decision to revoke Charter’s merger deal in New York is a public relations and legal nightmare for the country’s second largest cable operator, we suspect top executives are getting a good night’s sleep tonight, not too concerned about the immediate consequences of today’s stunning vote.

Losing New York is what Wall Street would call “a materially adverse event” for any cable operator. New York City is the country’s largest media market. Billions of dollars worth of cable infrastructure, subscriber and advertising revenue, and prestige are at stake. Despite the ‘vote to revoke,’ Charter’s attorneys have signaled for weeks they intend to preserve and protect the cable company’s legal rights, and it is almost certain the PSC’s merger revocation order will meet a court-ordered injunction as soon as next week.

The courts are likely to make the final decision about whether Spectrum can stay or has to go. That aforementioned injunction will stop the clock on any ‘rash action’ and start what could be years of litigation, filled with discovery, endless hearings, stall tactics, blizzards of motions, appeals, more appeals, and then more lawsuits over whatever final exit plan is eventually filed, if one is required by the courts. A judge could also order the cable company and the state to work it out in a court-approved settlement, something the PSC seems loathe to do in its two orders published today which make it clear the regulator is done talking only to feel strung along by the cable company.

For the near term, Spectrum customers won’t notice a thing. Even if the PSC was not taken to court, Charter has 60 days to file a six month transition plan, making the earliest date to waive Spectrum goodbye is sometime in early 2019.

To help readers out, we’ve prepared a short FAQ to address any concerns:

Q. Will I lose my cable and internet service?

A. No. Regardless of what happens, the PSC has ordered a transition plan designed to provide a seamless switch between Spectrum and a future provider. For most customers, it will resemble Charter’s own transition from Time Warner Cable to Spectrum.

Q. Who will replace Spectrum?

Not again.

A. The cable industry often resembles a cartel, whose members go to great lengths to protect each other. Historically, no large cable operator will entertain requests for proposals from cities or states requesting a replacement of a cable company already providing service. In short, if a city is fed up with Comcast and wants to shop around for another provider, it is highly unlikely Charter/Spectrum, Cox, Altice/Cablevision, Mediacom, or other providers will submit a bid to replace Comcast. If they did, Comcast could theoretically retaliate in their service areas. Should the Public Service Commission itself solicit bids to replace Spectrum, it is unlikely any operator will send a proposal unless/until Charter indicates it wants to leave the state. This kind of informal protectionism has proven highly effective limiting the power of towns and cities to play companies off each other to get a better deal for their residents.

Q. If Charter loses its court challenge and has to leave, what happens then?

A. If Charter exhausts its appeals and realizes it can no longer do business in New York, it will seek a private sale or system swap with another provider. Comcast would be the most likely contender, having shown prior interest in serving New York and having contiguous cable operations in adjoining states, especially in northern New England, Massachusetts, Pennsylvania and New Jersey. Comcast could agree to trade its cable systems in states like Texas, Florida, or California in return for its New York State’s Spectrum systems, which cover cities across the state. But that is likely years away.

Q. Isn’t Comcast worse than what we have now with Spectrum?

A. Consumer satisfaction surveys suggest the answer is yes. Comcast is routinely rock bottom in customer satisfaction, customer service, pricing, and service options. Its 1 TB data cap on internet service has not yet reached many of its northeastern customers, but most observers expect it eventually will. In contrast, Charter has agreed not to impose data caps for up to seven years after its 2016 merger. But Comcast has delivered more frequent broadband speed upgrades and has more advanced set-top boxes and infrastructure.

Stop the Cap! would vociferously oppose Comcast’s entry in New York, however, just as we did a few years ago when we participated in the successful fight to stop Comcast’s merger attempt with Time Warner Cable.

Q, What other providers might be interested?

A. Altice, which does business as Cablevision or Optimum, is New York’s other big cable operator, providing service exclusively downstate. Altice had aggressive plans to become a big player in the U.S. cable business, but its acquisition dreams were halted by shareholders, concerned about the European company’s already staggering debt, run up acquiring other companies. Altice is currently scrapping Cablevision’s existing Hybrid Fiber Coax infrastructure and replacing it with direct fiber to the home service, which offers improved service. But the company charges a lot for its advanced set-top box, has bloated modem rental fees, and is notorious for vicious cost-cutting, which stalled service improvements at its mobile and cable companies in France and raised a lot of controversy among employees.

Cox could be another contender, but would have to find a few billion to acquire Spectrum’s statewide system. Wild card players include AT&T and Verizon. Verizon would face extreme regulatory challenges, however, because it is the local phone company for most residents in the state. AT&T sold its U-verse system in Connecticut to Frontier Communications and seems increasingly focused on content, not on the systems that deliver content. A hedge fund or private equity firm could also be contenders, but perhaps not considering the high cost to acquire the systems and New York’s reputation for fierce customer protection. Remember, New York insists that a cable company ownership transfer must meet public interest tests, not simply enrich hedge fund participants.

Q. What happens to Charter’s pre-existing deal conditions on rural broadband and speed increases?

A. Officially, the PSC has ordered Charter to continue abiding by the 2016 Merger Order and its deal commitments. The state will likely continue to fine Charter if it keeps missing rural broadband rollout targets until a court stops them or the company leaves. Charter will probably continue rural broadband expansion to show good faith. Charter has met its merger obligations related to speed increases, so it is not currently out of compliance. But a legal challenge offers the opportunity for a third-party judge to suspend or modify existing deal commitments, at least temporarily. It is unlikely Charter will want to invest large sums in its cable systems if it believes it will lose its case in court. The timetable for an upgrade to 200 Mbps Standard speed will likely now occur on a regional basis. The northeast division will still likely activate these speeds across multiple cities in the region sometime this summer, especially in places where it faces competitive pressure. The 300 Mbps upgrade in 2019 is more likely to be impacted by any forthcoming legal action.

Q. Is this political or about the union striking Charter? It is an election year.

A. All things are political to some degree in an election year in New York. That said, the New York Public Service Commission has the nation’s best track record of protecting consumers from bad actor telecom and energy companies. They take their responsibilities very seriously, and have shown consistent independence from the governor’s office, especially in recent years. The Commission was by far the most responsive of any state, including California, in taking our concerns about the Charter/Time Warner Cable merger seriously, and incorporated several of our suggestions into the final Merger Order. We warned the PSC cable companies have routinely reneged or slipped through deal conditions. We even predicted Charter would attempt to count new buildouts in non-rural areas and business office parks towards any commitment to expand their service areas. The PSC smartly conditioned its Merger Order by defining the goal of Charter’s broadband expansion — serving the unserved and underserved. That is why the company is not getting away with counting New York City buildouts towards this commitment.

Cynthia Nixon and Andrew Cuomo, both running for New York governor, neither fans of Charter Spectrum.

Few voters are likely to tie a PSC decision to the governor’s race, although Gov. Andrew Cuomo has repeatedly taken credit and praised the PSC for not tolerating bad behavior from Spectrum. If it was a purely political play, it would originate in the governor’s office. Gov. Cuomo’s Broadband for All program depends on achieving near-100% broadband penetration, something it may not manage if Charter fails its rural buildout commitments. That would be a PR mess. There is ample evidence that Charter’s own conduct was sufficient to trigger this kind of response, with or without an election looming.

New York is also a union-friendly state, and the International Brotherhood of Electrical Workers (IBEW) Local 3 has held out for over a year in the New York City area striking to preserve important job benefits Charter wants to discontinue. New revelations from the PSC outlining Charter’s increasingly bad safety record has strengthened the union’s case that Charter would rather bring in unqualified replacement workers and put safety at risk than settling with a union that essentially built the cable system serving New York City. There is no credible evidence that the union is involved in the PSC’s decision to revoke the merger agreement, although we suspect most affected members will fully support the decision.

Q. Is the PSC being too harsh? Can’t they work it out with Charter?

A. For New York to revoke a merger and effectively boot the company out of business in the state is remarkable. Utility companies that irresponsibly lack a credible disaster plan or do not comply with industry standards to maintain tree trimming and infrastructure repairs that result in plunging parts of upstate into darkness for up to two weeks after wind storms in two consecutive years were fined, but not ordered to leave. The ongoing scandal of competing private ESCO electric companies that have almost all scandalously overcharged New Yorkers with electric bills higher than their incumbent utility have been threatened with de-certification and fines, but are still conducting business, even though much of their marketing material was misleading.

Is it too late to work it out?

That should tell you the PSC’s move today was a final straw. The two parties have negotiated and debated Spectrum’s performance lapses for nearly a year. Tension was clearly rising by the spring after the PSC uncovered evidence Charter was intentionally counting areas it knew were outside of the spirit and language of the merger order’s rural broadband deal commitments. Charter’s brazen behavior achieved a new low when it questioned the PSC’s authority to oversee the merger agreement Charter signed. At one point, it unilaterally announced it would only honor the deal commitments found in one appendix of the Merger Order, conveniently ignoring the section describing and defining the rural broadband commitment Charter agreed to. The company also continued to air what the PSC declared to be false advertising, promoting Charter’s claimed accomplishments in rural broadband expansion. Charter repeatedly ignored warnings to suspend and remove those ads. In fact, the PSC issued strongly worded warnings to Charter at least twice, specifically outlining the possibility of canceling the merger agreement and forcing Spectrum out of the state. In response, Charter began staking out its legal arguments in filings, obviously preparing for litigation.

The PSC would probably argue it is impossible to work things out with a company that repeatedly breaks its own commitments. The PSC also openly worried what message it would send to other regulated utilities if it did not react strongly to Charter’s behavior. If the company had a corporate agenda to cheat New York out of important rural broadband expansion, negotiating, fining, and sanctioning a company is unlikely to change its behavior at the top.

Stop the Cap! had earlier recommended the PSC adopt new sanctions to force Charter to comply with its commitments, and expand them to bring service to many New Yorkers who were left behind by Gov. Cuomo’s Broadband for All program, suddenly saddled with satellite internet service. A large percentage of those affected are frustratingly close to nearby Spectrum service areas and although it would cost Charter a significant sum to reach them, it would deliver a financial sting for their bad behavior while also bringing much-needed internet access to the leftovers left-behind by the governor’s broadband expansion program. Such a settlement would require the company to actually comply with their commitments, something the PSC had been unable to achieve through no fault of their own. Perhaps a judge might have better luck should a negotiated settlement come up in litigation.

Last week, AT&T announced its intention to abandon an appeal of a decision of the 9th Circuit Court of Appeals granting the Federal Trade Commission the right to continue its lawsuit against AT&T for speed throttling its “unlimited data” wireless customers.

The notification came in a surprising four sentence notice filed with the court May 30:

At the May 10, 2018 case management conference in this matter, AT&T informed the Court that it expected at that time to request a 60-day extension from the Supreme Court of the deadline to file a petition for certiorari. See Audio Recording of May 10, 2018 Hr’g at 7:22. Since that hearing, AT&T has decided not to request such an extension and not to file a petition for certiorari to review the decision of the en banc Ninth Circuit, see 883 F.3d 848 (9th Cir. 2018). The deadline to file a petition for certiorari lapsed on May 29, 2018.

AT&T spokesman Mike Balmoris later told reporters: “We have decided not to seek review by the Supreme Court, to focus instead on negotiating a fair resolution of the case with the Federal Trade Commission.”

AT&T’s sudden change of heart surprised many observers, including some closely following the case at the 9th Circuit, which has held regular court supervised meetings to prepare for the widely expected Supreme Court challenge. AT&T notified the court in early May it would file its appeal as soon as May 29, and the court was preparing new discovery guidelines and deadlines between the two parties as the case proceeded.

AT&T had achieved a major victory in 2017 when a three-judge panel at the Ninth Circuit agreed with AT&T’s argument that the FTC had no jurisdiction over the company because part of its business includes traditional telephone service, something defined in law as being regulated exclusively by the FCC. At the same time, the FCC did not seem to have jurisdiction either, because wireless data throttling took place over a network not subject to common carrier service regulations.

Ninth Circuit Court of Appeals — San Francisco.

The Ninth Circuit then agreed to hear the case once again, this time “en banc” — meaning the full court would re-hear the case instead of a limited panel of three judges. In February, the court unanimously found the FTC did have regulatory jurisdiction over AT&T after all:

We conclude that the exemption in Section 5 of the FTC Act – “except . . . common carriers subject to the Acts to regulate commerce” – bars the FTC from regulating “common carriers” only to the extent that they engage in common-carriage activity. By extension, this interpretation means that the FTC may regulate common carriers’ non-common-carriage activities.

[…] This statutory interpretation also accords with common sense. The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications. New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company. The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement.

In short, AT&T’s “get out of regulatory oversight free”-card was revoked, much to its consternation. The company promised a fast appeal to the Supreme Court. The case concerned a number of observers, not the least of which was the Federal Communications Commission, which has been so concerned about AT&T’s novel argument to escape regulation, it filed a brief supporting the FTC with the court:

If the en banc Court were to adopt AT&T’s position that the FTC Act’s common-carrier exception is “status-based” rather than “activity-based,” contrary to the reasoned analysis of the district court below, the fact that AT&T provides traditional common-carrier voice telephone service could potentially immunize the company from any FTC oversight of its noncommon-carrier offerings, even when the FCC lacks authority over those offerings—creating a potentially substantial regulatory gap where neither the FTC nor the FCC has regulatory authority.

That approach is contrary to a common-sense reading of the relevant statutes and could weaken or eliminate important consumer protections. While AT&T may prefer to offer services in a regulatory no man’s land, the law does not dance to AT&T’s whims.

While AT&T publicly expressed confidence about its appeal right up to the day it abandoned it, minutes from the Ninth Circuit trial scheduling and progress conferences reveal AT&T and the FTC were already privately talking with each other to avoid further litigation:

“Parties reported that they are conducting settlement negotiations.”

All observers agree a successful appeal by AT&T to the Supreme Court could have put telecommunications laws and regulations into chaos. Had AT&T successfully restored the three-judge panel’s decision, any telecommunications company could walk away with impunity from FCC and FTC oversight by simply starting a small telephone company serving just a handful of customers. Just one product or service subject to common carrier rules could effectively immunize a phone or cable company from regulations indefinitely, or until Congress changed the law to close that loophole.

Some observers predict AT&T’s decision not to appeal is a prelude to an imminent, favorable permanent settlement of the four-year old case. The evidence strongly suggests AT&T will likely escape any significant monetary punishment, and affected consumers may not get significant (if any) compensation for AT&T’s prior acts:

• The FCC shows no sign of following through on a 2015 press release threatening AT&T with $100 million in fines for its failure to properly disclose its speed throttling policy arbitrarily imposed on unlimited data customers who exceeded a company-defined amount of data usage. At the time the press release was issued, there were three Democrats and two Republicans serving on the Commission. Both of those Republicans opposed the fine and are now part of the Republican majority at the FCC under the Trump Administration. The FCC admitted in court papers that no further action has been taken to fine AT&T. The case was largely left in the hands of the FTC.
• During the Obama Administration, the FTC claimed it was interested in pursuing refunds for affected customers and punishing AT&T for its throttling practices. Last week, Andrew Smith, the FTC’s new director of the Consumer Protection Bureau told an audience today’s priority it to monitor providers over traffic throttling and making sure those practices are transparently disclosed to customers. “We’re planning to examine current practices in the industry,” Smith said. “We’re looking for areas in which ISPs may be engaged in unfair or deceptive practices, and we will bring enforcement action as appropriate.”

Smith

For AT&T, the decision to drop its appeal may have come down to whether it preferred to temporarily escape regulatory oversight until an enraged Congress passed new laws to put AT&T and other telecom companies back under oversight, or living with the kind of “light-to-little touch” regulatory approach favored by the Trump Administration and its regulatory agencies. Whatever deal emerges between AT&T and the Trump Administration’s FTC will likely be “win-win” for the company and the regulator, with consumers offered only token relief.

The goals likely to be achieved in any settlement:

• AT&T would clearly like to avoid a $100 million fine and other enforcement actions, so agreeing to ease throttling (something it has done already) and better disclose the practice would hardly create a problem for the company, especially if fines are dropped as a result.
• The FCC’s new “net neutrality” policy depends almost entirely on effectively abdicating oversight responsibility to the FTC, something embarrassing and hard to justify if AT&T managed to permanently bar the agency from regulating the company.
• The FTC can claim victory by telling consumers they are watching ISPs for undisclosed and unwarranted throttling, without opening up new legal challenges by outright banning of the practice, heavily fining violators, or collecting damages on behalf of customers victimized by prior bad acts.

Wheeler

The chairman of the Federal Communications Commission has foreshadowed his revised plan for Net Neutrality will include reclassification of broadband as a utility, allowing the agency to better withstand future legal challenges as it increases its oversight of the Internet.

Tom Wheeler’s latest comments came during this week’s consumer electronics show in Las Vegas. Wheeler stressed he supports reclassification of broadband, away from its current definition as an “information service” subject to Section 706 of the Telecom Act of 1996 (all two broadly written paragraphs of it) towards a traditional “telecommunications service.” Under the Communications Act of 1934, that would place broadband under Title II of the FCC’s mandate. Although at least 100 pages long, Title II has stood the test of time and has withstood corporate lawsuits and challenges for decades.

Section 706 relies almost entirely on competition to resolve disputes by allowing the marketplace to solve problems. The 1996 Telecom Act, signed into law by President Bill Clinton, sought to promote competition and end “barriers to infrastructure investment.” Broadly written with few specifics, large telecom companies have successfully argued in court that nothing in Section 706 gives the FCC the right to interfere with the marketing and development of their Internet services, including the hotly disputed issues of usage caps, speed throttling, and the fight against paid fast lanes and Internet traffic toll booths. In fact, the industry has argued increased involvement by the FCC runs contrary to the goals of Section 706 by deterring private investment.

An executive summary of a report published on the industry-funded Internet Innovation Alliance website wastes no time making that connection, stating it in the first paragraph:

Net neutrality has the potential to distort the parameters built into operator business cases in such a way as to increase the expected risk. And because it distorts the operator investment business decision, net neutrality has the potential to significantly discourage infrastructure investment. This is due to the fact that investments in infrastructure are highly sensitive to expected subscriber revenue. Anything that reduces the expectation of such revenue streams can either delay or curtail such investments.

Unfortunately for consumers, even the chairman of the FCC concedes the broadband marketplace isn’t exactly teeming with the kind of competition Section 706 envisioned to keep the marketplace in check. In fact, Wheeler suggested most Americans live with a broadband duopoly, and often a monopoly when buying Internet access at speeds of 25Mbps or greater. Further industry consolidation is already underway, which further deters new competitors from entering the market.

Net Neutrality critics, the broadband industry, and their allies on Capitol Hill have argued that adopting Title II rules for broadband will saddle ISPs with at least one hundred pages of rules originally written to manage the landline telephone monopoly of the 1930s. Title II allows the FCC to force providers to charge “just and reasonable rates” which they believe opens the door to rate regulation. It also broadly requires providers to act “in the public interest” and unambiguously prohibits companies from making “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.”

Both Comcast and Verizon have challenged the FCC’s authority to regulate Internet services using Section 706, and twice the courts have ruled largely in favor of the cable and phone company. Judges have no problem permitting the FCC to enforce policies that encourage competition, which has allowed the FCC some room to insist that whatever providers choose to charge customers or what they do to manage Internet traffic must be fully disclosed. The court in the Verizon case also suggested the FCC has the authority to oversee the relationship between ISPs and content providers also within a framework of promoting competition.

DC Circuit Court

But when the FCC sought to enforce specific policies governing Internet traffic using Section 706, they lost their case in court.

Although Net Neutrality critics contend the FCC has plenty of authority to enforce Net Neutrality under Section 706, in reality the FCC’s hands are tied as soon as they attempt to implement anti-blocking and anti-traffic discrimination rules.

The court found that the FCC cannot impose new rules under Section 706 that are covered by other provisions of the Communications Act.

So what does that mean, exactly?

Michael Powell, former FCC chairman, is now the chief lobbyist for the National Cable & Telecommunications Association. (Photo courtesy: NCTA)

In 2002, former FCC chairman Michael Powell (who serves today as the cable industry’s chief lobbyist) presided over the agency’s decision to classify broadband not as a telecommunications service but an “information service provider” subject to Title I oversight. Whether he realized it or not, that decision meant broadband providers would be exempt from common carrier obligations as long as they remained subject to Title I rules.

When the FCC sought to write rules requiring ISPs not block, slow or discriminate against certain Internet traffic, the court ruled they overstepped into “common carrier”-style regulations like those that originally prohibited phone companies from blocking phone calls or preventing another phone company from connecting calls to and from AT&T’s network.

If the FCC wanted to enforce rules that mimic “common carrier” regulations, the court ruled the FCC needed to demonstrate it had the regulatory authority or risk further embarrassing defeats in the courtroom. The FCC’s transparency rules requiring ISPs to disclose their rates and network management policies survived Verizon’s court challenge because the court found that policy promoted competition and did not trespass on regulations written under Title II.

The writing on the wall could not be clearer: If you want Net Neutrality to survive inevitable court challenges, you need to reclassify broadband as a telecommunications service under Title II of the Communications Act.

Major ISPs won’t hear of it however and have launched an expensive media blitz claiming that reclassification would subject them to 100 pages of regulations written for the rotary dial era. Broadband, they say, would be regulated like a 1934 landline. Some have suggested the costs of complying with the new regulations would lead to significant rate increases as well. Many Republicans in Congress want the FCC to wait until they can introduce and pass a Net Neutrality policy of their own, one that will likely heavily tilt in favor of providers. Such a bill would likely face a presidential veto.

Suggestions the FCC would voluntarily not impose outdated or irrelevant sections of Title II on the broadband industry didn’t soothe providers or their supporters. Republican FCC commissioners are also cold to the concept of reclassification.

O’Rielly

“Title II includes a host of arcane provisions,” said FCC commissioner Michael O’Rielly in a meeting in May 2014. “The idea that the commission can magically impose or sprinkle just the right amount of Title II on broadband providers is giving the commission more credit than it ever deserves.”

Providers were cautiously optimistic in 2014 they could navigate around strong Net Neutrality enforcement with the help of their lobbyists and suggestions that an industry-regulator compromise was possible. Early indications that a watered-down version of Net Neutrality was on the way came after a trial balloon was floated by Wheeler last year. Under his original concept, paid fast lanes and other network management and traffic manipulation would be allowed if it did not create undue burdens on other Internet traffic.

Net activists loudly protested Wheeler’s vision of Net Neutrality was a sellout. Wheeler’s vision was permanently laid to rest after last November when President Barack Obama suddenly announced his support for strong and unambiguous Net Neutrality protections (and reclassifying broadband as a Title II telecommunications service), No FCC chairman would likely challenge policies directly advocated by the president that nominated him.

Obama spoke, Thomas Wheeler listened. Wheeler’s revised Net Neutrality plan is likely to arrive on the desks of his fellow commissioners no later than Feb. 5, scheduled for a vote on Feb. 26. It’s a safe bet the two Republicans will oppose the proposal and the three Democrats will support it. But chairman Wheeler also listens to Congress and made it clear he doesn’t have a problem deferring to them if they feel it necessary.

“Clearly, we’re going to come out with what I hope will be the gold standard,” Wheeler told the audience in Las Vegas. “If Congress wants to come in and then say, we want to make sure that this approach doesn’t get screwed up by some crazy chairman that comes in, [those are] legitimate issues.”

If that doesn’t work, the industry plans to take care of the Net Neutrality regulation problem itself. Hours after any Net Neutrality policy successfully gets approved, AT&T has promised to challenge it in court.

[flv]http://www.phillipdampier.com/video/Fox Business News Net Neutrality Wheeler 1-8-15.flv[/flv]

Free Press CEO Craig Aaron appeared on Fox Business News to discuss Tom Wheeler’s evolving position on Net Neutrality. (3:54)

Neville Chamberlain, British Prime Minister, 1937-1940

“If you don’t succeed, try, try, try again.” — Neville Chamberlain, 1938

Another day, another damage control effort from FCC chairman Thomas Wheeler, still reeling from days of criticism in response to his plan to revisit the issue of Net Neutrality next month.

In a lengthy blog post, Wheeler still believes it’s all a big misunderstanding:

“Some recent commentary has had a misinformed interpretation of the Open Internet Notice of Proposed Rulemaking (NPRM) currently before the Commission,” writes Wheeler. “There are two things that are important to understand.  First, this is not a final decision by the Commission but rather a formal request for input on a proposal as well as a set of related questions.  Second, as the Notice makes clear, all options for protecting and promoting an Open Internet are on the table.”

Except they are not.

Wheeler channels former British Prime Minister Neville Chamberlain by declaring a deep desire for “peace in our time” with half-measures instead of direct confrontation with Big Telecom interests.

“I believe this process will put us on track to have tough, enforceable Open Internet rules on the books in an expeditious manner, ending a decade of uncertainty and litigation,” Wheeler declares. “The idea of Net Neutrality (or the Open Internet) has been discussed for a decade with no lasting results. Today Internet Openness is being decided on an ad hoc basis by big companies. Further delay will only exacerbate this problem.”

The troubles with Net Neutrality are a problem of the agency’s own making and its leadership’s utter failure to show courage in the face of Verizon, Comcast, and AT&T’s power and influence. Former FCC chairman Michael Powell (now top cable industry lobbyist) created the problem when he invented a classification for broadband as an “information service” out of thin air without any clear authority. At the heart of Powell’s “policy statement” were four basic Internet principles:

1. Consumers are entitled to access the lawful Internet content of their choice.
2. Consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement.
3. Consumers are entitled to connect their choice of legal devices that do not harm the network.
4. Consumers are entitled to competition among network providers, application and service providers, and content providers.

Powell’s principles stood as long as the FCC’s policies moved in lock-step with the telecommunications industry. When the FCC strayed from industry talking points and started showing some enforcement teeth, some of the same telecom companies that send the FCC cupcakes took them to court.

Former FCC chairman Julius Genachowski who insisted the FCC had authority over broadband because he said so believed the best way forward was to involve the industry in the development of Net Neutrality policies they could live with. After multiple private phone conversations and closed-door meetings, companies like Verizon helped write the guidelines for protecting the Open Internet and then, after they were implemented, sued the FCC in federal court.

“We are deeply concerned by the FCC’s assertion of broad authority for sweeping new regulation of broadband networks and the Internet itself,” said Michael E. Glover, Verizon’s senior vice president and deputy general counsel. “We believe this assertion of authority goes well beyond any authority provided by Congress, and creates uncertainty for the communications industry, innovators, investors and consumers.”

That’s gratitude for you, and it wasn’t the first time.

Phillip “Your Wallet = Czechoslovakia” Dampier

In 2010, an exasperated D.C. Circuit Court of Appeals didn’t exactly encounter Perry Mason when the FCC legal team showed up to defend its order demanding Comcast cease throttling broadband traffic. When the FCC threatened to fine Comcast, the cable company sued claiming the FCC had no authority over how they run their broadband business. Commission lawyer Austin C. Schlick delivered a less-than-robust defense of the FCC’s scheme.

“If I’m going to lose I would like to lose more narrowly,” Schlick confided. “But above all, we want guidance from this Court so that when we do this rule-making, if we decide rules are appropriate we’d like to know what we need to do to establish jurisdiction.”

Justice A. Raymond Randolph had none of it.

“We don’t give guidance,” Randolph grumbled, “we decide cases.” The FCC lost.

Legal experts already knew the FCC was on thin ice.  First, the Powell’s statement was never codified by the Commission’s own rulemaking procedure.  Second, the Commission framed the broadband policy as a set of “guidelines,” a term considered legally vague.  Third, the FCC relied on the concept of “ancillary” authority — borrowing regulatory authority from so-called “policy statements” coming from Congress, to claim jurisdiction.

DC Circuit Court

So it should come as no surprise that the same framework declared invalid when the FCC tried to spank Comcast was just as useless in shoring up the FCC’s authority to enforce Net Neutrality.

U.S. Circuit Judge David Tatel, writing for a three-judge panel, said that while the FCC has the power to regulate Verizon and other broadband companies, it chose the wrong legal framework for its open-Internet regulations.

“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,” Tatel wrote.

Judge Tatel could not have been more clear. In his second ruling, he noted the FCC’s ongoing resistance to reclassify broadband service under the well-grounded definition of a “telecommunications service” is at the heart of the problem.

But Wheeler, like his immediate predecessor Julias Genachowski, still stubbornly grips Powell’s flawed framework like a life-preserver off the Titanic:

The FCC promises Verizon they won’t have to sue again.

I am concerned that acting in a manner that ignores the Verizon court’s guidance, or opening an entirely new approach, invites delay that could tack on multiple more years before there are Open Internet rules in place.  We are asking for comment on a proposed a course of action that could result in an enforceable rule rather than continuing the debate over our legal authority that has so far produced nothing of permanence for the Internet.

I do not believe we should leave the market unprotected for multiple more years while lawyers for the biggest corporate players tie the FCC’s protections up in court.  Notwithstanding this, all regulatory options remain on the table. If the proposal before us now turns out to be insufficient or if we observe anyone taking advantage of the rule, I won’t hesitate to use Title II. However, unlike with Title II, we can use the court’s roadmap to implement Open Internet regulation now rather than endure additional years of litigation and delay.

Here is some news Wheeler can use: No matter what policies the FCC enacts or how, if they run contrary to the interests of Big Telecom companies, they will sue anyway. Net Neutrality appeasement by collaboration did not stop Verizon from promptly suing the FCC to overturn in court the rules the company helped write.

Wheeler needs to deal his reclassification card or get out of the game. It is increasingly clear it is the only legal basis under which the Court of Appeals will readily accept the FCC’s authority to oversee broadband.

Wheeler has his own set of Powell-like principles – the Four No-No’s of the Net:

Let me be clear, however, as to what I believe is not “commercially reasonable” on the Internet:

• Something that harms consumers is not commercially reasonable. For instance, degrading service in order to create a new “fast lane” would be shut down.

• Something that harms competition is not commercially reasonable. For instance, degrading overall service so as to force consumers and content companies to a higher priced tier would be shut down.

• Providing exclusive, prioritized service to an affiliate is not commercially reasonable. For instance, a broadband provider that also owns a sports network should not be able to give a commercial advantage to that network over another competitive sports network wishing to reach viewers over the Internet.

• Something that curbs the free exercise of speech and civic engagement is not commercially reasonable. For instance, if the creators of new Internet content or services had to seek permission from ISPs or pay special fees to be seen online such action should be shut down.

But there are plenty of loopholes in Wheeler’s proposals. First, “degrading service” goes undefined. As we’ve seen recently, there is a difference between purposely throttling a broadband connection and not maintaining and upgrading it to handle growing traffic. Second, Wheeler’s idea of what is “commercially reasonable” is not defined either. A provider could make all of its owned sports networks exempt from usage caps. That is neither “exclusive” or “prioritized.” It just doesn’t count against your usage allowance. Third, you might have open access to all of this content but won’t want it because your provider’s preferred partners get faster and more responsive service and less waiting for pages or videos to load.

Wheeler’s apparent naiveté about this industry and its behavior is beyond belief considering the decades he worked on behalf of the cable and wireless industry. Netflix foreshadows an Internet future without robust Net Neutrality. Verizon, Comcast and others ignore complaints about the degrading performance of Netflix, refusing to upgrade their connections of behalf of paying customers, until Netflix also agrees to pay them. When Netflix drops a check in the mail, the problem disappears. It doesn’t seem to matter that customers paying a very high price for Internet service cannot get the service they deserve unless someone else also pays.

If we can see this problem, it is extraordinarily curious why Wheeler cannot (or will not). Wheeler’s tough talk is cheap, but American broadband is not. Without direct action that reclassifies broadband as a telecommunications service, nothing Wheeler proposes or gets enacted is likely to survive the next inevitable court challenge.

For the third time, legal action from the four largest commercial television networks to shut online streaming service Aereo has been denied.

In a 10-2 decision, with one recusal, the 2nd Circuit Court of Appeals denied an attempt to re-hear the case by the full appellate court.

Following disposition of this appeal on April 1, 2013, Plaintiffs-Appellants filed petitions for rehearing in banc. An active judge of the Court requested a poll on whether to rehear the cases in banc. A poll having been conducted and there being no majority favoring in banc review, rehearing in banc is hereby denied.

Circuit Judge Denny Chin strongly dissented from the majority’s decision, joined by Circuit Judge Richard C. Wesley. Chin firmly took the side of the broadcasters, fearing if Aereo was permitted to continue operating, it could quickly mean the end of free over-the-air television. He believes the service exists only because of a precarious loophole:

“The majority’s decision elevates form over substance. It holds that a commercial enterprise that sells subscriptions to paying strangers for a broadcast television retransmission service is not performing those works publicly. It reaches that conclusion by accepting Aereo’s argument that its system of thousands of tiny antennas and unique copies somehow renders these transmissions “private.” In my view, however, the system is a sham, as it was designed solely to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law….”

Just about every over-the-air network and major station in the New York City area is opposed to Aereo. Among those filing suit against its continued operation:

• Networks: ABC, CBS, NBC, FOX, PBS, Univision, and Telemundo
• Stations: WNET, WPIX, WNJU

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg IACs Diller Says Aereo Is Not a Threat to Anyone 7-10-13.flv[/flv]

Barry Diller, the force behind Aereo, tells Bloomberg News he expected to get sued when he provided viewers with an alternate way to watch television. Diller says networks and stations are simply uncomfortable with change and that Aereo poses no threat to them. (3 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Aereo Not a Blip on Broadcasters Radar 6-27-13.flv[/flv]

Bloomberg Industries director of North American research Paul Sweeney looks at Aereo’s impact on television broadcasters and how it could eventually threaten their revenue streams. He speaks on Bloomberg Television’s “In The Loop.” (2 minutes)