Analysis Net neutrality rules that make it illegal for ISPs to interfere with data traffic across their networks have been upheld in full by the Washington DC Court of Appeals.

The split decision (2-1 in favor) is a big victory, both for the Federal Communications Commission (FCC) and the Obama Administration, and a dramatic sign that the era of Big Telco as an unstoppable force has come to a close.

In its lengthy 184-page decision [PDF], the court rejected a petition by the cable and telco industries that claimed the FCC did not have the authority to reclassify broadband internet provision as legally equivalent to telephone lines.

It also accepted the notion that broadband internet service was a standalone offering in the eyes of consumers and could be treated as its own separate entity, apart from the provision of email or ISP-provided content such as news or weather.

That distinction means that the FCC is able to reclassify broadband as a "Type II" communications service. And as a result, the federal regulator has far greater authority to decide what can and cannot be done with broadband.

In the case of the Open Internet Order, passed by a 3-2 partisan vote of the FCC Commissioners back in February 2015, that means that ISPs will not be allowed to discriminate between traffic flowing over their networks. They must treat everything equally.

Equality

The fear was that cable companies would develop new business models to profit from their control of internet access: restricting or limiting data from certain companies or services, and/or charging both consumers and companies for faster speeds to specific services.

The court recognized the realities of the modern internet when it argued that third-party content "has transformed nearly every aspect of our lives, from profound actions like choosing a leader, building a career, and falling in love to more quotidian ones like hailing a cab and watching a movie."

It points out that broadband providers' own "add-on" applications are almost irrelevant in comparison to these third parties, name-checking Facebook, Netflix, YouTube and Twitter. And it points out that no one uses their Comcast or AT&T email address these days – it's Gmail or Yahoo.

In short, it says, of the "numerous challenges" made to the FCC's order, "none has merit," and so the court upheld the classification.

The decision also addresses the dissenting opinion put forward by Judge Stephen Williams, who said that in his opinion the FCC action was "arbitrary and capricious."

The two other judges note that despite Williams' position, he nonetheless agreed that the FCC has the "statutory authority to classify broadband as a telecommunications service."

That note is critical as it will likely mean that any appeal to the Supreme Court will be turned down, since the judges were in unanimous agreement over the FCC right to reclassify.

Reaction

Reaction to the news has been predictable.

FCC chair Tom Wheeler, who withstood an enormous amount of pressure in passing the rules, was delighted. "Today's ruling is a victory for consumers and innovators who deserve unfettered access to the entire web," he said in a statement, "and it ensures the internet remains a platform for unparalleled innovation, free expression and economic growth. [These rules] will ensure the internet remains open, now and in the future."

Republican FCC Commissioner Ajit Pai said he was "deeply disappointed" with the decision and praised the dissenting opinion. He still feels the regulation remained unlawful, unnecessary and counterproductive, and hoped "the parties challenging them will continue the legal fight."

On the industry side of things, pro-net-neutrality group Public Knowledge was over the moon, posting a picture of celebration balloons. Its CEO Gene Kimmelman said: "Today, the Court of Appeals has affirmed the FCC's authority to protect consumers and innovation on the internet ... Now consumers will be assured the right to full access to the internet without interference from gatekeepers."

He foresees further legal challenges however, noting: "We hope that rather than re-fight old battles, Congress and the industry will turn toward the problem of ensuring that all Americans have access to broadband that is 'fast, fair and open'."

And on the other side, industry group USTelecom was dismissive. Its president Walter McCormick said: "Two judges on the court have unfortunately failed to recognize the significant legal failings of the Federal Communications Commission's decision to regulate the internet as a public utility, leaving in place regulation we believe will replace a consumer-driven internet with a government-run internet, threatening investment and innovation in years to come."

He said the industry would "review the court's decision, and will be evaluating all of our legal options."

The good and the bad

It is not a surprise that the FCC's order was upheld. The regulator knew that whatever it proposed was going to be challenged in the courts, and so it spent an extra few months drawing up something that it felt was legally watertight.

It also had the benefit of previous court rulings on the issue, so if the Open Internet Order had been rejected by the court it would have seriously undermined confidence in a number of FCC staffers.

And even though the decision is a big win for US consumers – who continue to suffer a cable industry that uses an oligopolistic market to charge more for less when compared to almost every other developed country – it is not all good news.

The reality is that the move to reclassify broadband under outdated legislation drawn up for era of telephones is a fudge. It was a fudge required because a gridlocked Congress is not currently able to devise new legislation for the internet era.

The last law relating to telecommunications was passed in the very early days of the internet, back in 1996, and purposefully kept its references to the internet extremely brief because no one knew which direction it was going in. Even despite that, the language is a time capsule compared to the online communications we all now take for granted.

The problem with the FCC relying on the even-earlier 1934 Communications Act is that the regulator is a bureaucracy and so is very poor at maintaining a flexible and imaginative approach once it has been told it can apply the same rules it has been applying for decades.

Trouble ahead

This problem has already raised its head twice. First, the FCC set itself up as a consumer-complaints body for internet issues, despite having no experience with that. It has already been lambasted by the current and several former chairs of the Federal Trade Commission (FTC) for clearly having no idea what it is doing.

And it has demonstrated its misunderstanding of the internet by equating IP addresses with telephone numbers in a new data privacy proposal: something that internet organizations have already started despairing about.

In short, while the court decision today is a good and helpful sign that the cable companies are no longer able to dictate terms to millions of consumers in the internet era, without new legislation designed for the internet, the FCC has been given a dangerous degree of leeway to decide how broadband is regulated.

Having a federal regulator – especially the FCC – hailed as a hero has been a novel experience for the past 18 months. But without some modern rules designed to guide it on internet issues, it won't be long before everyone is reminded why the United States has a long-standing preference for the free market over centralized authority. ®