Verizon told the Federal Communications Commission yesterday that it has no right to regulate paid interconnection deals like the ones Netflix struck with Verizon and other Internet providers.

Even reclassifying broadband service as a utility or common carrier service will not give the FCC that power, Verizon VP and Associate General Counsel William H. Johnson wrote in a filing in the FCC's net neutrality proceeding.

"The Commission cannot under any circumstances lawfully impose Title II common-carriage requirements on interconnection, as some regulatory proponents propose. Such requirements apply only to 'common carriers,' that is, to telecommunications service providers already 'engaged as a common carrier for hire," Johnson wrote, citing US communications law and court precedents. "As the DC Circuit has explained, when a provider is not operating as a common carrier, the Commission cannot 'relegate' that provider 'to common carrier status' by imposing common-carriage regulation. The Commission does not have 'unfettered discretion... to confer or not confer common-carrier status on a given entity depending upon the regulatory goals it seeks to achieve.'"

For the past few months, Netflix has been paying Verizon, Time Warner Cable, Comcast, and AT&T for interconnection that allows it to bypass other, more congested paths into the providers' networks. Despite paying the ISPs, Netflix has asked the FCC to mandate "settlement-free interconnection," in which the providers would have to offer interconnection without payment. The FCC has been examining these deals but hasn't taken any action.

Before the disputes between Netflix and ISPs were resolved, Netflix subscribers suffered from poor video streaming performance for months because Netflix traffic was being held up at congested interconnection points where traffic from many online services was transferred from third-party transit providers to ISPs. Netflix accounts for a third of all North American Internet downstream traffic during peak viewing hours. The deals Netflix struck with ISPs improved performance for Netflix itself and for online services that relied on the third-party transit providers to gain entry into ISPs' networks.

Verizon argued that Netflix and Cogent were to blame. "Internet players such as Netflix and Cogent have called for the Commission to reach beyond the last mile and regulate interconnection points or the terms of interconnection, on the ground that congestion at those points can affect the speeds that end users experience when accessing content," Verizon wrote.

But Netflix, Cogent, and numerous other Internet players make decisions on their own networks that affect the speeds or performance that end users experience. Cogent, for example, has at times discriminated between wholesale traffic and retail traffic by dropping and then resending wholesalers’ packets. And Netflix, through its Open Connect program, has set up its own proprietary content delivery networks ("CDNs") that speed the delivery of Netflix traffic to the last-mile networks of certain broadband providers. Any argument to regulate interconnection arrangements therefore would apply equally to those arrangements, but Netflix and Cogent presumably would object to doing so because those decisions—like Internet interconnection—raise issues that are distinct from the delivery of traffic in the last mile. By conflating last-mile regulation with interconnection issues, these entities are baldly pursuing regulatory rents that would reduce the costs of their business models by shifting them onto broadband subscribers.

Netflix recently defended itself from similar accusations made by FCC Commissioner Ajit Pai.

Netflix's paid connections to ISPs are at the edge of the ISPs' networks and thus would not be regulated under most net neutrality proposals, which would ban or discourage paid prioritization agreements in which a content provider's traffic is sped up within an Internet service provider's network.

Despite Verizon's argument that the FCC cannot regulate interconnection, it has reason to fear that the FCC could do just that if it were to reclassify broadband as a common carrier service, as we explained in a story yesterday. An FCC intent on regulating interconnection deals wouldn't necessarily require that they occur without payment, but it could insist on reasonable rates and intervene in disputes between ISPs and companies like Netflix.

President Obama has urged the FCC to reclassify broadband as a utility in order to impose network neutrality rules, and to apply net neutrality rules to interconnection points "if necessary." In 2010, the FCC passed net neutrality rules that did not impose any restrictions on interconnection agreements. Those rules were successfully challenged in court by Verizon, forcing the FCC to consider whether it needs to use its common carrier powers to enforce net neutrality rules.