Comcast, Net Neutrality and the Universal Service Fund

Yesterday, the DC Circuit held oral argument on Comcast’s appeal of the FCC’s ruling that Comcast ilegally blocked P2P traffic in its broadband Internet service. By all accounts, the argument went poorly for the FCC. If the FCC indeed loses the case, it could have implications for enforcement of federal Universal Service Fund (USF) contribution obligations too.

Some of the best summaries appear in MultiChannel News, The Blog of the Legal Times and Enterprise Networking Planet. The argument went so poorly that FCC Chairman Julius Genachowski issued what amounts to a vote of confidence” for the enforcement order. And we know how well those things work out for NFL coaches.

It appears that the FCC might lose because the court feels the FCC lacks authority over broadband Internet service providers. That would have a significant impact on the FCC’s activities, particularly with the Commission on the verge of adopting (and then implementing) a National Broadband Plan.

A more narrow ground also could have significant impact on Universal Service. One argument made by Comcast was that the FCC Order is unlawful because the Commission was enforcing a 2005 Policy Statement, not an actual law. The FCC can enforce obligations that are legally binding -- statutes, properly adopted rules and lawful FCC orders. But a policy statement is not itself enforceable. Its enforceability depends on the underlying legal obligations that the Commission is interpreting. If the only authority” relied upon is the Policy Statement, the FCC would lose.

The Policy Statement is a shortcut to the harder task of adopting specific and enforceable obligations, typically through rulemaking. The FCC is taking a similar shortcut with its Universal Service rules. In a series of FCC Orders, the Commission has created a federal USF and established rules for who must contribute to the Fund and on what revenues. Each year, the FCC releases an FCC Form 499A for contributors to report their revenues for assessment purposes. The 499A comes with 30+ pages of instructions. The instructions purport to mandate a variety of actions by contributors, and they are frequently modified without any change in the underlying FCC rules or orders.

The problem is that USAC acts as if the instructions are binding rules. It is increasingly becoming more aggressive in audits and enforcement actions, relying on specific instructions that never were subject to notice and comment rulemaking, were not adopted by the FCC and could not be appealed. If the FCC loses the Comcast case because the Policy Statement is not enforceable, it will have to return to enforcing actual law. Hopefully, such an outcome will reign in USAC’s reliance on non-binding instructions, too. If so, it will not be a moment too soon.