11.30.2016
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Updates
In the days since the recent election, many tech, media and telecom industry observers remain unsure of what to expect from the Federal Communications Commission under the Trump administration. Fortunately, there are some breadcrumbs along the path that could provide some guidance: the many recent FCC orders that were adopted by partisan 3-2 votes during the tenure of current FCC Chairman Thomas Wheeler (more than 45 decisions in total). The most contentious among these divided FCC orders could be indicative of which FCC orders are the most vulnerable under a Trump FCC, particularly when one of the two dissenting commissioners in those orders, Commissioner Ajit Pai, is expected to serve as the acting FCC chair until the Trump administration’s nominee for chair is confirmed by the Senate (who might also be Commissioner Pai). Upon inauguration, the new Republican acting chair, and the Republican controlled Congress, will have several options to revisit or undo the more contentious decisions of FCC Chairman Wheeler’s tenure in pursuit of a new policy direction.
First, as an immediate step while other possible actions are pursued, the FCC under its new acting chair can exercise its discretion to not aggressively enforce any rules with which the FCC’s acting chair disagrees. Second, as a more long term initiative, the Trump FCC could initiate new FCC rulemaking proceedings to undo or revise rules already published in the Federal Register and effective. Third, the new Congress could legislatively overturn the FCC’s decisions adopted in the later months of 2016 pursuant to the Congressional Review Act. Notably, Representative Greg Walden (R-OR), Chairman of the House Subcommittee on Communications and Technology, has indicated that the new Congress plans to rely on the Congressional Review Act to overturn recent FCC orders.
Even before inauguration, the election has had an effect on Chairman Wheeler’s efforts to carry out his agenda. Both the House and Senate Republican leadership of the committees with oversight over the FCC have already warned Chairman Wheeler against holding votes on any controversial decisions during the lame duck period. Indeed, shortly after these letters from Congress were sent to the FCC, four controversial items were removed from the FCC’s November open meeting agenda, reportedly due to the failure of Chairman Wheeler to obtain a third vote to proceed with these items.[1]
Looking to the years ahead, by picking Jeffrey Eisenach, Mark Jamison and Roslyn Layton for his FCC “landing” (i.e., transition) team, Trump has signaled a desire to make substantial changes to the FCC’s existing jurisdiction and authority. For example, Mr. Jamison, a visiting fellow at the American Enterprise Institute and a professor and director of the Public Utility Research Center at the University of Florida, has advocated for eliminating most of the FCC’s responsibilities, other than remaining an independent agency for managing spectrum licensing. While we foresee a Republican FCC moving aggressively to review, modify or strike down some of the Wheeler FCC’s most partisan actions, Trump’s selection of Eisenach, Jamison and Layton may signal a strong commitment to substantial changes in the FCC’s policy direction.
For purposes of following this trail of breadcrumbs, this client update discusses the most significant of the recent 45 FCC orders adopted by a partisan 3-2 vote. In each case, we provide a brief summary of the FCC order, the primary reasons the Republican commissioners dissented and a brief analysis of how the decision could be addressed by the Trump FCC. Lastly, we discuss how the FCC’s approach towards enforcement proceedings and its review of mergers and acquisitions may change under the Trump administration.
Summary of Major FCC Decisions Adopted by 3-2 Partisan Votes
After several bites at the apple before the U.S. Court of Appeals for the D.C. Circuit, the FCC’s efforts to adopt net neutrality rules eventually survived appellate review through a reclassification of Broadband Internet Access Service (BIAS) as a telecommunications service pursuant to Title II of the Communications Act of 1934 (the Act), subjecting broadband providers to common carrier status. The order sought to protect customers of BIAS providers by prohibiting blocking, throttling and other discriminatory practices.
Dissent Rationale by Republican Commissioners: Both Republican commissioners described the Open Internet Order as overreaching government regulation that exceeded the FCC’s authority. Commission Pai said he would scrap the order’s net neutrality regulations in their entirety, describing them as “intrusive government regulations that won’t work to solve a problem that doesn’t exist using legal authority the FCC doesn’t have[.]” Specifically, the commissioners denounced the Title II reclassification and expressed alarm at the full panoply of new regulatory burdens on BIAS providers that could potentially ensue, such as rate regulation, regulation of interconnection points and universal service fund contributions. Thus, even though the Open Internet Order exercised “forbearance” from imposing many of Title II’s obligations on BIAS providers, the Republican commissioners argued that the reclassification precedent was itself harmful by providing the legal basis for more extensive future regulation. Commissioner Pai expressly stated his wish to see the Open Internet Order overturned, stating: “I am optimistic that we will look back on today’s vote as an aberration, a temporary deviation from the bipartisan path that has served us so well. I don’t know whether this plan will be vacated by a court, reversed by Congress, or overturned by a future Commission. But I do believe that its days are numbered.” Consistent with Commissioner Pai’s dissent, the Trump campaign has described the concept of network neutrality as a “top down power grab.”
As we have discussed in a previous client update, the FCC’s decision to reclassify BIAS under Title II followed the roadmap of the D.C. Circuit in Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014), which the D.C. Circuit affirmed in United States Telecom Ass’n v. FCC, 825 F.3d 674 (D.C. Cir. 2016). Moreover, the decision was supported by more than four million public comments—a record number in a “notice and comment” FCC rulemaking. Therefore, the Trump FCC may have to consider a more surgical approach to revisiting the Open Internet Order, rather than eliminating it altogether.
Many in the industry have already started to play “Taps” for the FCC’s Broadband Privacy Order—adopted weeks before the election. The order specifies notice, data security and data breach notification requirements for all telecommunications carriers. In addition, pursuant to the FCC’s previous reclassification of BIAS providers as telecommunications service providers under Title II of the Communications Act in the 2015 Open Internet Order, the Broadband Privacy Order requires retail BIAS providers to obtain explicit customer consent for the use and sharing of certain customer data, including a customer’s internet browsing history, as further described in our November 2016 client update.
Dissent Rationale by Republican Commissioners: Commissioner Pai criticized the majority for imposing rules on BIAS providers that do not apply to other actors in the online ecosystem operating outside the FCC’s jurisdiction, such as edge providers, who also collect and use consumer data. Commissioner Pai suggested uniform rules for BIAS providers and edge providers alike, based on the Federal Trade Commission’s privacy framework, which relies on notice and opt-out provisions. Commissioner O’Rielly questioned whether the FCC had authority to apply Section 222 of the Act to BIAS providers (i.e., the section of the Act that addresses customer proprietary network information (CPNI)), and also suggested that the FTC’s framework was more appropriate than the regulatory regime adopted by the FCC.
Notably, the dissenting commissioners did not challenge the underlying foundation of the Order—Title II BIAS reclassification —because at the time, the D.C. Circuit had recently affirmed the 2015 Open Internet Order. Thus, if a Trump FCC revisits Title II reclassification of BIAS, it will also undercut the legal basis for the new privacy rules.
After a prior order was vacated by the U.S. Court of Appeals for the Third Circuit, the FCC reaffirmed its Newspaper/Broadcast Cross-Ownership Rule and strengthened its Local Television Ownership Rule. The FCC also adopted a definition of Shared Service Agreements (SSAs) and required commercial television stations to disclose SSAs they enter into.
Dissent Rationale by Republican Commissioners: The Republican commissioners accused that the majority of analysis was stuck in a 1970s era of media ownership. They argued that consolidation across the media landscape was an important investment tool to spur growth in flagging industries. The Republican commissioners’ dissents suggest a Trump FCC will seek to eliminate the Newspaper/Broadcast Cross-Ownership Rule and loosen the Local Television Ownership Rule.
The FCC expanded the federal Lifeline program to include subsidies for broadband service for low-income households.
Dissent Rationale by Republican Commissioners: The dissenting Republican FCC commissioners decried the lack of bipartisan support for the order and the order’s alleged failure to clean up waste, fraud and abuse in the Lifeline program. Commission Pai stated that “[i]t will take a future agency, one whose members work in good faith and believe in good policy, to decide what comes next.” Notwithstanding these concerns, both Republican commissioners support affordable, high-speed internet access for low-income families. Accordingly, it appears likely that the Trump FCC would be inclined to reform rather than eliminate the Lifeline program.
E-rate—Universal Service Fund’s Schools and Libraries Program
In this order, the FCC set high-speed broadband internet access targets for schools and libraries and attempted to help both rural and urban schools and libraries achieve connectivity targets.
Dissent Rationale by Republican Commissioners: The dissenting Republican commissioners criticized the program as a “tax-and-spend” policy, and Commissioner Pai in particular labeled it a 17.2% telephone tax increase for American families to pay $1.5 billion to “entrenched interests that thrive under the bureaucratic yoke of [the] E-rate program.” Commissioner Pai stated that his goal was “real E-rate reform” that is “fast, simple, and efficient.” Accordingly, the Trump FCC would likely fashion rules to streamline the E-rate application process and change the funding allocation formulate. It would also likely reduce the E-rate cap or offset universal service fund growth with it.
Pending Proposed Rulemaking Proceedings
Pursuant to the Administrative Procedure Act, 5 U.S.C. § 551, et seq., the FCC must first adopt a notice of proposed rulemaking (NPRM) and seek public comment before it adopts final rules. In some cases, even NPRMs have been subject to partisan controversy. In such cases, the new Trump FCC can express its disapproval of the Wheeler FCC’s proposed rules by simply not taking the next step of adopting a final order or, if its disagreement with the NPRM is not too significant, by adopting different final rules, provided that they are the logical outgrowth of the NPRM and the record.[2] Below is a summary of three particularly contentious NPRMs likely to be abandoned or redirected by the Trump FCC.
On February 18, 2016, the FCC adopted an NPRM by a 3-2 vote, in which it requested comment on a proposal to require multichannel video programming distributors (MVPDs) to make their channels available through third-party consumer equipment. The proposal was strongly opposed by the cable and satellite industry. The FCC was scheduled to vote on a final order in the set-top box proceeding on September 29, 2016, but the item was pulled from the open meeting agenda shortly before the meeting began and is unlikely to be acted on by the Wheeler FCC before inauguration.
Dissent Rationale by Republican Commissioners: Both Republican commissioners indicated that they would not adopt the approach discussed by the majority in the NPRM and questioned whether the FCC had the authority to “unlock the box,” as proposed. Commissioner Pai suggested doing away with cable boxes entirely, while Commissioner O’Rielly expressed concerns that the majority’s proposal would make MVPDs vulnerable to security threats. Given the dissenting commissioners’ skepticism about the FCC’s efforts in this area, it is very unlikely that the Trump FCC will adopt the NPRM’s proposed rules, and it may even drop the proceeding altogether.
Promoting Diverse and Independent Programming NPRM
In late September 2016, the FCC adopted a NPRM seeking comment on various proposals to promote diverse and independent video programming. Among the proposals were whether the FCC should prohibit “unconditional” most favored nation (MFN) provisions and unreasonable alternative distribution method (ADM) provisions in program carriage agreements between MVPDs and independent video programming vendors.
Dissent Rationale by Republican Commissioners: Commissioner Pai questioned the merits of the MFN and ADM-related provisions on the basis of whether (1) the FCC had the legal authority to adopt such rules and (2) the rules would actually promote independent programming. With reply comments due after Trump’s inauguration, and given Commissioner Pai’s positions, the FCC is very unlikely to adopt these rules as proposed.
On November 21, 2014, the FCC adopted a policy statement and NPRM that included new principles to ensure reliable 911 service and reiterate its partnership with state and local authorities. The FCC’s proposed rules addressed failures leading to several multistate 911 outages and proposed mechanisms to allow the 911 governance structure to keep pace with evolving technologies.
Dissent Rationale by Republican Commissioners: The dissenting commissioners argued that the NPRM went too far because they “would apply federal regulation to every aspect of 911 service.” Although there is bipartisan support for improving the reliability of 911 service, facilitating the transition to next generation 911 technology and guarding against multistate outages, the new Trump FCC will likely not adopt this NPRM and would instead seek further comment on rules to retain “the primacy of state and local authorities” in the provision of 911 service, as suggested by Commissioner Pai.
Other Partisan Orders
Although not as widely controversial, other material decisions adopted by 3-2 votes included the following: incentive auction procedures, IP network technology transitions, mobile spectrum holdings, the national audience reach cap for ownership of television stations, Telephone Consumer Protection Act rule, submarine cable outage reporting requirements and rates for interstate inmate calling services. The guiding theme in the Republican commissioners’ dissents was a laissez-faire view of the role of government in this industry. Accordingly, the Trump FCC would likely pursue a more favorable business environment for telecommunications firms and would be generally predisposed to disfavor regulations and reporting requirements perceived as burdensome or hostile to industry.
The Trump FCC’s Approach to Transactions and Enforcement
Transactions
Consistent with the more business-friendly approach advocated by the Trump campaign, the Trump FCC is likely to provide a more deferential review of mergers and acquisitions. Potential mergers include horizontal integration of the wireless industry and vertical integration of content and telecommunications providers. However, as a candidate, Donald Trump showed a willingness to deviate from traditional Republican ideology and reiterated that he comes from a background of using deal-making to achieve desired goals.
Although the FCC is an independent agency, the FCC’s chairman’s leadership approach is often aligned with the White House. It will be interesting to see whether the Trump FCC follows the long line of Republican FCC commissioners (and Republican members of Congress) who have criticized the imposition of merger conditions considered beyond the FCC’s authority. Whether the Trump FCC renounces the “Christmas tree” approach to merger conditions will be an early sign of whether the Trump FCC will adhere to Republican “orthodoxy” or go its own way on merger approval.
Enforcement
One of the most controversial changes to the FCC during the Obama administration has been the aggressive approach of the Enforcement Bureau, particularly under the tenure of its current bureau chief, Travis LeBlanc. In recent years the Enforcement Bureau has issued record penalties, aggressively pursued actions in concert with other federal agencies, such as the Consumer Financial Protection Bureau and Federal Trade Commission, arguably pushed the boundaries of the FCC’s jurisdictional limits and has been generally reluctant to extend leniency to parties who voluntarily report their own wrongdoing.
Many significant FCC enforcement actions have been adopted by the FCC by partisan, 3-2 votes, including on the deceptive marketing of prepaid calling cards, Wi-Fi blocking, throttling of unlimited data plans and data/privacy breaches. The dissenting Republican commissioners have also criticized the majority for imposing fines solely on the basis of the scant information provided in Notices of Apparent Liability. A Trump FCC is likely to take a different approach, which may manifest in reduced penalties, a more lenient approach to voluntary disclosures of non-compliance and an overall reduction in enforcement proceedings.
Endnotes
[1] Among the three current Democratic members of the five-member FCC, Commissioner Jessica Rosenworcel’s term expired in 2015. She has been permitted to serve until the end of the current Congress, notwithstanding her term’s expiration. It appears that Chairman Wheeler’s failure to obtain three votes to move forward with his proposed November open meeting agenda might be related to the fact that Commissioner Rosenworcel is currently waiting for the Republican-controlled Senate to decide whether to confirm her for a new term. Since the November Open Meeting, it has been reported recently that lawmakers are close to a deal on her confirmation if Chairman Wheeler agrees to step down before inauguration day.
[2] The Trump FCC could also adopt a Further Notice of Proposed Rule Making to the extent it desires to adopt new rules in the same subject area of the open proceeding that are beyond the scope of the original Wheeler FCC’s NPRM.
© 2016 Perkins Coie LLP
