The California Senate's Energy and Utilities Committee published its analysis of Senator Scott Wiener's California net neutrality bill on Monday morning. It’s bad. Here’s a short overview of the suggested amendments and a rebuttal of the key arguments related to interconnection and access charges.
The analysis recommends extensive amendments to SB 822 that would gut key parts of the bill. In particular, it recommends removing the bill's protections against using interconnection practices to circumvent the bill's net neutrality protections. That would be a big step behind the 2015 Open Internet Order and re-create a giant loophole that the ISPs have exploited in the past, creating massive harm to consumers.
In addition, the report recommends cutting the following provisions:
* the bill’s brightline rules that prohibit or allow specific zero-rating practices;
* the provision allowing user-paid, user-controlled Quality of Service;
* the provisions of the bill that require the state to give public funds for broadband deployment only to networks that comply with net neutrality, and
* the provisions that require cable operators and video service providers that also offer broadband Internet access service to comply with net neutrality.
You can find the committee report here: https://leginfo.legislature.
Here’s a rebuttal of the report’s key arguments related to interconnection and access charge.
According to the Committee Report, the interconnection rule in Section 1776(i) that prohibits ISPs from circumventing the net neutrality protections via interconnection practices goes far beyond the framework established by the FCC’s 2015 Order. That is not correct.
The FCC’s 2015 Open Internet Order declared that the FCC would review ISPs’ interconnection practices case-by-case under the broad powers of Sections 201 and 202 of the Communications Act, which prohibit ISPs from engaging in unjust and unreasonable practices and unjust and unreasonable discrimination. The text of the Order clarified that the FCC would use this case-by-case review to ensure that last-mile ISPs cannot use practices related to interconnection to evade or circumvent the FCC’s network neutrality rules. As the Order explains, preventing such circumvention was an explicit goal of the FCC’s 2015 Order.
SB 822 codifies the key part of this regime relevant to net neutrality.
Rather than giving the entity enforcing SB 822 broad power to prevent ISPs from engaging in any unjust and unreasonable practices and unjust and unreasonable discrimination in relation with interconnection, SB 822 directly and narrowly codifies the prohibition on using interconnection practices to circumvent net neutrality protections instead. This is actually narrower than the authority the FCC has under the 2015 Open Internet Order.
While SB 822 includes a brightline ban on circumventing the bill’s net neutrality protections (rather than a general prohibition on engaging in unjust and unreasonable practices and unjust and unreasonable discrimination in relation with interconnection that can be used to prevent ISPs from circumventing net neutrality as the 2015 Order), the bill still requires the AG to determine case-by-case whether something is a circumvention of the rules. So effectively, SB 822 also establishes a case-by-case determination.
The 2015 order said that the FCC did not find it necessary to specify the specific practices that would constitute circumvention in advance, and that it would use the case-by-case review under Section 201 and 202 of the Communications Act to prevent ISPs from circumventing the bill’s net neutrality protections. SB 822 follows the same approach. It does not specify which interconnection practices constitute a circumvention of the rules. Whether a specific interconnection practice circumvents the bill’s net neutrality protections would have to be decided case-by-case, just like under the 2015 Order.
Why it matters: Allowing ISPs to circumvent the net neutrality protections at the point of interconnection would create a known loophole that ISPs have exploited in the past. As we saw in the years before the FCC adopted its 2015 Open Internet Order, ISPs can block, discriminate, or charge access fees when data that the ISPs’ customers requested enters the ISPs’ networks (i.e. at the point of interconnection) or when that data is traveling over those networks. The impact on users and websites is the same either way, as is the harm to innovation and free speech. Thus, banning blocking, discrimination, access fees and third-party paid prioritization inside the access network, but not at the point of interconnection, would allow ISPs to easily evade the rules by engaging in these practices at the point of interconnection instead.
This is not a hypothetical problem. The FCC’s 2010 Open Internet rules did not apply to the point of interconnection. From at least 2013 to 2015, major ISPs serving more than 75 percent of American broadband customers deliberately let connections into their networks congest in order to extract fees from the Internet companies delivering data to the ISPs’ Internet service customers – data these customers had requested. As a result, customers of these ISPs experienced significant performance problems in the afternoon and evening: Internet applications, websites, and services entering the ISPs’ networks through these congested connections became effectively unusable, even though customers had paid their ISPs for good connections to the Internet. These problems only ended when affected companies decided to pay (as Netflix did in early 2014) or, for those that refused to pay, when the FCC’s 2015 Open Internet Order went into effect. In response to these problems, the FCC decided to include oversight over interconnection in the 2015 Open Internet Order.
Time-Warner Cable’s violations of net neutrality at the point of interconnection led New York’s attorney general to file suit against the ISP for violating promises it made to its customers (the suit is still ongoing).
The Committee Report claims that this provision constitutes a ban on paid interconnection agreements with providers of broadband Internet service. However, the bill does not include such a ban.
Not every paid interconnection agreement with a last-mile ISP is automatically going to be a circumvention of the net neutrality protections in SB 822. Instead, this will have to be determined case-by-case, which mirrors the regime laid out in the 2015 Order.
It is possible that the entity enforcing the bill would find that a specific paid interconnection agreement constitutes a circumvention of the bill’s net neutrality protections. But that’s not a given. Some paid interconnection agreements might violate that rule, others might not.
For example, one company might deliver data right to the doorsteps of the last-mile ISP. If the ISP wanted to charge the company a one-time fee for upgrading the wire connecting the ISP’s network with the other network or ask, as is typical, to split the fee, that is not necessarily a circumvention of the net neutrality rule.
By contrast, if the last-mile ISP wanted to charge a fee for every data packet entering its network, the company delivering the data could argue that this would be a circumvention of the bill’s ban in Section 1776(c) on charging edge providers for the delivery of data to and from the ISP’s customers. For policy reasons that would take longer to explain, they might have a case. (Note: The ISPs claim that Section 1776(c) was not part of the FCC’s 2015 Order. But that is untrue. This ban has been part of the FCC’s 2010 and the FCC’s 2015 Order, and Verizon, in its lawsuit against the FCC’s 2010 Order, explicitly acknowledged the existence of that prohibition. The text of 1776(c) is taken directly from the text of the FCC’s Order. This prohibition is a key component of the net neutrality rules.)
There are other kinds of paid interconnection agreements with a last-mile ISP that might not constitute a circumvention. For example, a company might enter into a deal with the ISP that includes not just delivering the data over the ISP’s last mile network, but over longer distances or across the ISP’s network into another network. In that case, for policy reasons that would take too long to explain, it would probably not be a circumvention to charge for the long-distance delivery, although the ISP probably could not charge for the delivery over the last-mile network to its own customers.
Finally, in the opposite scenario, where a smaller last-mile ISP pays an interconnecting network to connect to the internet, that would clearly not be a circumvention of the net neutrality protections.
It’s not clear what amendments with respect to interconnection the report suggests, since there is no prohibition on paid interconnection agreements that could be cut.
Cutting out the bill’s interconnection provision 1776(i) would NOT re-create the FCC's 2015 Order. Instead, it would drastically limit the level of protection compared to the FCC's 2015 Order and create a giant loophole that ISPs have exploited in the past.
2. Charging edge providers for access to the ISPs’ Internet service customers
ISPs claim that the bill’s prohibition on ISPs charging edge providers for access to the ISPs Internet service customers in Section 1776(c) was not in the FCC 2015 Order (AT&T side-by-side comparison, pp. 8-9). It’s not clear whether the Committee Report shares that assessment.
This is not correct. This ban has been a key part of the FCC’s net neutrality protections since 2010.
Section 1776(c) codifies the ban on charging edge providers for access to end users that was included in the text of the 2015 and 2010 Open Internet Orders.
Both orders characterized this practice as a special case of blocking (in 2010 and 2015) and throttling (in 2015) that would violate the no-blocking and no-throttling rules. The text of Section 1776(c) is taken from the relevant parts of the FCC 2010 and 2015 Orders.
In its lawsuit against the FCC’s 2010 Open Internet Order, Verizon explicitly acknowledged the existence of this ban: According to Verizon’s brief, “the  Order […] forbids [broadband providers] from imposing any ‘charge [upon] edge providers ... for delivering traffic to or carrying traffic from the broadband provider’s end-user customers.’” In oral argument, Verizon called this prohibition the “no charging of edge providers rule” and explained that this ban was “a large part of what is causing us our harm here.”
Why it matters: ISPs have long wanted to charge such access fees, as a way to get paid both by their Internet service customers and by the sites and services these customers want to use. This would be a radical departure from how the Internet has operated over the past 30 years. In the U.S., companies that use the Internet to reach their customers have always simply paid for their own access to the Internet. They have never had to pay any additional fees to their customers’ ISPs.
Allowing ISPs to charge these fees would allow ISPs to increase costs for businesses across the entire economy and would be disastrous for startups, small businesses and speakers without deep pockets.
Today, almost every company relies on the Internet one way or the other. Large corporations that pay these fees will have higher costs, so their customers will be forced to pay higher prices for products and services. Small businesses and startups that can’t afford the access fees won’t be able to compete.