FCC Said Closing In on Order Extending Transparency Exemption, Though Disagreements Remain

The regulator provided the original exemption, set at 100,000 subscribers, in the 2015 order. A year ago, the Consumer and Governmental Affairs Bureau extended it at the 100,000 level for an additional year (see 1512160050). Commissioner Mike O’Rielly said at the time it was a “monumental mistake in judgment” not to make the exemption permanent. Chairman Tom Wheeler said his concern was protecting nearly 7 million subscribers who buy services from exempt ISPs.

FCC Republicans are expected to consider major changes to the net neutrality rules after they take over in January (see 1611090034). That process could take some time and in the interim a revised exemption would spare at least some ISPs from some of the provisions of the rules, industry officials said.

“Even ardent net neutrality supporters should have no trouble agreeing to an exemption set at 250,000,” Fred Campbell, director of Tech Knowledge, told us. “It’s hard to imagine how a few million U.S. subscribers could have a substantial impact on the potential for innovation by venture-backed internet startups whose potential market is the entire world’s connected population. The notion appears absurd on its face.”

“Net neutrality is not just a battle between Comcast and Netflix, or even between cable and startups,” said Free Press Policy Director Matt Wood. “It’s about the fundamental right of internet users, otherwise known as the ISPs' own paying customers, to access the sites and services of their choosing. Net neutrality is even more obviously about the broadband users when we talk about these transparency rules.” There is no reason customers of smaller cable and phone companies should have less information about the service they buy, Wood said. “Let’s never forget that 99.9 percent of small businesses buy internet access, they don’t sell it,” he said. “People who claim to be concerned about Main Street and innovation would do well to focus on internet users, and not just on ISPs' supposed costs for complying with simple transparency rules.”

The American Cable Association, Competitive Carriers Association, NTCA and Wireless ISP Association have pressed for a 250,000-subscriber exemption (see 1612010035). The four groups filed a letter at the FCC Tuesday urging action. All four “impressed upon the Commission the importance of this exemption,” the letter said. “To comply with enhanced network performance requirements, some small providers would have to spend tens of thousands of dollars to upgrade their network equipment or pay a third party to take granular network measurements. Each of our associations has explained why complying with new regulatory burdens will harm our members, including because these small providers will incur increased legal and consultant fees.” The letter notes the Small Business Broadband Deployment Act was passed unanimously by the House, twice, and came out of committee in the Senate, and would have provided an exemption at the 250,000-subscriber level.

“There is clearly broad support, from both Congress and industry players, in favor of extending the transparency exemption for small broadband providers,” CCA President Steve Berry told us. “CCA members, many of whom are small businesses, put their customers first and currently allot valuable time and resources to better serving their customers rather than trying to comply with unnecessary and costly regulations.” Wheeler has recognized that it would be premature to end the exemption before the Office of Management and Budget approves the rules “and that it is necessary to follow up on last year's exemption extension with a fact-based assessment of how enhanced transparency rules burden small providers,” Berry said. “Since that assessment has not yet materialized, and OMB has not approved these rules, and the House has twice unanimously advanced extending the exemption to 250,000 subscribers or less, it only makes sense to extend the exemption.” Berry called an order a “no brainer.”

Ross Lieberman, senior vice president-government affairs at ACA, said Wednesday he hoped the FCC will “promptly reach a consensus so that smaller ISPs are not needlessly burdened.”

“Some sort of transparency rule is not objectionable as long as it is reasonable in terms of balancing the costs and benefits,” said Randolph May, president of the Free State Foundation. “Ultimately, it makes more sense for the FTC rather than the FCC to be enforcing transparency obligations because the FTC has much experience in this realm.” May said he also supported a larger rather than smaller exemption. “Perhaps as a gesture of comity in advance of the departure of Chairman Wheeler and Commissioner [Jessica] Rosenworcel, the five commissioners can reach a compromise, cut a deal, so to speak, that is reasonable and reflects the relative costs and benefits of the regulation,” he said.

There is no evidence that the exemption should be expanded, said Harold Feld, senior vice president at Public Knowledge. “Carriers larger than 100,000 subscribers have been subject to the transparency rule since June 2015. If this were as necessary as advocates for expanding the exemption claim, where is the evidence to substantiate it?” The exemption was “narrowly tailored” to address concerns about burdening genuinely small companies, especially wireless internet service providers, which had never been subject to a similar reporting requirement, Feld told us. “It is not supposed to be some ever-expanding loophole,” he said. “That carriers have utterly failed to provide for the record any evidence that we need to expand the exemption ought to settle the matter.”

CTIA has pushed for an exemption for ISPs with 500,000 or fewer subscribers (see 1611140041). An FCC draft item on the exemption circulated Oct. 25 (see 1611070047). An FCC spokesman didn’t comment.