Republicans in Congress are rattling their sabers, threatening to pass a bill that offers no funding for the FCC’s neutrality rules. Apart from whether this is even legal, it’s pretty obvious that it could never pass in the divisive political world of Washington. Similarly, it’s clear that net neutrality legislation more aggressive than the FCC proposes — mandating no traffic management, no premium handling except for free, and full wireless regulation — wouldn’t pass, either.  So whether either extreme is the right answer doesn’t matter.

What does matter is having a set of rules that will pass legal muster, and that’s where I’m concerned. The FCC’s “third way” was the right answer. It was clearly legal and it would have offered exactly what the situation needed. Some of the Democratic commissioners want it, and frankly, I’d rather they held out. I disagree that this order is better than no order — if it’s not enforceable, then it truly is “no order.”

At a high level, what the FCC proposes is to state again its original principles of neutrality and apply only transparency and openness as standards in the wireless space. That’s not necessarily a bad position, but it does beg the questions that the Cablevision/Fox and Comcast/Level 3 disputes have raised. The problem is that the FCC is not proposing to use Title II reclassification to establish jurisdiction here, but instead relying primarily on what’s called “Title I” but should more accurately be called “Section 706” jurisdiction. That, in my view, may well be insufficient.

Section 706 says:

The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

You can see that first-off, it talks about “advanced telecommunications capability” here, and we have not classified broadband as telecommunications. When this section was translated into amendments to the Communications Act of 1934, only the forbearance part was translated into Title I.

The second problem is that the FCC presented Section 706 authority to the Court of Appeals in the Comcast case, and the court rejected it. While it’s possible that the court was saying that the FCC hadn’t laid the right foundation to use it (the court pointed out that the FCC has said consistently that Section 706 didn’t convey independent authority, only the obligation to use authority the FCC had explicitly from other sections), it’s also possible that the court would simply reject the order on the same basis.

The right way to go here is what the Republican minority wanted (probably more to be disagreeable than on principle, to be sure): Classify broadband (not the Internet) as a Telecommunications Service and then forbear from the wholesaling regulations and other sections as needed. The FCC clearly has the authority for this, but it seems unwilling to buck the flood of negative (and uninformed) PR on the topic. I still hope that this might change as the meeting approaches, because we need some clarity here, and this doesn’t seem likely to be the path to getting it.

The FCC may now step in and do what most of Europe has already done, which is set a requirement for at least an optional threshold alert that would either warn a user or even suspend service use when a bill reaches a specific level.

We think this is a good idea; it could also be used by parents to enforce some discipline on kids and to insure that unwitting behavior doesn’t create a mammoth payday for the mobile operator. Operators have tended to resist this, which we think is as much a PR error as trying to collect on what was obviously an uncollectable debt.

FCC Chairman Julius Genachowski is expected to announce today that the commission will initiate rulemaking procedures to reclassify broadband as a telecommunications service, reversing the 2005 policy that Chairman Martin, his predecessor, established. This is the course of action we expected the FCC to take all along.

The statement is said to include commitments to a lighter touch in broadband than would normally be offered in telephony, but just what that means is difficult to say, given that Title II requirements have strong statutory grounding in the Telecom Act itself. One area of particular concern is how mobile broadband would be regulated; as we hear it, the FCC is going to propose viewing wireline and wireless broadband differently, perhaps benefiting most from the “lighter touch.”

The FCC has considerable latitude to simply not apply certain rules (called “forbearance” in Section 706 of the Act) to promote broadband, and so in theory it could apply Title II rules a la carte, which is what we’re hearing it will do. This rule-making process won’t end quickly though; the FCC must first release a Notice of Inquiry (NOI) and then follow up with a Notice of Proposed Rulemaking (NPRM) before issuing a final order.

Interestingly, the FCC sent a letter to U.S. Rep. Henry Waxman, D-Calif., clarifying the current regulatory status of broadband, which outlines the basis for the earlier decision and thus illustrates some points where the decision might be changed. The author, Commissioner McDowell, is said to favor sustaining the current position.

Search engines like Google form the window on the Web, and their ranking algorithms and the way they can be gamed or bought would have enormous impact on what is found. One could argue that Google has already discriminated based on applications, traffic type, etc.

The fact that ISPs have commented on this relative to the net neutrality NPRM puts the FCC on notice that an industry that’s freed from ISP dominance is likely to be dominated instead by somebody like Google, for whom there is no applicable regulatory framework.

The FCC has, in truth, no other options that it could hope to undertake on its own authority. Congress would have to redraw the regulatory map to create a more direct path to net neutrality, but in truth we believe the reclassification is an easier approach.

There are ample reasons for the move, more than would be needed to satisfy the law. So the real question is whether the FCC is willing to take some industry heat in favor of net neutrality, or would prefer to let the issue go and accept industry competition as the lever against any non-neutral practices.

We don’t think FCC Chairman Genachowski will fold and pull the process. He can delay in the transition from the NPRM stage (where it is now) to the rulemaking phase for as long as he likes. The FCC could also introduce another NPRM, this one suggesting that broadband be classified as a telecommunications service. Or it might use comment from the public to “validate” that idea.

The plan update, released as a presentation, does nothing to calm our concerns. It outlines a series of national priorities that broadband will fix, except that for most of them there’s no connection with broadband at all or there’s no documentation to prove that broadband would have any impact on the area. In fact, much of it is outside the FCC’s jurisdiction; medical e-records for example.

T-Mobile is a valuable property and has been considered for a spin-off or sale for some time as its German parent tries to contend with the slippery slopes of the EU telecom world. Regulators in the EU have been at odds with those in Germany (and with DT) on wireline policy, and the EU mobile market is getting increasingly competitive and regulated. In contrast, the T-Mobile operation is benefitting from U.S. smartphone trends. We’ve heard that there have been very tentative talks with Sprint.

There are many different views being presented to the FCC, so many that the submissions are clogging the process. The only thing of significance we can read into the combined document is that it appears to sanction the notion of non-Internet broadband services offered by telcos, which would seem to argue against the FCC’s question on whether such services implicitly hurt the Internet by siphoning investment off into other areas. Net neutrality policy is more significant now that it appears the U.S. Court of Appeals may side with Comcast in saying the FCC’s four principles lack force of law because they weren’t done as a formal FCC order.