Federal Appeals Court Upholds N.Y. Law Setting Retail Internet Rates

WASHINGTON, April 26, 2024 – A New York state law requiring discounted internet service for low-income residents was upheld Friday by a federal appeals court panel. The ruling dealt a setback to Republicans, who want to preempt such laws, but also want a light-touch regulatory approach.

Yet the court’s ruling placed in doubt whether the New York consumer protection law could survive under internet regulations adopted by the Federal Communications Commission on Thursday.

And the court’s opinion Friday suggested the FCC was now free to preempt the New York discounted internet law it just upheld – if it wanted to.

The 2-1 decision by a panel of the U.S. Court of Appeals for the Second Circuit came a day after the FCC adopted Net Neutrality rules under the Title II framework in the Communications Act.

Under Title II, the FCC has far greater leeway to curb conflicting state laws than it does when it depends on Title I in the same law to insulate Internet Service Providers from state action.

The New York City-based court’s 55-page opinion was delivered by Circuit Judge Alison J. Nathan, and signed by Circuit Judge Sarah A. L. Merriam.

Circuit Judge Richard J. Sullivan dissented, saying the court lacked jurisdiction to hear New York state’s appeal and that New York’s law, the Affordable Broadband Act, was preempted by federal law.

Under Republican FCC Chairman Ajit Pai, the FCC in 2018 opted for Title I regulation of the Internet, which, in the court’s opinion, barred the FCC from regulating retail broadband fees on its own or from blocking states from mandating rate rules.

“By moving broadband outside of the more comprehensive regulatory regime in Title II, the FCC surrendered the statutory authority to enact any rate regulations on broadband Internet providers,” the Second Circuit panel said, adding that the FCC had also abandoned its “authority to preempt state regulation over broadband Internet.”

But Thursday's move by Democratic FCC Chairwoman Jessica Rosenworcel is unlikely to offer states the price-regulation freedom they had under Pai’s rules if Rosenworcel opts to crack down on state laws she feels are disruptive.

“This is not about rate regulation – no how, no way. We will not undermine incentives to invest in networks,” Rosenworcel said Thursday at the FCC’s open meeting in Washington, D.C.

But ISPs do not need to count on Rosenworcel’s promises. The Second Circuit’s opinion stressed that if the FCC forbears from rate regulation under Title II, states are not free to come up with their own pricing rules, meaning New York’s law the court just upheld is probably unlawful.

“If the FCC decides to forbear from imposing a common carrier obligation, the states are prohibited from imposing that same obligation on the telecommunications service,” the court said.

In the ruling, the Second Circuit reversed a lower court that had enjoined New York’s Affordable Broadband Act, a law passed in 2021 requiring ISPs to offer service to eligible low-income consumers priced at $15 or $20 a month, depending on the download speed.

The law passed over industry objections that New York was encroaching on federal authority to oversee interstate communications and a 2018 FCC directive that barred state regulation of ISPs.

But as the FCC has now found in at least two other federal appellate rulings, when the agency abandons Title II to supervise ISPs, it has also forfeited its authority to block states from adopting consumer-protection laws aimed at ISPs.

“There is little doubt that when the FCC determines that a particular communications service should be subject to the heightened regulatory regime of Title II, it has the concomitant power to preempt state law that conflicts with its regulatory decisions,” the Second Circuit said. “In contrast, Title I grants the FCC no authority to impose rate regulations, nor does it contain a forbearance provision similar to Title II.”

In the opinion, the Second Circuit did not say whether it considered the New York law to be rate regulation. That omission could be significant because the Rosenworcel FCC might not view mandatory low-cost plans to be impermissible rate regulation.

Leading up to Thursday's Net Neutrality vote, Public Knowledge representatives raised that very issue with FCC Commissioner Anna Gomez.

“The [FCC] should clarify that forbearance from “ex post rate regulation” does not in any way interfere with the power of the [FCC], state agencies, or other federal agencies, to require providers to offer discounted ‘affordability’ programs for those who qualify,” PK said in an April 18 filing with the FCC. “For example, the [FCC] should not forbear from its authority to impose (and enforce) low-cost offerings to qualifying individuals as merger conditions, or as conditions on subsidies.”