Now, in any case the Court's decision is a clear kick in the nuts for the FCC. But not a kick the FCC couldn't have seen coming, as already during the oral arguments it seemed clear which way the DC Circuit was leaning. What's interesting is what the Commission will do next. In an immediate press release the FCC has already vowed to plow on ahead with net neutrality "on a solid legal foundation."
But what legal foundation? I agree with Kevin Werbach that the Court's opinion does leave the FCC and Congress with some room to wiggle:
In short, the Court holds that the FCC's Comcast order (.pdf) does not meet the standards for ancillary authority over an (in this case) Title I service of the Communications Act, as the order does not meet the test of Library Ass'n (.pdf) to determine ancillary jurisdiction. Of main importance is the second prong of the test, as the first one is not contested. Focus is thus on the question whether the FCC's "regulations are reasonably ancillary to the Commission's effective performance of its statutory mandated responsibilities." Based on the arguments presented on appeal the Court decides this second prong hasn't been met—but not without offering suggestions on how the FCC could satisfy the required conditions after all.
[I've changed the order of the Court's reasoning below, for the sake of clarity]
1) The Court acknowledges the Commission's delegated authority under §706 of the Communications Act to
encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans [with] measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investmentEven though this leaves the FCC with a direct mandate, the court wryly remarks that the FCC stated in its own Wireline Deployment Order (.pdf) that section 706 as such does not function as a grant for direct authority. Therefore, if the Commission were to overrule the Wireline Deployment Order, it could theoretically base its ancillary jurisdiction claim over Title I services on §706 after all.
2) The Court notes that the Commission pursued ancillary authority via §201 of the Communications Act in the original Comcast order. According to §201, "[a]ll charges, practices,
classifications, and regulations for and in connection with [a common carrier] service shall be just and reasonable." Comcast's blockage of P2P traffic has in fact—as the Court acknowledges—increased traffic and congestion for other ISPs, some of which operate under common carriage requirements. So, in a roundabout way, the Commission could justify interfering with Comcast's network management to ensure just and reasonable common carriage regulation. This seems like a bit of a stretch, but the Court appears to find this approach legitimate. However, as the Commission has abandoned the original §201 route during oral argument of the case, the Court does not consider it anymore.
3) Most elaborately, the Court repeatedly argues throughout the opinion than ancillary authority for the Commission can only have effect in relation to an express delegation of authority according to the Communications Act. In other words, ancillary jurisdiction should actually be ancillary to something else, instead of acting on a standalone basis. Ergo, the FCC's Policy Statement of 2005 (.pdf) in and of itself cannot constitute a delegation of regulatory authority. In all of the previous ancillary jurisdiction cases (Southwestern Cable; Midwest Video I and II; NARUC II) the FCC always relied on authority ancillary to (for instance) Title II or Title IV of the Communications Act.
Implicit in the Court's reasoning here is that if broadband would fall under Title II of the Communications Act, the Commission's Policy Statement would enjoy ancillary authority after all. This is not a novel idea at all—in fact, many have argued that the shift of broadband from Title II to Title I created the whole network neutrality conundrum that lead to the present Comcast case. What is interesting here is that the Court seems to challenge the FCC to bring broadband back into the fold of Title II.
Thus, this opinion leaves the Commission with three strategies: overturn the Wireline Deployment Order to pursue a §706 approach; an indirect Title II approach through §201; or to transplant broadband back under Title II authority entirely. The first option is a relatively quick fix, yet rather patchy and likely to be contested in court again. The second option seems like a roundabout way that won't solve the underlying problem: all Comcast needs to do is (happily) compensate common carriers. The third option is the most expansive regulatory approach possible—and also the hardest. Title II for broadband will be a tough sell for the FCC, yet would solve most problems of authority. I've already heard rumors that the Commission is seriously considering to completely Title II the sucker. In that case, we've got an interesting few months and a fascinating uphill battle ahead of us.