Month: January 2025
U.S. federal appeals court says FCC’s net neutrality/open internet rules are “unlawful”
U.S. Court of Appeals for the Sixth Circuit today struck down the Federal Communications Commission’s (FCC’s) hard-fought and long-debated net neutrality/open internet rules. The FCC had sought to reinstate a sweeping policy established under President Obama that was designed to treat internet service as an essential public service, similar to a water or power utility. The court ruled that broadband communications, including broadband delivered via mobile networks, is classified as an “information” service rather than a more heavily regulated “telecommunications” service. That important distinction means the FCC lacks the authority to impose the current set of rules, the court’s three-judge panel found.
The court said a recent U.S. Supreme Court ruling had removed a judicial framework that allowed courts to interpret rules with deference to the federal agency that created them. The 6th Circuit said the FCC did not have the statutory authority to change the classification of broadband internet to a telecommunications service. That role rests with Congress. The case was brought by the Ohio Telecom Association, a trade organization representing internet service providers (ISPs).
The negative ruling arrives about six months after the Sixth Circuit court stayed the FCC’s network neutrality rules, under current Chairwoman Jessica Rosenworcel, which aimed to resurrect broadband under a more heavily regulated Title II/telecommunications service classification. The FCC, under Rosenworcel, passed the current set of net neutrality rules in April 2024.
Backgrounder: Under the net neutrality rules, internet service providers (ISPs) would have been subjected to greater regulation. A Republican-led commission repealed the rules in 2017 during President-elect Donald Trump’s first term in office. Early last year, the FCC — then back under Democrat control — voted to formalize a national standard for internet service to prevent the blocking or slowing of information delivered over broadband internet lines. The core principle of open internet meant that internet service providers couldn’t discriminate among content suppliers. The order also would have given the FCC increased oversight to demand that internet providers respond to service outages or security breaches involving consumers’ data. The FCC cited national security, saying increased oversight was necessary for the commission to effectively crack down on foreign-owned companies that were deemed to be security threats.
“Using ‘the traditional tools of statutory construction’ … we hold that Broadband Internet Service Providers offer only an ‘information service’ … and therefore, the FCC lacks the statutory authority to impose its desired net-neutrality policies through the ‘telecommunications service’ provision of the Communications Act,” the Sixth Circuit court, based in Cincinnati, OH, said in its ruling.
“We conclude that Broadband Internet Service Providers at the very least offer consumers the ‘capability’ of ‘retrieving’ ‘information via telecommunications’,” the Sixth Circuit explained. “Accordingly, the FCC’s contrary conclusion is unlawful.”
The decision is another blow to an FCC that had fought for the rules to be reinstated under Rosenworcel and the outgoing Biden administration. The decision is a win for broadband service providers along with several organizations, including ACA Connects, CTIA, NCTA and USTelecom, that had argued against the rules, holding that the market has been thriving under a “light-touch regulatory framework.”
In a statement about the Sixth Circuit Court’s decision, FCC chairwoman Rosenworcel said:
“Consumers across the country have told us again and again that they want an internet that is fast, open, and fair. With this decision it is clear that Congress now needs to heed their call, take up the charge for net neutrality, and put open internet principles in federal law.”
However, the ruling is likely just the start of a larger wave of deregulatory shifts that’s expected to occur in 2025 and beyond under the new Trump administration. Incoming FCC Chairman Brendon Carr (see quote below) is the senior Republican on the five-member commission and has championed many of Trump’s causes. One of the authors of the Project 2025 policy paper, he has outlined plans to remove regulations conservatives consider overbearing or outdated. He will also wrestle with looming budget crunches and court rulings that threaten to erode the federal agency’s overall authority.
Some reactions to Thursday’s ruling:
1. “We hope that today’s decision will allow for a refocused conversation about effective ways to achieve national goals with respect to broadband access,” Mike Romano, EVP of NTCA – The Rural Broadband Association, said in a statement.
2. MoffettNathanson analyst Craig Moffett noted in an emailed statement to investors that the broadband market has been concerned that if the FCC had the authority to impose Title II reclassification, it could open the door for the Commission to impose broadband price regulation. “That risk is now put to bed,” he said. The decision was of little surprise after the FCC’s ability to start enforcing the rules was delayed after the court put them on hold amid a review of the precedent set by the US Supreme Court’s decision last June to strike down the decades-old Chevon deference (a.k.a. the Loper Bright) decision. That decision stands to limit the power and authority of federal agencies, such as the FCC, in interpreting certain laws that are considered ambiguous. Notably, Chevron has played a significant role over the years in establishing the FCC’s authority to set and enforce network neutrality regulations. “Indeed, the reason we and others stopped worrying about Title II was because it was clear that the judicial principle of Chevron Deference wasn’t going to survive much longer,” Moffett wrote.
3. Free Press, a long-time network neutrality advocate, argued that the court wrongly rejected the FCC’s jurisdiction on the matter. “Beyond being a disappointing outcome, today’s 6th Circuit opinion is just plainly wrong at every level of analysis,” Matt Wood, VP of policy and general counsel at Free Press, said in a statement. “Today’s decision will let the incoming Trump FCC abdicate its responsibility to protect internet users against unscrupulous business practices … It’s rich to think of Donald Trump and Elon Musk’s hand-picked FCC chairman characterizing light-touch broadband rules as heavy-handed regulation, while scheming to force carriage of viewpoints favorable to Trump on the nation’s broadcast airwaves and social media sites.”
4. Statement from Tully Center for Free Speech on Net Neutrality Ruling:
As expected, FCC Commissioner & incoming FCC Chairman Brendon Carr (Republican) cheered news of the ruling by stating, “Over the past four years, the Biden Administration has worked to expand the government’s control over every feature of the Internet ecosystem. You can see it in the Biden Administration’s efforts to pressure social media companies into censoring the free speech rights of everyday Americans. You can see it in the Biden Administration’s demand that the FCC adopt ‘digital equity’ rules for the Internet—sweeping regulations that give the Commission nearly limitless powers over the Internet. And you can see it in the Biden Administration’s decision to impose so-called ‘net neutrality’ rules by applying Title II or utility-style regulations to the Internet.”
References:
https://www.fcc.gov/document/chairwoman-rosenworcel-sixth-circuit-court-net-neutrality-decision
https://docs.fcc.gov/public/attachments/DOC-408580A1.pdf
FCC restores net neutrality order, but court challenges loom large
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FCC Draft Net Neutrality Order reclassifies broadband access; leaves 5G network slicing unresolved
FT: Nvidia invested $1bn in AI start-ups in 2024
Nvidia invested $1bn in artificial intelligence companies in 2024, as it emerged as a crucial backer of start-ups using the company’s graphics processing units (GPUs). The king of AI semiconductors, which surpassed a $3tn market capitalization in June due to huge demand for its high-performing GPUs, has significantly invested into some of its own customers.
According to corporate filings and Dealroom research, Nvidia spent a total of $1bn across 50 start-up funding rounds and several corporate deals in 2024, compared with 2023, which saw 39 start-up rounds and $872mn in spending. The vast majority of deals were with “core AI” companies with high computing infrastructure demands, and so in some cases also buyers of its own chips. Tech companies have spent tens of billions of dollars on Nvidia’s chips over the past year since the debut of ChatGPT two years ago kick-started an unprecedented surge of investment in AI. Nvidia’s uptick in deals comes after it amassed a $9bn war chest of cash with its GPUs becoming one of the world’s hottest commodities.
The company’s shares rose more than 170% in 2024, as it and other tech giants helped power the S&P 500 index to its best two-year run this century. Nvidia’s $1bn worth of investments in “non-affiliated entities” in the first nine months last year includes both its venture and corporate investment arms.
According to company filings, that sum was 15% more than in 2023 and more than 10 times as much as it invested in 2022. Some of Nvidia’s largest customers, such as Microsoft, Amazon and Google, are actively working to reduce their reliance on its GPUs by developing their own custom chips. Such a development could make smaller AI companies a more important generator of revenues for Nvidia in the future.
“Right now Nvidia wants there to be more competition and it makes sense for them to have these new players in the mix,” said a fund manager with a stake in a number of companies it had invested in.
In 2024, Nvidia struck more deals than Microsoft and Amazon, although Google remains far more active, according to Dealroom. Such prolific dealmaking has raised concerns about Nvidia’s grip over the AI industry, at a time when it is facing heightened antitrust scrutiny in the US, Europe and China. Bill Kovacic, former chair of the US Federal Trade Commission, said competition watchdogs were “keen” to investigate a “dominant enterprise making these big investments” to see if buying company stakes was aimed at “achieving exclusivity”, although he said investments in a customer base could prove beneficial. Nvidia strongly rejects the idea that it connects funding with any requirement to use its technology.
The company said it was “working to grow our ecosystem, support great companies and enhance our platform for everyone. We compete and win on merit, independent of any investments we make.” It added: “Every company should be free to make independent technological choices that best suit their needs and strategies.”
The Santa Clara based company’s most recent start-up deal was a strategic investment in Elon Musk’s xAI. Other significant 2024 investments included its participation in funding rounds for OpenAI, Cohere, Mistral and Perplexity, some of the most prominent AI model providers.
Nvidia also has a start-up incubator, Inception, which separately has helped the early evolution of thousands of fledgling companies. The Inception program offers start-ups “preferred pricing” on hardware, as well as cloud credits from Nvidia’s partners.
There has been an uptick in Nvidia’s acquisitions, including a takeover of Run:ai, an Israeli AI workload management platform. The deal closed this week after coming under scrutiny from the EU’s antitrust regulator, which ultimately cleared the transaction. The US Department of Justice was also looking at the deal, according to Politico. Nvidia also bought AI software groups Nebulon, OctoAI, Brev.dev, Shoreline.io and Deci. Collectively it has made more acquisitions in 2024 than the previous four years combined, according to Dealroom. Recommended News in-depthArtificial intelligence Wall Street frenzy creates $11bn debt market for AI groups buying Nvidia chips.
The company is investing widely, pouring millions of dollars into AI groups involved in medical technology, search engines, gaming, drones, chips, traffic management, logistics, data storage and generation, natural language processing and humanoid robots. Its portfolio includes a number of start-ups whose valuations have soared to billions of dollars. CoreWeave, an AI cloud computing service provider and significant purchaser of Nvidia chips, is preparing to float early this year at a valuation as high as $35bn — increasing from about $7bn a year ago.
Nvidia invested $100mn in CoreWeave in early 2023, and participated in a $1bn equity fundraising round by the company in May. Another start-up, Applied Digital, was facing a plunging share price in 2024, with revenue misses and considerable debt obligations, before a group of investors led by Nvidia provided $160mn of equity capital in September, prompting a 65 per cent surge in its share price.
“Nvidia is using their massive market cap and huge cash flow to keep purchasers alive,” said Nate Koppikar, a short seller at Orso Partners. “If Applied Digital had died, that’s [a large volume] of sales that would have died with it.”
Neocloud groups such as CoreWeave, Crusoe and Lambda Labs have acquired tens of thousands of Nvidia’s high-performance GPUs, that are crucial for developing generative AI models. Those Nvidia AI chips are now also being used as collateral for huge loans. The frenzied dealmaking has shone a light on a rampant GPU economy in Silicon Valley that is increasingly being supported by deep-pocketed financiers in New York. However, its rapid growth has raised concerns about the potential for more risky lending, circular financing and Nvidia’s chokehold on the AI market.
References:
https://www.ft.com/content/f8acce90-9c4d-4433-b189-e79cad29f74e
https://www.ft.com/content/41bfacb8-4d1e-4f25-bc60-75bf557f1f21