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FCC’s Options Narrow After Court Blocks Net Neutrality Rules

Yet again, the long-time effort to establish rules of the road for the Internet has hit a big pothole.

The D.C. Circuit, in striking down many of the FCC’s existing net neutrality rules on Tuesday, once again casts doubt on whether regulators can impose significant guidelines on how Internet providers treat their traffic, particularly given the polarized political environment in Washington. It means that Internet providers will be free to treat traffic differently, or even block certain websites to give an advantage to another one. In other words, a cable broadband provider could slow down an Internet rival to its video-on-demand offerings, or AT&T could block a competitor like Vonage.

A longtime challenge in establishing net neutrality rules is that such discriminatory practices are not widespread, and detractors have taken to calling the rules “a solution in search of a problem.”

But for public interest groups, progressive lawmakers and many Internet firms, particularly startups, the fear is that the great promise of broadband, left without any consequential rules, will devolve into a medium that resembles the tiered system of cable TV. Net neutrality advocates have laid out scenarios in which high-valued content is only available by accessing higher-priced tiers.

“The court’s decision today is poised to end the free, open, and uncensored Internet that we have come to rely on,” said Michael Copps, former commissioner of the FCC and special adviser to the media and democracy initiative at Common Cause.

Harold Feld, senior vice president of Public Knowledge, said that “in some respects, no one got what they wanted out of this decision, and confusion over the proper role of the FCC is greater than ever.”

The Writers Guild of America in particular has argued that the lack of rules threaten the ability of independent content creators to flourish on the Internet, and take advantage of opportunities that have diminished because of consolidation of traditional media.

The WGA West said that the decision “is a blow to competition, consumers and content creators. An open Internet has already begun to offer myriad new sources for news, information and entertainment. To allow the Internet to succumb to corporate forces who seek to control what consumers can access undermines the open, democratic principles on which the Internet was founded.”

To be sure, the D.C. Circuit did not come out an say that the FCC lacked any authority to impose rules on broadband, and even noted the need for them, which in and of itself may be significant. The appellate judges cited an instance where a mobile broadband provider restricted the availability of the a competing streaming video service. Even Michael Powell, the CEO of industry group the National Cable & Telecommunications Assn., noted that “today’s historic court decision means that the FCC has been granted jurisdiction over the Internet.”

Reed Hundt, the former chairman of the FCC, went so far as to call the decision a “victory” for the commission, in that the majority of the appellate panel made clear that a provision of the Telecommunications Act of 1996 gave it the power to create rules of how Internet providers treat their traffic. Where they found fault is in the way the rules were written.

“I think it is a real opportunity for [FCC chairman Tom] Wheeler because, now that the rules are thrown out, he has been given a blank piece of paper and a pen with a lot of ink in it,” Hundt said.

But Copps and other leaders of many public interest groups are pushing the FCC to reclassify broadband from an information service to a telecommunications service. That is at the heart of the 2-1 decision of the appellate judges, who found fault with the FCC’s effort to impose similar robust rules that govern telephone services, such as rules preventing blocking or discriminating against certain types of traffic, without saying that the Internet falls into that category of a “common carrier.”

“Without prompt corrective action by the Commission to reclassify broadband, this awful ruling will serve as a sorry memorial to the corporate abrogation of free speech,” Copps said in a statement.

David Sohn, the general counsel of the Center for Democracy and Technology, said that the “essentially tied its own hands” by classifying the Internet as an information service, giving it limited ability to impose strong rules that can withstand court scrutiny.

Even with the existing FCC rules, there were doubts that it could have prevented the development of certain types of broadband services, like a new mobile offering introduced by AT&T last week in which subscribing companies pay for the bandwidth when a subscriber uses their app or website. A customer, then, could access such content without it counting against their data cap, or the monthly threshold at which mobile providers stop service unless subscribers pay more. Consumers groups fear that in and of itself will give an advantage to those willing to pay up and perhaps reduce traffic to sites that still count against a data cap.

A move to reclassify the Internet as a telecommunications service, however, carries political risks. Powerful Republicans in Congress would likely cry foul, not to mention Internet providers and telecom companies. Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee, and Rep. Greg Walden (R-Oregon), chairman of the communications and technology subcommittee, said that “in the Internet’s infancy, the commission made the right decision to leave it free from the interference of government regulators. Today’s ruling vacates the commission’s attempt to go back on this policy and to smother the Internet with rules designed for the monopoly telephone network.”

Former Commissioner Robert McDowell, who voted against the net neutrality rules and is now a fellow at the Hudson Institute, said that the commission “should exhibit regulatory restraint and resist the urge to pursue further appeals of this legal loser of a case.  More importantly, it should discard any notion of classifying broadband Internet access as a telephone service (for the first time in history) thus triggering ancient laws designed for extinct phone and railroad monopolies.  Such action would be counterproductive and produce myriad unintended and negative consequences.”

In an interview, he declined to guess what the commission would do, but he said that among the option he hopes they do is to “make an inventory of all existing laws” that could be applied to cases of anti-competitive behavior. Reclassifying the Internet as a telecom service, he said, would receive a poor reaction from financial markets and would stifle innovation, he said.

Wheeler has hinted that he has misgivings about such an approach, and, while he has expressed support for net neutrality, he last week said that “there has to be some ability on the part of government to oversee, to assess and, if warranted, to intervene.”

The FCC could appeal the ruling to the larger D.C. Circuit, or even to the Supreme Court. Or it could try to recraft some rules, but the ruling leaves doubts as to how far-reaching they can be short of reclassifying the Internet as a telecommunications service.

For their part, Internet providers and telecom companies said that they would not change their practices in light of the ruling. Comcast is bound by the net neutrality rules for seven years under the terms it worked out for government approval of its acquisition of NBC Universal. The company said that they “remain comfortable with that commitment because we have not — and will not — block our customers’ ability to access lawful Internet content, applications and services.” Time Warner Cable said that its commitment to “unfettered access to the web content and services of their choice” would “not be affected by today’s court decision.”

One of the ironies is that the FCC rules, passed in 2010, haven’t seemed to hinder the growth of many Internet services, particularly web video services like Netflix and Amazon.

Broadband for America, an organization that includes Verizon, AT&T, Comcast and the NCTA, said that “we have built our Internet services on the foundation of openness. Today’s decision does not change that commitment.”

“In light of today’s decision, we hope the Commission will continue to recognize that its own statement of Internet freedoms has worked as it is intended, without creating the type of adverse impact that undue regulation of broadband can have on future investment, innovation and choice for consumers,” the org said.

Verizon, the plaintiff in the suit, said that the decision “will not change consumers’ ability to access and use the Internet as they do now.” The company said that it “has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where and how they want.”

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