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Net Neutrality: FCC Chairman Proposes to Reclassify Internet Like a Utility

FCC Chairman Tom Wheeler has proposed reclassifying the Internet as a Title II telecommunications service, a regulatory maneuver that will allow the agency to set robust rules of the road for the Internet, commonly known as net neutrality.

If the FCC votes for his proposal on Feb. 26, it would mean that Internet providers like Comcast and AT&T would be prohibited from blocking or throttling content, or from creating fast lanes or slow lanes in delivering traffic to the consumer. The rules would apply to wired and mobile broadband, a recognition of the evolution of consumer use of the Internet.

“Using this authority, I am submitting to my colleagues the strongest open Internet protections ever proposed by the FCC,” Wheeler wrote in an op ed posted on the Wired magazine website on Wednesday. “…My proposal assures the rights of Internet users to go where they want, when they want, and the rights of innovators to introduce new products without asking anyone’s permission.”

While Wheeler’s proposal would reclassify Internet service, it also would place some limits on the scope of the FCC’s oversight, restricting it from regulating rates, bundling practices and other powers that government entities exercise over utilities. The limitations — known in regulatory jargon as “forbearance” — are meant to respond to criticisms that such an approach would burden 21st century technology with 20th century regulation.

Wheeler said that his proposal also will include a “general conduct rule” that “can be used to stop new and novel threats to the Internet.”

“This means the action we take will be strong enough and flexible enough not only to deal with the realities of today, but also to establish ground rules for the as yet unimagined,” he wrote.

The proposal was greeted with praise from public interest groups, Internet firms like Netflix, and grassroots activists, who have urged the FCC to take such a step as a way of ensuring that the agency is on a solid legal footing to impose tough net neutrality rules.

Shortly after Wheeler unveiled the outlines of his approach, Michael Copps, a former FCC commissioner and special adviser to Common Cause, said, “This is a banner day as years of grassroots organizing is paying historic public interest dividends.”

The Internet Association, which represents major firms like Google, Twitter and Facebook, issued a statement from its CEO, Michael Beckerman, praising the proposal.

“The details and implementation of the proposal matter, and we look forward to seeing the text of the order to ensure that a free and open Internet is fully protected,” he said.  “The Internet Association remains results oriented, and it is essential that the end result protect the user experience as a first priority.”

In the entertainment industry, studios have largely stayed out of the net neutrality debate, perhaps reflecting a diversity of opinion among members of the MPAA. The Writers Guild of America has been a vocal advocate for reclassification, as a guarantee for content creators seeking new outlets for their works as traditional media has consolidated.

Chris Keyser, president of the WGA, West, said that the proposal “means that the future of this democratic platform need not be put in the hands of a few powerful gatekeepers.”

Internet service providers, by contrast, have long warned that such an approach to reclassification would stifle investment, and some have also suggested that they would file legal challenges.

“Subjecting broadband to public utility regulation under Title II is unnecessary for assuring continued openness and would carry deeply harmful consequences,” Rick Boucher, a former Virginia Democratic congressman who chaired the subcommittee on communications and the Internet, said in a statement released by the industry group Internet Innovation Alliance. “Internet infrastructure investment would be stifled at a time when we have a national goal of extending high-speed Internet service to 98 percent of Americans.”

Another industry group, Broadband for America, said that the proposal “is an unprecedented expansion of FCC power with heavy regulation of the Internet for the first time,” in the words of the group’s honorary co-chairs, John Sununu, a Republican, and Harold Ford Jr., a Democrat.

On Tuesday, AT&T’s Hank Hultquist wrote on the company’s policy blog that the FCC’s approach is a “road to nowhere.” He challenged the notion that broadband providers were utility-like “common carriers,” noting that the FCC has yet to determine that ISPs hold themselves out “to service customers indifferently.”

House and Senate Republicans are pursuing their own net neutrality legislation, which would ban Internet providers from the blocking and throttling of content, as well as from collecting fees from sites for speedier access to ISP subscribers. But Democrats have balked at the bill, noting that it also would limit the FCC’s authority to respond to consumer complaints or take other types of action to shape the Internet’s future. The GOP legislation would prohibit the FCC from reclassification.

White House spokesman Josh Earnest said that they were “encouraged” by Wheeler’s proposal and did not believe that additional congressional legislation was needed.

Wheeler’s proposal will be distributed to other commissioners on Thursday, according to a senior FCC officials. He may have the two votes he needs from the FCC to pass the proposal, as he is joined on the commission by two Democrats, Jessica Rosenworcel and Mignon Clyburn — enough to give him the majority. There is wide speculation that the two Republicans on the commission, Ajit Pai and Michael O’Rielly, will vote against it.

A year ago, many doubted that the FCC would pursue such a dramatic regulatory step toward net neutrality.

In January of last year, the D.C. Circuit Court of Appeals overturned the FCC’s previous set of net neutrality rules, concluding that the agency didn’t have the solid legal footing to impose them. The judges said that the FCC was attempting to set utility-like regulation for the Internet without actually classifying broadband as a Title II utility. The FCC currently considers the Internet an “information service,” not a Title II “telecommunications service,” the classification given to phone companies.

The problem with reclassification was it faced fierce opposition from cable and telecom firms, not to mention Republicans in Congress, who warned that it would depress investment.

In response to the court decision, Wheeler initially proposed a route in which ISPs would be held to a standard of delivering Internet traffic in a way that was “commercially reasonable.” Advocates of net neutrality pounced, characterizing such an approach as too weak to prevent Internet service providers from selling “fast lanes” to major content providers, and creating a tiered system of winners and losers on the web akin to cable TV.

Protests outside the FCC seemed to escalate debate well beyond wonkish policy circles and lobbying shops. A video of John Oliver’s “Last Week Tonight,” in which he explained the issue in humorous terms, generated more than 7 million views and is believed to have contributed to a slowing of the FCC website as users tried to comment on the issue. The outcry translated into about 3.7 million public comments to the FCC over the summer, setting a record, with the vast majority of them believed to be calling for a solid set of rules.

In his Wired op-ed, Wheeler said that while he originally thought that a “commercially reasonable” standard could guarantee open Internet rules, “I became concerned that this relatively new concept might, down the road, be interpreted to mean what is reasonable for commercial interests, not consumers.”

Shortly after the midterm elections in November, President Obama announced that he favored reclassification, giving momentum to that approach as some polls showed solid majorities of Democrats and Republicans favored strong net neutrality rules.

By last month, even Wall Street analysts signaled that they expected the FCC to take such a route. “It was clear from the moment of the President’s statement that the FCC would reclassify,” Craig Moffett and Michael Nathanson wrote in a research note in early January. The surprise has been that cable stocks have not plunged since it became clear.

On Wednesday, the stocks of major cable and telecom firms like Comcast and AT&T were up, in what Macquarie Securities’ Amy Yong called a “relief rally.” Wheeler’s move has long been expected, and the market reaction was to the news that the proposal wouldn’t subject Internet providers to rate regulation.

“I would say that it is in line with what a lot of people were expecting,” she said. A report she did last month shows that cable stocks have outperformed since Obama announced his support for reclassification on Nov. 10.

The previous set of net neutrality rules had to do with how Internet service providers delivered their traffic to the consumer. Netflix, however, has said that the new rules also should extend to the way that the ISPs receive that traffic in the first place.

Netflix has complained that Comcast and Verizon were charging hefty fees to take their traffic and ensure that it is delivered to subscribers in quality form. ISPs have argued that Netflix was mischaracterizing the issue, and that all ISP subscribers shouldn’t have to bear the costs of Netflix’s fast growing video traffic.

Under Wheeler’s proposal, the FCC would use Title II authority over such interconnection, allowing the agency to exercise oversight. The agency would, for the first time, consider complaints over interconnection deals and handle them on a case-by-case basis.

In a statement, Netflix said that the FCC “is poised to take decisive action that will ensure consumers get the Internet access they pay for without ISPs restricting, influencing or meddling with their choices.

“We support the commission asserting jurisdiction over interconnection and implementing a case-by-case process that prevents ISPs from charging unfair and unreasonable tolls. If such an oversight process had been in place last year, we certainly would’ve used it when a handful of ISPs opted to hold our members hostage until we paid up.”

The proposed rules do not explicitly prohibit such things as a mobile carrier from offering its own video services that don’t count against a subscriber’s data cap, a practice called “zero rating.”  Advocates of net neutrality have suggested that such practices could put other video providers at a disadvantage. Wheeler’s proposal would enable the agency to scrutinize how such practices affect competition, and to take complaints on a case-by-case basis.

The proposal is aimed at Internet service providers, not Internet firms like Google and Twitter. It also does not extend to such things as apps, or to a cable system’s VoIP phone service or to services like heart monitoring that do not go over the public Internet.

A senior FCC official, while acknowledging that litigation was likely, expressed confidence that the FCC would prevail. He also dismissed notions that such an approach would stifle investment, noting that Sprint and Google Fiber have committed to upgrades and build out of their networks even when it became clear that the FCC was heading down a route of reclassification.

A rundown of the proposal is available here.

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