FCC Approves Net Neutrality Rules, Setting Stage For Legal Battle
Telecom, cable industries expected to challenge commission’s 3-2 vote
Federal Communications Commission Chairman Tom Wheeler arrives at the Net Neutrality hearing in Washington on Thursday.PHOTO: REUTERS
The Federal Communications Commission set aside two decades of laissez-faire policy Thursday to assert broad authority over the Internet, voting to regulate broadband providers as public utilities and overruling laws in two states that made it harder for cities to offer their own Web service.
Both rulings were setbacks for big telecommunications and cable companies that have invested billions of dollars in their networks and wins for Internet companies that have enjoyed explosive growth as people spend more time online. The moves reflect an evolution from regulators treating the Internet as a technological innovation that needed to be nurtured to a powerful commercial venue with rival constituencies that need to be balanced.
The commission pledged to use a light touch, and the immediate practical effects of the decisions are limited because companies, regulators and users all agree in principle that traffic shouldn’t be blocked.
Still, the shift in philosophy was notable, with possible implications down the road that are hard to predict. It even drew warnings from Google Inc., which told the White House privately it was making a mistake when President Barack Obama called in November for the approach the FCC adopted on Thursday, .
The Federal Communications Commission approves net neutrality rules. Wharton's Kevin Werbach explains what the ruling means for consumers on the News Hub. Photo: Istock/shironosov
Net neutrality revolves around a key question: Should internet bandwidth be treated equally for everyone? Here's a look at the debate.
“The blessing and the curse for the cable industry and the telcos is they have an infrastructure which is absolutely critical to the economy, to education, to health care—far beyond the original use for which they built those networks,” said Blair Levin, who was chief of staff at the FCC in the 1990s and who headed up the agency’s 2010 National Broadband Plan. “The good news is everybody needs it. The bad news is when everybody needs it, the government plays a role.”
Netflix said the day was a win for consumers. Telecom and cable industry groups said the decisions opened the door to heavy-handed regulation that would hurt innovation. FCC Chairman Tom Wheeler shot back at such criticism ahead of the vote, saying, “This is no more a plan to regulate the Internet than the First Amendment is a plan to regulate free speech.”
Both votes in the Democratic-controlled commission were 3-2 along party lines. In the more closely watched decision, the FCC approved new net neutrality rules that bar Internet service providers from blocking Web traffic or letting them charge websites for priority service.
The rules also extend the regulator’s reach into the middle of the Internet by saying if there are complaints, the commission will review so-called interconnection deals, which allow companies like Netflix to tie directly into networks like those owned by Comcast.
The telecom and cable industries said they agree with the principles behind the rules but bristled at the oversight. Verizon, in a statement typed on a Remington typewriter and datelined Feb. 26, 1934, criticized the rules as antiquated and likely to create uncertainty that will hurt innovation. The industries are preparing to fight the rules in court and are backing attempts by Republicans in Congress to supersede them with new legislation.
The FCC has tried for the better part of a decade to find a middle path of using guidelines or rules to enforce net neutrality without going so far as treating broadband as a regulated service under Title II of the Communications Act of 1934.
Apple Computer co-founder Steve Wozniak, left, applauds the FCC ruling on net neutrality Thursday. Below, FCC Chairman Tom Wheeler. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
But those efforts have foundered. In 2010, the U.S. Court of Appeals for the D.C Circuit ruled the commission overstepped when it cited Comcast for slowing down traffic for users of file-sharing sites like BitTorrent. Last year, the same court ruled in favor of Verizon and overturned the FCC’s next attempt to set rules.
In the more recent ruling, the court said the FCC was treating Internet providers like traditional “common carrier” telecommunications services even though it hadn’t classified them as such. The new rules—which reclassify broadband as a Title II service—are an effort to patch that hole.
“They are asserting the importance of broadband, and they are asserting the importance of the government taking an active role in ensuring that we get deployment, and that it’s open and fair,” Mr. Levin said.
The FCC’s other decision Thursday was aimed at state laws that make it harder for cities to build or extend publicly owned Internet services. The panel granted petitions by public utilities in Chattanooga, Tenn., and Wilson, N.C., to escape restrictions on expanding such service. About 20 states have passed such laws.
The FCC justified its preemption of the state laws by referring to its authority to encourage broadband expansion and competition. The decisions don’t affect the other states, but they do set a precedent for consideration of similar petitions in the future.
“Some states have designed thickets of red tape designed to limit competition,” Mr. Wheeler said Thursday. “We are cutting away that red tape consistent with Congress’s instructions to encourage the deployment of broadband.”
Telecom and cable companies have objected to allowing arms of the government to compete with private business. The cost of building broadband networks to businesses and homes is high, and the laws help protect those investments by ensuring they don’t face competitors that have an unfair advantage, they say.
Critics also say when local governments make mistakes, taxpayers can get stuck with the bill. The city of Provo, Utah, eventually sold its struggling fiber-optic network to Google for $1.
Republican Commissioner Ajit Pai said that the FCC doesn’t have the legal power to shoot down the laws and would need a clear statement from lawmakers to do so. His fellow Republican, Michael O’Rielly, made a similar argument, saying, “I’m deeply troubled by the policy implications of this order.”
Nevertheless, public support for firmer oversight of broadband is running high. Concerns about the growing power of giant firms were fanned a year ago when Comcast struck a $45 billion deal to buy fellow Internet provider Time Warner Cable. The FCC received around four million comments on its net-neutrality proposals.
Chairman Wheeler, who disclosed details of the new net neutrality rules earlier this month, received a standing ovation when he entered the commission room ahead of the votes. He reiterated Thursday that the commission is acting only to establish regulatory authority to enforce net neutrality and won’t impose more onerous regulations like price controls.
Apple co-founder Steve Wozniak attended the meeting. On the sidelines, he said that he has only slower DSL service at home and that providers need to be more closely regulated.
“Broadband is essential, like water,” Mr. Wozniak said.
—Ryan Knutson contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
