As it fights to reclaim the power to require equal treatment of Internet traffic, the U.S. Federal Communications Commission has two paths in a regulatory battle pitting phone carriers against Web companies.
The agency, responding to a federal court ruling, can seek new rules under a law authorizing it to promote high-speed connections. FCC Chairman Tom Wheeler also could pull Internet service providers into rules written decades ago for monopoly telephone service - a course rejected by his predecessor and opposed by companies including Verizon Communications Inc.
Those steps would be separate from appealing a decision by the U.S. Court of Appeals in Washington on Tuesday to throw out the agency’s equal-access rules, which required Internet service providers to treat all online traffic equally. The ruling gave Internet service providers like Verizon the freedom to charge companies such as Netflix Inc. and Amazon.com Inc. for fast connections - costs that could be passed on to consumers.
The FCC has “a substantial amount of running room” to write rules to get around the decision, said Kevin Werbach, associate professor at the University of Pennsylvania’s Wharton School in Philadelphia.
The court, while striking down the open-Internet rules, said the FCC has the authority to expand the use of high-speed connections. The case was filed by Verizon.
“The fact that the court has validated their authority for the first time is something that shouldn’t be minimized,” said Werbach, a former counsel for new technology at the FCC.
Wheeler, a Democrat in office since November after a career as a cable and telephone lobbyist and telecommunications investor, hasn’t said what path the agency will follow now.
“I intend to fight,” Wheeler said in a speech last week in Washington.
“Using our authority, we will re-address the concepts in the open Internet order, as the court invited, to encourage growth and innovation and enforce against abuse,” he said.
Asked for details, Wheeler said, twice, “I’m going to accept the invitation. Watch.”
The FCC has said that without rules to ensure equal access to the Internet, service providers could favor wealthier, established players over startups, squelching innovation.
Verizon, based in New York, told the appeals court Sept. 9 that the FCC’s rules governing what’s known as Net neutrality may make it more difficult to manage network traffic and discourage investment in Internet capacity.
Carriers have argued that the biggest bandwidth users should share in the costs of sending content to customers. The idea is to charge Netflix or Google the equivalent of first-class handling, so that House of Cards or YouTube videos can get guaranteed quicker delivery.
Helgi Walker, a lawyer for the New York-based carrier, told the appeals panel that Verizon wants a “two-sided market,” involving payment for Internet service by subscribers and by companies that want to reach them.
“I’m authorized to state from my client today that but for these rules we would be exploring those types of arrangements,” said Walker,working at the time for the law firm Wiley Rein LLP.
Streaming services have contributed to Internet congestion, putting a strain on networks.
Monthly traffic over phone and cable lines has more than doubled over the past year during peak hours, according to Sandvine Inc., a provider of data-management software. Netflix, the world’s largest subscription video-streaming service, accounts for about 32 percent of all peak traffic in North America, Sandvine estimates.
Smaller providers of Internet content - say, a videosharing service or a nonprofit news organization - also could suffer if they can’t afford extra fees to deliver their material quickly. That’s raised concerns that consumers may favor content from established companies, shutting out upstarts.
For now, no immediate changes are expected in the fee structure. Verizon and other broadband providers will probably take things slow, said Don Bowman, chief technology officer of Sandvine.
“The court of public opinion weighs heavily here, which means we probably won’t see any sudden, rash actions,” he said.
With Tuesday’s ruling, some public-policy groups and a trade association for content providers are now urging Wheeler to declare Internet service akin to telephone service, reversing a decision made under a Republican predecessor a decade ago.
“Reclassify,” said Cathy Sloan, vice president of government relations for the Computer & Communications Industry Association. The Washington-based group lists members including Google Inc., Microsoft Corp., Yahoo Inc. and Facebook Inc.
“It was a mistake to classify Internet access as an unregulated information service,” Sloan said. “It’s the dial tone of the 21st century.”
Treating Internet service providers like the old Bell telephone system would probably spark a renewed fight with Verizon and AT&T Inc., said Craig Moffett, senior analyst at New York-based Moffett Nathanson LLC.
“The companies hate it” because being treated like telephone providers opens the door for other rules including price regulation, Moffett said.
Wheeler probably will raise the possibility of using that approach as a threat to prompt negotiations, he said. His predecessor, Julius Genachowski, decided not to reclassify Internet service providers after months of debate in 2010.
Gene Kimmelman, a former Justice Department antitrust official who’s the incoming president of Public Knowledge, a Washington-based policy group, said the powers identified by the court fall short of what’s needed.
“It certainly is unclear how you can prevent unfair discrimination against new innovators - the edge providers on the network,” Kimmelman said.
Because the court said the FCC can’t make rules to prevent unequal treatment of Internet content, the agency would have to set weaker guidelines and then adjudicate complaints, said Matt Wood, policy director for the advocacy group Free Press.
“That’s just too thin a reed,” he said.
The FCC would take on less political risk by using the powers allowed by the court, said Jeff Silva, a Washington-based analyst with Medley Global Advisors.
An appeal to the Supreme Court would carry the risk that the justices would agree with a dissenting appeals judge who said the decision left the FCC with too much power, Silva said.
“All we’ve done is opened Pandora’s box,” Moffett said. “The question is, what’s going to come out?” Information for this article was contributed by Scott Moritz and Cliff Edwards of Bloomberg News.
Business, Pages 19 on 01/20/2014