FCC approves net neutrality

Introduction

The U.S.’s top Internet overseer today voted to bar Internet providers from charging some companies more than others for faster delivery of movies, music and other web content.

The Federal Communications Commission voted 3-2 along party lines to treat Internet service providers such as Verizon, Comcast and Time Warner Cable much like traditional phone companies. The classification will allow the FCC to impose so-called open Internet rules, also referred to as net neutrality, which require both cable and wireless Internet providers to treat all web content the same.

The new rules will prevent the companies that control the delivery of web content to homes and businesses from blocking or slowing online traffic, and charging companies like Netflix to more quickly deliver their online services to customers. Net neutrality supporters said this paid prioritization would lead to a two-tiered Internet and stifle innovation and online startups, which couldn’t afford charges for the faster service.

The historic vote is a huge defeat to the giant telecommunications companies, which are among the most powerful special interests in Washington, D.C., and have spent hundreds of millions of dollars on lobbying, political giving and influence campaigns over the past several years to fight net neutrality.

“This is, overwhelmingly, the biggest defeat for vested interests I can recall in my 15 years working in this sector,” Harold Feld, a senior vice president at Public Knowledge, a consumer advocacy group in Washington that supported net neutrality, said in an email. “It is a thing that should not be possible, and which therefore nobody but a handful of us believed could happen.”

Last year, the biggest broadband providers and associations that represent them spent $88 million alone on lobbying Congress and federal agencies on all kinds of issues, according to the Center for Responsive Politics.

AT&T and Verizon have said they will sue to overturn the ruling.

The FCC also voted 3-2 along party lines to preempt state laws in Tennessee and North Carolina that prevent cities in those states that operate their own broadband networks from expanding their services into neighboring areas. The ruling only affects Chattanooga, Tennessee, and Wilson, North Carolina, the cities that filed petitions asking the commission to preempt the laws. But the ruling makes it easier for other cities in those states, as well as cities in 18 other states that restrict municipal broadband, to ask the FCC to overturn the laws.

The telecom giants have also spent millions and to influence state laws restricting municipal broadband.

The one-two punch delivered by the FCC against the telecommunications industry today is a reversal.

Just a couple of months ago, FCC Chairman Tom Wheeler had been working on a lighter regulatory net neutrality proposal that would have allowed companies to pay extra for priority access. But in November, President Barack Obama released a video calling on the independent agency to classify Internet providers as a utility.

Google, Facebook, Netflix and other Internet content providers supported strong net neutrality rules. That, taken with the nearly 4 million comments the FCC received, the majority of which were in support of net neutrality, led Wheeler to choose to reclassify Internet providers as common carriers, like telephone companies, under what is known as Title II of the Communications Act.

In a summary of the net neutrality rules released this month before the commission vote, the FCC underscored that the rules aren’t utility-style regulations. The agency said it wouldn’t regulate Internet prices or levy taxes and fees, which Title II regulation permits. The FCC will not release the complete rules until later this month.

Internet providers have said they will reduce investments to upgrade their networks because the regulations will keep them from generating enough of a return. The U.S. Telecom Association, a trade group that includes on its board executives from AT&T, CenturyLink and Verizon, cited a study that found utility-like regulation by the FCC would cause the telecom industry to cut spending on their networks by as much as a third during the next five years, “a negative impact on the order of tens of billions of dollars,” U.S. Telecom said in a press release.

In his summary of the net neutrality rules, Wheeler argued that wireless providers invested $400 billion in infrastructure during the time they were regulated as Title II common carriers. That proves “modernized Title II regulation can support investment and competition,” the summary noted.

In 2007, the George W. Bush administration reclassified wireless carriers as a Title I service, which has fewer regulations. Opponents argue the industry knew the Bush administration would deregulate the industry and started investing in their networks shortly after Bush was elected, a time period that accounts for most of the $400 billion investment, said Gus Hurwitz, who teaches telecommunications law at the University of Nebraska College of Law.

“In the early 2000s, that’s when the FCC classified cable would be Title I, and that was a strong indicator that the Bush administration would do the same in wireless,” said Hurwitz, who also is a visiting fellow at the conservative American Enterprise Institute. “That’s what prompted a lot of the investment.”

Kevin Werbach, who studies Internet and communications policy at the University of Pennsylvania’s Wharton School of Business, said Wall Street hasn’t viewed net neutrality regulations or the expansion of municipal broadband as a threat to telecommunications companies. Since Feb. 4, when Wheeler announced he would propose utility-like Internet regulations, telecommunications stocks have mostly increased, with Time Warner Cable leading all companies with an 8 percent increase as of yesterday. Comcast stock has risen 7 percent, and Verizon has increased 3 percent. AT&T has been unchanged.

“The reclassification itself won’t substantially affect investment levels,” Werbach said. “That’s one reason the industry stocks didn’t plummet when the FCC plan was announced.”

Sprint, the nation’s fourth-largest wireless provider, told the FCC in January that strong net neutrality rules would not stop it from upgrading networks. Verizon said the same thing in December, but then reversed itself a day later.

The telecom industry and its partners will certainly sue the FCC over its two decisions, and the agency expects it. Both sides are confident that they will win in court.

Net neutrality proponents say the FCC followed what the D.C. Circuit Court of Appeals ruled in January 2014 when it struck down the last net neutrality rules. The judges said the agency had the authority to regulate the Internet, but not if it was classified as something other than a telecommunications service. Now the FCC has reclassified Internet service providers.

“I am not terribly impressed with the case against Title II,” Feld said in an email. “It’s a pretty straight up agency deference case.”

Net neutrality supporters also believe they may get a favorable ruling from the U.S. Supreme Court, if it makes it that far. In 2005, Justice Antonin Scalia wrote a dissenting opinion in a decision that argued it was impossible for an Internet service provider to separate its infrastructure from the services and programming it sent over that network. In essence, Internet service providers were telecommunications service companies, Scalia argued, giving net neutrality supporters the legal argument they needed and the confidence that they could get four more justices to side with Scalia.

Hurwitz isn’t so sure.

“I think they are over confident in that interpretation,” he said. “Scalia is very hawkish of agencies establishing a broad authority, and the FCC is establishing a broad authority.”