Rebuffing F.C.C. in ‘Net Neutrality’ Case, Court Allows Streaming Deals

New York Times – by EDWARD WYATT

WASHINGTON — Internet service providers are free to make deals with services like Netflix or Amazon allowing those companies to pay to stream their products to online viewers through a faster, express lane on the web, a federal appeals court ruled on Tuesday.

Federal regulators had tried to prevent those deals, saying they would give large, rich companies an unfair edge in reaching consumers. But since the Internet is not considered a utility under federal law, the court said, it is not subject to regulations banning the arrangements.  

Some deals could come soon. In challenging the 2010 regulations at issue in the case, Verizon told the court that if not for the rules by the Federal Communications Commission, “we would be exploring those commercial arrangements.”

Internet users will probably not see an immediate difference with their service. Consumer advocates, though, warned that higher costs to content providers could be passed on to the public, and called the ruling a serious blow against the concept of a free and open Internet. “It leaves consumers at the mercy of a handful of cable and phone providers that can give preferential treatment to the content they profit from,” said Delara Derakhshani, policy counsel for Consumers Union.

Broadband providers that have spent billions of dollars building their networks, including Verizon, said the ruling confirmed their right to manage their networks as they saw fit. And they, too, said they were committed to an open Internet.

“Verizon has been and remains committed to the open Internet, which provides consumers with competitive choices and unblocked access to lawful websites and content when, where and how they want,” the company said in a statement. “This will not change in light of the court’s decision.”

The ruling, in a case brought by Verizon against the F.C.C., concerns at its heart the basic question of whether Internet service is a utility of such vital importance, like telephone lines or electricity, that it needs to be regulated closely.

Although the court, the United States Court of Appeals for the District of Columbia, found that the regulations preventing the deals were invalid, it said that the commission did have some basic authority “to promulgate rules governing broadband providers’ treatment of Internet traffic.” It also upheld agency rules requiring broadband companies to disclose how they manage their networks.

At the least, the F.C.C. will have to try again to define its mission in the Internet age. Tom Wheeler, the agency’s new chairman, said the agency might appeal the decision, but had previously voiced support for allowing Internet companies to experiment with new delivery methods and products. The rules, referred to as the Open Internet order and based on the principle of so-called net neutrality, were enacted in 2010 under the previous chairman, Julius Genachowski.

In a statement, Mr. Wheeler said he was “committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment.”

“We will consider all available options,” he added, “including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”

In 2002, the agency said Internet service should not be subject to the same rules as highly regulated utilities, which are governed by regulations on matters like how much they can charge customers and what content they can agree to carry.

Tuesday’s ruling essentially holds the F.C.C. to that determination, made when dial-up modems offered users the chance to crawl through chat rooms and to manipulate crude graphics.

Organizations that had opposed the agency’s rules interpreted the Tuesday ruling as favorable to the F.C.C. Michael K. Powell, who was F.C.C. chairman in 2002 when the agency set up its Internet governance structure, said, “Today’s historic court decision means that the F.C.C. has been granted jurisdiction over the Internet.”

Mr. Powell, who is now president of the cable industry’s chief lobbying group, said the decision would not result in significant changes in how Internet companies manage their broadband networks.

Verizon, in fact, portrayed the decision as at least a partial loss. “The court rejected Verizon’s position that Congress did not give the Federal Communications Commission jurisdiction over broadband access,” Randal Milch, a Verizon executive vice president and general counsel, said in a statement.

“At the same time,” he said, “the court found that the F.C.C. could not impose last century’s common carriage requirements on the Internet, and struck down rules that limited the ability of broadband providers to offer new and innovative services to their customers.”

Judge David S. Tatel, who wrote the decision, was joined by Judge Judith W. Rogers in striking down the F.C.C. regulations but upholding the idea that the agency has “authority to enact measures encouraging the deployment of broadband infrastructure.”

In a separate opinion, Judge Laurence H. Silberman agreed with the majority’s reasons for striking down the F.C.C. rules but disputed its conclusion that Section 706 of the Communications Act gives the F.C.C. some legal authority over Internet service.

Much of the argument over net neutrality has been theoretical. Verizon noted in its court papers that the F.C.C. documented only four examples over six years of purported blocking of Internet content by service providers.

But the issue came into focus in the agency’s review of the purchase of NBCUniversal by Comcast. As a condition of approving the deal, the F.C.C. made Comcast promise that it would abide by the Open Internet rules for seven years, even if the rules were modified by the courts.

David L. Cohen, an executive vice president at Comcast, said that the company was “comfortable with that commitment because we have not — and will not — block our customers’ ability to access lawful Internet content, applications, or services. Comcast’s customers want an open and vibrant Internet, and we are absolutely committed to deliver that experience.”

Consumer advocacy groups, however, said the ruling was likely to accelerate the development of paid-access deals. “I would not be surprised if business development folks in I.S.P.’s around the country were now looking for ways to partner with content creators,” said Michael Weinberg, acting co-president of Public Knowledge, a consumer advocacy group. The companies’ goal is “to make sure their unpartnered service is bad enough that a paid partnership is attractive.”

Nonsense, said one former F.C.C. commissioner. “The Internet was working beautifully before these rules were implemented,” said Robert M. McDowell, a former F.C.C. commissioner who in 2010 voted against adopting the Open Internet rules. “It will thrive even more now that they have been struck down. In the meantime, ample laws already exist to protect consumers should market failures occur.”

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