Court rules for Comcast over FCC in 'net neutrality' case

By Cecilia Kang
Washington Post Staff Writer
Wednesday, April 7, 2010; A01

A federal appeals court ruled Tuesday that the Federal Communications Commission lacks the authority to force Internet service providers to keep their networks open to all forms of content, throwing into doubt the agency's status as watchdog of the Web.

The FCC has long sought to impose rules requiring Internet providers to offer equal treatment to all Web traffic, a concept known as network neutrality. But in a unanimous decision, the U.S. Court of Appeals for the D.C. Circuit found that the agency lacked the power to stop cable giant Comcast from slowing traffic to a popular file-sharing site.

Although the Comcast case centered on the issue of network neutrality, the court's ruling could hamper other initiatives, including the Obama administration's ambitious plans to expand high-speed Internet service nationwide and the agency's enforcement of new truth-in-advertising rules on broadband speeds promised by carriers.

Analysts said the decision in effect removes a government enforcer that otherwise would prevent a company such as Comcast from blocking the Hulu or YouTube video sites from its network, analysts said.

"Today's ruling is destabilizing, as it could effectively free broadband service providers from FCC regulation over broadband," said Rebecca Arbogast, head of research at Stifel Nicolaus.

The court's decision could prompt the FCC or Congress to write new rules or laws to more concretely establish the agency as a regulator of Internet services. The FCC has intentionally kept its authority over broadband vague, in hopes that looser regulation might spur growth in the market for Internet services. Tighter oversight -- which consumer groups have urged -- would be strongly opposed by companies that operate Internet networks.

The FCC's predicament stems from a 2008 sanction against Comcast for violating the agency's open Internet guidelines, which were meant to force broadband providers to treat all network traffic equally, so as not to put any Web site at a disadvantage. In a 3 to 2 vote, the FCC found that Comcast had improperly slowed traffic to the BitTorrent file-sharing site and urged the company to halt the practice. It did not impose a fine.

Comcast appealed the FCC sanction, saying that the agency's order was outside the scope of its authority. The court agreed on Tuesday, saying the agency relied on laws that give it some jurisdiction over broadband services but not enough to make the action against Comcast permissible.

"For a variety of substantive and procedural reasons those provisions cannot support its exercise of ancillary authority over Comcast's network management practices," the court wrote in its 3-0 decision. "We therefore grant Comcast's petition for review and vacate the challenged order."

Sena Fitzmaurice, a Comcast spokeswoman, said the company was "gratified" by the ruling.

"Our primary goal was always to clear our name and reputation," she said.

The decision comes as Comcast is pursuing agency approval of its proposed $30 billion merger with NBC Universal, which would put a vast library of television and movie programming under the control of the nation's largest cable provider.

Comcast has opposed the FCC's efforts to impose tougher network neutrality rules. The company argues, as it did in the BitTorrent case, that it needs to be able to limit some activities, such as downloading massive movie files, that could slow network operations for many customers.

But in hearings this year on the NBC merger, some lawmakers expressed concern that Comcast could wield outsize influence on the content carried on its network and said that net neutrality rules would ensure that the combined company would not discriminate against competing Web sites.

Some Silicon Valley giants, including Google and Facebook, have supported government efforts to push network neutrality rules. Tuesday's ruling may encourage the FCC to respond with what Sanford C. Bernstein analyst Craig Moffett calls the "nuclear option" -- moving broadband providers into the same category as phone companies, exposing them to many more rules.

That "would have sweeping implications far, far beyond net neutrality . . . and would bring back a raft of regulatory obligations from the days of monopoly telecommunications regulation," Moffett said.

Verizon, AT&T and some economists have warned against reclassifying broadband providers, arguing that doing so would impose policies developed in the last century on a new and unique industry.

Michael K. Powell, a former FCC chairman, said that imposing net neutrality rules would hurt investments in broadband networks. Under his leadership, oversight of cable broadband modems was placed in a new category outside the agency's traditional power over cable and telephone services.

"I do think the Internet should largely not be regulated," Powell said. "If we want broadband to be a public utility, get Congress to cough up $30 billion a year and have the costs shared by all citizens and we'll regulate that way. But you can't say you want that with the private market bringing money to the table."

Telecom lawyers say the murky powers the FCC has over Internet access have caused difficulty for the agency as it transitions from phone- and broadcast-era regulation.

The decision casts doubt on dozens of policies the FCC hopes to roll out as part of the national broadband plan it released last month. It could complicate the proposed reallocation of $8 billion in phone subsidies to build broadband networks and hinder the creation of a wireless public safety network for first responders, public advocacy groups say.

That underscores the need for the FCC to assert its authority over broadband services, according to consumer groups, which doubt Congress will grant that power because such a move would face fierce industry opposition.

"They don't have any other choice but to reclassify," said Gigi Sohn, president of Public Knowledge. "For everything they want to do with broadband, they can choose to roll the dice and see if they get a good panel on the D.C. Circuit court, or go back to the drawing board and take care of this once and for all."

The FCC did not specify how it plans to respond to the court's decision. Agency spokeswoman Jen Howard said Tuesday it is important that the FCC's broadband agenda rests on a "solid legal foundation."

Michael J. Copps, a Democratic FCC commissioner, said in a statement: "It is time we stop doing the 'ancillary authority' dance and instead rely on the statute Congress gave us to stand on solid legal ground in safeguarding the benefits of the Internet for American consumers. We should straighten this broadband classification mess out before the first day of summer."

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