FCC loses Comcast challenge

By Cecilia Kang
Tuesday, April 6, 2010; 2:08 PM

Comcast on Tuesday won its federal lawsuit against the Federal Communications Commission in a ruling that undermines the agency's ability to regulate Internet service providers just as it unrolls a sweeping broadband agenda.

The decision also sparks pressing questions on how the agency will respond, with public interest groups advocating that the FCC attempt to move those services into a regulatory regime clearly under the agency's control.

The U.S. Court of Appeals for the District of Columbia, in a 3-0 decision, ruled that the FCC lacked the authority to require Comcast, the nation's biggest broadband services provider, to treat all Internet traffic equally on its network.

That decision -- based on a 2008 ruling under former FCC chairman Kevin Martin -- addresses Comcast's argument that the agency "failed to justify exercising jurisdiction" when it ruled Comcast violated broadband principles by blocking or slowing a peer-sharing Web site, Bit Torrent.

But it also unleashed a broader debate over the agency's ability to regulate broadband service providers such as AT&T, Comcast and Verizon Communications.

The judges focused on whether the FCC has legal authority over broadband services, which are categorized separately from phone, cable television and wireless services. The agency currently has only "ancillary authority" over broadband services, a decision made by past agency leaders in an attempt to keep the fast-moving Internet services market at an arm's distance from the agency.

A key part of the opinion:

"The Commission may exercise this 'ancillary' authority only if it demonstrates that its action . . . is 'reasonably ancillary to the . . . effective performance of its statutorily mandated responsibilities.' The Commission has failed to make that showing."

The court's decision comes just days before the agency accepts final comments on a separate open Internet regulatory effort this Thursday. And the agency will be faced with a steep legal challenge going forward as it attempts to convert itself from a broadcast- and phone-era agency into one that draws new rules for the Internet era.

Andrew Schwartzman, policy director for Media Access Project, said the ruling "represents a severe restriction on the FCC's powers."

Public interest groups have urged the agency to reclassify broadband services so that they are more concretely under the agency's authority.

Analysts said the agency may not be able to proceed on its net neutrality policy -- a rule that Internet service providers have fought against. And there is doubt the agency could reform an $8 billion federal phone subsidy to include money to bring broadband services to rural areas.

Bruce Mehlman, former assistant secretary of commerce for technology policy, however, said the decision may help speed the development of faster and more robust networks.

"It may drive greater investment in broadband networks by removing regulatory uncertainty and perceived disincentives to invest in infrastructure," Mehlman said.

FCC spokeswoman Jen Howard didn't say how the agency would respond to the ruling. But it signaled that it believes it needs to pursue open Internet and broadband policies on more solid footing.

"The FCC is firmly committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans," Howard said. "It will rest these policies -- all of which will be designed to foster innovation and investment while protecting and empowering consumers -- on a solid legal foundation."

She added that the court "in no way disagreed with the importance of preserving a free and open Internet, nor did it close the door to other methods for achieving this important end."

Gigi Sohn said the decision gives broadband service providers carte blanche over what applications can go over their networks and stops the FCC from acting as watchdog over prices, speeds and consumer protections for Internet services. She said Comcast, for example, could decide to block Hulu or YouTube to make sure no competing video providers compete with their own video service.

"The commission has to ask itself, does it want to continue to roll the dice and throw spaghetti against the wall to see what sticks, or does it want to put itself on firm legal ground," Sohn said. Every time the agency comes up with a proposal a network operator doesn't like, it could find itself back in court defending that action.

Verizon, however, played down the effect of the decision on consumers. It said the agency still has "ancillary authority" over Internet access.

"Consumers are in the driver's seat in today's market-driven Internet ecosystem, and their interests will remain fully protected," said Randal S. Milch, Verizon's general counsel, in a statement. "In this case, the FCC simply failed to link its actions to its statutory responsibilities."

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