December 21, 2010, 2:55 PM

The FCC passes ‘net neutrality’ rules

Online retailers generally have favored the net neutrality position.

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The U.S. Federal Communications Commission, in a 3 to 2 vote, today approved rules that will establish controls over how Internet service providers deliver Internet content and generally favor the nondiscrimination principle known as net neutrality.

“For the first time, we’ll have enforceable rules of the road to preserve Internet freedom and openness,” Julius Genachowski, the commission’s chairman, said today. Whether the FCC has the authority to issue and uphold the rules is another question likely to be hashed out in court.

The FCC says broadband Internet access services are “clearly within the Commission’s jurisdiction” as detailed within the Telecommunications Act of 1996. Other groups, such as Internet service and wireless provider Verizon, say they aren’t. “Based on today’s announcement, the FCC appears to assert broad authority for sweeping new regulation of broadband wireline and wireless networks and the Internet itself. The assertion of authority without solid statutory underpinnings will yield continued uncertainty for industry, innovators and investors,” the company said in a statement.

The FCC has yet to issue a full copy of the rules but says it will do so later this week. But details it made available today say the new rules ensure that Internet openness will continue, while providing Internet service providers the flexibility to effectively manage their networks. All Internet service providers must disclose to consumers information about how they manages their networks, network performance and commercial terms of service so that consumers can make informed choices when selecting an Internet provider.

The rules disallow Internet service providers from blocking access to web sites or applications delivered over fixed-line broadband Internet networks. That means Internet service providers such as Comcast Corp. and AT&T Inc. cannot restrict consumers from accessing any sites, including sites that feature video and other content that consume lots of network bandwidth. Online retailers generally have favored the net neutrality position because they want consumers to have ready access to the video, animation and other rich media they put on their e-commerce sites.

The new rules, however, leave open the possibility that Internet service providers could charge more to sites that want the Internet provider to deliver their content to consumers faster. An FCC statement said the so-called pay-for-priority model raised significant cause for concern but did not directly disallow it. “As a general matter, it is unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard,” it said. The FCC defined ‘no unreasonable discrimination’ in the ruling by stating that fixed-line broadband Internet providers cannot unreasonably discriminate in their handling of lawful web traffic.

Rules for wireless Internet service providers—the services that provide Internet access to mobile devices—generally give mobile network carriers more leeway. The FCC says this is because existing mobile networks have operational constraints that fixed broadband networks typically don’t. “This puts greater pressure on the concept of ‘reasonable network management’ for mobile providers, and creates additional challenges in applying a broader set of rules to mobile at this time,” the FCC says.

Under the rules, wireless Internet providers cannot block access to web sites, and cannot block applications that “compete with the provider’s voice or video telephony services.” This means wireless service providers cannot block consumers from accessing alternative phone services like Skype via their mobile devices. However, the details made available today by the FCC did not directly state that wireless networks cannot block access to other mobile apps or web site services that compete with their own apps or services. Some liberal political figures criticized that aspect of the new rules.

“Maybe you like Google Maps. Well, tough,” said Sen. Al Franken, a Democrat from Minnesota, this weekend. “If the FCC passes this weak rule, Verizon will be able to cut off access to Google Maps or the Google Maps app on your phone and force you to use their own mapping program, Verizon Navigator, even if it is not as good.”

Mark Beccue, a senior analyst covering consumer mobility at ABI Research, says he can’t imagine major wireless carriers going to such an extreme. “In theory someone might do that, but most carriers are very cautious about attracting lawsuits. I can’t imagine that a Verizon would do something like that because it would just hack off consumers,” he says. He notes that there are significant differences in what it takes to deliver Internet access through broadband and wireless networks. Wireless networks have less capacity, which is why the FCC has been discussing giving those network operators more power to limit data sent on their networks.

The CTIA, a wireless industry trade group, issued a statement earlier this month reaffirming its opposition to any regulation aimed at limiting network provider’s ability to charge for their services, but did praise the FCC for recognizing the differences between fixed-line and wireless Internet providers.

The two sets of rules are disappointing to some e-retailers that hoped for a stronger position. “The new rules are a move in the right direction, but didn’t go as far as we’d hoped,” says a Netflix spokesman. “We remain optimistic that the two-tiered Internet exceptions won’t in effect swallow the net neutrality rule.” Netflix, No. 14 on Internet Retailer’s Top 500 Guide, describes itself as “streaming video company” and says a growing number of its customers get its content by streaming it through their Internet service providers’ networks, rather than receiving movies and TV shows in DVD form through the mail.

FCC commissioner Mignon L. Clyburn said yesterday that she intended to vote to approve the rules, while conceding that they are not ideal. “The Commission has worked tirelessly to offer a set of guidelines that, while not as strong as they could be, will nonetheless protect consumers,” she wrote in a statement released by the FCC.

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