Court Overturns Net Neutrality Rules

Will broadband providers start charging Internet services such as Netflix to deliver the massive amounts of data that streaming video and other content require?

A court ruling this week gives providers such as Comcast, Time Warner Cable and Verizon more flexibility to do that, even though immediate changes are unlikely.

Technically, providers have always been allowed to charge Netflix, Google and others for priority treatment. But the so-called net neutrality rules adopted by the FCC in 2010 discouraged the practice, and any attempt to do it would likely have faced a challenge from the agency.

In striking down those rules Tuesday, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit lifted any uncertainty and removed any constraints broadband providers might have felt.

Services such as Netflix already pay their broadband providers to send data from their systems. What's in question is whether they'll also have to pay their subscribers' providers for delivery of the data.

Netflix's stock fell more than 2 percent Wednesday to $330.50 out of concern that if the company may someday have to pay their subscribers' broadband providers, thereby leaving the company with less money to license content. Investors also worried that Netflix Inc. might pass along any new costs to subscribers in the form of fee hikes.

Netflix had no comment Wednesday.

Few people expect immediate changes to the way people access entertainment, news and other online content. That's because major cable providers already have pledged not to block or hinder legal websites and other content.

The regulatory dispute comes down to both sides trying to avert constraints on what they're allowed to do in the future.

Public advocacy groups pushed for regulations to ensure that the Internet remains open in the years to come, so that consumers could continue to enjoy the Internet without limitations. They want to ensure that startups and nonprofits have as much of a chance to reach an audience as established companies such as Google.

Broadband providers prefer the flexibility of evolving as the Internet evolves. They want to be able to experiment with business models — including the creation of special charges for priority treatment. Even if providers don't intentionally slow traffic from content companies that choose not to pay, the effect would be the same if their rivals get faster delivery to consumers by paying.

The appeals court affirmed that the FCC had authority to create open-access rules, but it ruled that the FCC failed to establish that its 2010 regulations don't overreach.

The judges said those regulations treated all Internet service providers as common carriers — a general term for airlines, utilities and other transporters of people or goods for the general public on regular routes at set rates. But the court said the FCC itself already had classified broadband providers as exempt from treatment as common carriers, which set up a legal contradiction.

FCC Chairman Tom Wheeler said the commission will now consider its options, including an appeal.

The FCC also could draft new rules or reclassify broadband providers, or Congress could change the 1996 telecommunications law that gave the commission different authority depending on whether a company was a common carrier or not.

Concerns about discrimination grew in 2007 after The Associated Press ran tests and reported that Comcast Corp. was interfering with attempts by some subscribers to share files online through a service called BitTorrent. Although Comcast said it did so because BitTorrent was clogging its networks, public interest groups grew worried that broadband providers were becoming gatekeepers of online content. After all, the files exchanged through BitTorrent included video, something that threatens Comcast's cable TV business.

Comcast's actions drew rebuke from the FCC and a pledge by all of the major broadband providers including Comcast not to discriminate. The 2010 rules were meant to ensure that such open access continued.

Despite the court decision, Comcast is bound by the rules for another few years as part of an agreement it made when it bought NBC Universal in 2011.

Verizon, which filed the case against the FCC, said that it remained committed to an open Internet and that Tuesday's court decision “will not change consumers' ability to access and use the Internet as they do now.”

But Verizon also said the decision “will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet.”

Those innovations and choices could one day include tolls on Netflix and other services.