FCC’s Net-Neutrality Rules Upheld by Appeals Court

FCC’s Net-Neutrality Rules Upheld by Appeals Court
Industry appeals to Supreme Court are likely

By JOHN D. MCKINNON and BRENT KENDALL Updated June 14, 2016 5:35 p.m. ET

WASHINGTON—A federal appeals court upheld government net-neutrality rules Tuesday, handing a defeat to cable and telephone companies trying to fend off tighter oversight of the consumer broadband business.

The divided ruling by the U.S. Court of Appeals for the District of Columbia Circuit is a major victory for the Obama administration and internet companies such as Netflix Inc. and Alphabet Inc.’s Google. They have favored net-neutrality rules as a way of preventing unfair competition from internet-service providers.

The court’s sweeping validation of the Federal Communications Commission rules opens the door to further pending FCC regulatory steps that cable and wireless firms have resisted. It also sharpens a growing policy divide between internet firms and the broadband-access industry.

Telecommunications companies regard the net-neutrality rules as an example of regulatory overreach by Washington that could stifle broadband investment in the U.S., and slow development of new networks and technologies.

Industry appeals to the U.S. Supreme Court appear all but certain, and the decision eventually could spur congressional action.

Aimed at ensuring a level playing field for the internet, the FCC net-neutrality rules require internet-access providers, such as Comcast Corp. or Verizon Communications Inc., to treat all content coming across their networks equally, without blocking or slowing competitors or speeding up the content of those who pay.

By a 2-1 vote Tuesday, the court rejected telecommunications-industry challenges to the rules, which the FCC approved in early 2015. The same appeals court had twice rejected previous FCC net-neutrality rules, largely on technical legal grounds.

This time, the appeals panel ruled broadly that the FCC had established sufficient basis to impose tougher common-carrier regulations on broadband service because consumers no longer look to internet-service providers to supply much of the online content they are seeking.

“Over the past two decades, this content has transformed nearly every aspect of our lives, from profound actions like choosing a leader, building a career and falling in love to more quotidian ones like hailing a cab and watching a movie,” the court wrote. “The same assuredly cannot be said” for broadband providers’ own add-on applications, despite the industry’s arguments.

Underlying the FCC decision was concern about the future of the open internet. The order came after a public campaign by advocates, and forceful prodding by President Barack Obama himself.

FCC Chairman Tom Wheeler said Tuesday that the ruling was “a victory for consumers and innovators who deserve unfettered access to the entire web, and it ensures the internet remains a platform for unparalleled innovation, free expression and economic growth.”

The 115-page majority opinion was written jointly by Judges David Tatel and Sri Srinivasan. Judge Tatel, a Clinton appointee, wrote the appeals court’s previous two opinions that went against the FCC on net-neutrality. Judge Srinivasan is an Obama appointee who was on the president’s short list for the Supreme Court vacancy created by the February​death of Justice Antonin Scalia.

Judge Stephen Williams, a Reagan appointee, dissented, saying a core part of the FCC’s approach “fails for want of reasoned decision making.” He said the FCC’s explanation for its new regulatory treatment of broadband providers “is watery thin and self-contradictory.”

Analyst Craig Moffett of MoffettNathanson said the biggest surprises in Tuesday’s ruling were the “sweeping” validations of the FCC’s authority over wireless service, and over interconnection arrangements between companies deeper in the internet.

Many on Wall Street, and within companies, expected a mixed ruling that would invalidate parts of the rules, he said.

Industry appeals to the Supreme Court are likely. “We have always expected for this issue to be decided by the Supreme Court, and we look forward to participating in that appeal,” said David McAtee, AT&T’s general counsel.

Verizon executive Craig Silliman said his company supports efforts to pass “reasonable, bipartisan legislation” addressing the issues. The National Cable & Telecommunications Association, a cable trade group, said it wants lawmakers to “renew their efforts to craft meaningful legislation that can end ongoing uncertainty, promote network investment and protect consumers.”

Senate Commerce Committee Chairman John Thune (R., S.D.) said: “Today’s decision is a clear signal that my colleagues and I need to re-establish Congress’ appropriate role in setting communications policy on a bipartisan basis.”

Companies say they support the main components of net neutrality, but view the FCC action as overkill. Industry representatives also are concerned that the FCC might try to crack down on some emerging industry practices that open-internet advocates criticize as potentially skirting the net-neutrality rules such as imposing data caps on consumers, while exempting provider-sponsored content. FCC officials so far have equivocated.

Tuesday’s ruling also gives the FCC stronger footing to take other pending steps, such as adopting broad consumer-privacy rules for internet service providers and new restrictions on TV set-top boxes.

Netflix, which favors the rules, said in a statement: “By upholding all parts of the FCC’s net-neutrality approach, the appeals court settled two decades of debate and legal uncertainty by ensuring the internet remains open to all.”

An Alphabet spokesman endorsed an internet Association statement supporting the judges’ decision, but declined to comment further.

Alphabet, which owns Google and other tech companies, has had a more complicated stance on net neutrality. Most of its products and services run on the internet, and some like YouTube require relatively large amounts of bandwidth. But Alphabet also is a broadband provider itself with its high-speed Google Fiber internet service in five U.S. cities.

Still, Alphabet generally has supported net neutrality and has said that the policy wouldn’t affect Google Fiber.


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