AT&T, Comcast Face New Web Rules as Agency Sets Vote

A U.S. regulator said he’d press to pass Internet-service rules for companies led by AT&T Inc. and Comcast Corp., setting up a clash with Republican lawmakers who told him Americans recently voted against expansive government.

Federal Communications Commission Chairman Julius Genachowski today asked the agency to vote Dec. 21 to bar Internet-service companies from blocking or slowing Web users’ access to lawful content and applications. The net-neutrality rules “ensure that the Internet remains a powerful platform for innovation and job creation,” Genachowski said in a speech in Washington.

Genachowski, a Democrat appointed by President Barack Obama, proposed net-neutrality rules in September 2009, and debate has expanded to involve Congress, courts and companies. Proponents including technology companies said regulations are needed to keep the Internet free of restrictions, while opponents such as telephone and cable companies said rules aren’t needed and may stifle investment.

“If last month’s election told us anything, it’s that Americans are exasperated by the explosive growth of government,” Representative Eric Cantor of Virginia, the House’s No. 2 Republican, said in an e-mailed statement. “Imposing net-neutrality requirements would significantly harm a key industry by shackling it with unnecessary and anti- competitive regulations.”

Photographer: Tony Avelar/Bloomberg

Julius Genachowski, chairman of the U.S. Federal Communications Commission. Close

Julius Genachowski, chairman of the U.S. Federal Communications Commission.

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Photographer: Tony Avelar/Bloomberg

Julius Genachowski, chairman of the U.S. Federal Communications Commission.

‘Clearest Winners’

Senator Kay Bailey Hutchison of Texas, the top Republican on the Commerce Committee, which oversees telecommunications policy, said she would “explore all options” to keep the FCC from instituting the regulations. Republican Representative Marsha Blackburn of Tennessee in an interview on Bloomberg Television said the FCC had a “hysterical approach” and aims to put a “chokehold” on the Internet.

Time Warner Cable Inc., Cablevision Systems Corp. and telephone companies are among the “clearest winners” under Genachowski’s proposal because it averts the prospect of harsher regulation and clears a path for flexible pricing for high-speed Internet service, Paul Gallant, a Washington-based analyst with MF Global, said in an interview.

“Those are very welcome developments for Comcast, Time Warner Cable and Cablevision,” he said.

The FCC recognizes “the importance of business innovation” including usage-based pricing, Genachowski said in his speech.

Good for Stocks

Share prices “will respond well” if cable operators adopt usage-based pricing, charging more to customers who gulp data, for instance by downloading videos, and less to attract lighter Web users, Craig Moffett, a New York-based analyst with Sanford C. Bernstein & Co. Inc., said in a note to investors today.

The regulations would give Internet-service providers flexibility to deal with congestion or harmful traffic, Genachowski said. Wireless networks would be subject to different regulations that include a no-blocking rule, and the FCC would “be prepared to step in” to deal with anti- competitive behavior, he said.

AT&T, the largest U.S. telephone company, and Verizon Communications Inc. said the issue should be left to Congress.

The FCC should make “any rules it adopts interim, rather than permanent,” Verizon Executive Vice President Tom Tauke said in an e-mailed statement.

“We are pleased that the FCC appears to be embracing a compromise solution,” Jim Cicconi, AT&T senior executive vice president, said in an e-mailed statement.

‘Careful, Balanced Approach’

Comcast Executive Vice President David Cohen said in an e- mailed statement, “The careful and balanced approach laid out by the chairman today has our support.”

Charlie Ergen, chief executive officer of Dish Network Corp., which provides on-demand movies to subscribers using Internet lines, in a statement called Genachowski’s proposal “a solid framework for protecting the open Internet.”

Verizon rose 34 cents to $32.35 at 4:01 p.m. in New York Stock Exchange composite trading. AT&T advanced 49 cents to $28.28. Comcast rose 80 cents, or 4 percent, to $20.83 in Nasdaq Stock Market trading.

Genachowski said his rules build upon a proposal made in September by Representative Henry Waxman, a California Democrat, who suggested less-stringent rules for the mobile Web than for service delivered over wires.

Net neutrality encompasses the idea that Internet-service providers can’t interfere with content they deliver to subscribers, or favor their offerings. Technology companies backing regulations include search company Google Inc., Internet-retailer Amazon.com and Dish.

Managing Traffic Growth

Cable and phone companies that provide Web service say rules may make it difficult to manage the growing traffic on their networks and would limit investment in Internet capacity. AT&T and Verizon, the majority owner of the largest U.S. mobile provider, Verizon Wireless, have told the FCC that rules aren’t needed for wireless networks.

Google and Verizon, the second-largest U.S. phone company, struck a compromise in August that didn’t call for rules on wireless Internet service. The proposal wasn’t adopted by officials.

Obama, as a candidate, made net neutrality a campaign issue and has called himself a “big believer” in the approach.

Democratic lawmakers released a letter yesterday urging Genachowski to act on Web regulations this year to ensure “that the Internet remains an open network.” The letter was signed by Senators John Kerry of Massachusetts, Byron Dorgan of North Dakota and Ron Wyden of Oregon.

Three Votes Needed

The regulations need three votes to pass at the FCC, where two Democrats join Genachowski to form the agency’s majority.

“I strongly oppose this ill-advised maneuver,” Robert McDowell, one of two Republican commissioners, said in an e- mailed statement. “Such rules would upend three decades of bipartisan and international consensus that the Internet is best able to thrive in the absence of regulation.”

Commissioner Meredith Attwell Baker, a Republican, said the agency doesn’t have authority to act and called Genachowski’s proposal “a mistake.”

Genachowski said he had abandoned his proposal to put Internet service under the regulatory regime used for telephone service -- a prospect opposed by companies that said such a move might lead to rate regulation.

Not applying rules for telephone companies would benefit AT&T, Comcast, Verizon, Time Warner Cable and Cablevision, Gallant said in a Nov. 19 note to clients.

Telephone regulation offered a way to reclaim authority undermined by a U.S. court, Genachowski said in May. Judges ruled in April the FCC lacked authority to punish Comcast for interfering with subscribers’ Web traffic.

“I am satisfied that we have a sound legal basis” for proceeding without using telephone rules, Genachowski said today.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

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