FCC Seen Opening Door to Regulate Web Prices in Neutrality Rule

The Federal Communications Commission said in net-neutrality rules made public Thursday that it won’t regulate rates for Internet service, but industry analysts said the text of the regulation left open that possibility.

“We expressly eschew the future use of prescriptive, industrywide rate regulation,” the FCC said in 400 pages posted on its website.

The regulations, approved by the FCC on Feb. 26, bar Internet service providers from interfering with Web traffic. Democrats and Internet companies say the rules are needed to protect online content from being blocked or slowed. Cable and telephone companies that provide Internet service joined Republican lawmakers and analysts in saying the rules are needlessly intrusive and may lead to rate regulation.

“They conspicuously omit” language that would prevent the agency from ordering rate regulation when it judges a complaint about a business practice, Craig Moffett, senior analyst with New York-based MoffettNathanson, said in an e-mail. “There’s enough ambiguity there to ensure that the debate will rage on.”

The FCC wrote the new rules after a U.S. court last year voided the earlier version, saying the agency lacked legal authority. This time the agency claimed strong authority under a law written in 1934 for monopoly telephone service. The statute gives the agency broad power, including the ability to set rates -- a step the agency said it wouldn’t take.

Innovation Bloomed

The FCC cited streaming video initiatives by Dish Network Corp., CBS Corp. and Time Warner Inc.’s HBO as examples of innovation that blossomed under earlier open-Internet rules. The lesson, the agency said, “is that carefully tailored rules to protect Internet openness will allow investment and innovation to continue to flourish.”

Industry sees the rules quite differently.

The FCC has “instituted a regulatory regime change for the Internet that will lead to years of litigation, serious collateral consequences for consumers, and ongoing market uncertainty,” Brian Dietz, a spokesman for the National Cable & Telecommunications Association, said in an e-mailed statement. Members of the Washington-based trade group include largest U.S. cable provider Comcast Corp.

Rate regulation is “still a question” if the complaint process is used “in an aggressive manner,” Evercore ISI’s Head of Policy Analysis Terry Haines said in a note. He said the FCC might change terms for companies such as Netflix Inc. to deliver data to Internet service providers led by AT&T Inc. and Comcast, which in turn carry it to customers.

Mobile Services

The FCC won’t regulate prices broadband providers charge their customers, Kim Hart, an agency spokeswoman, said in an e-mail. Mobile services have been subject to rules that allow complaints about rates for 21 years, and the agency never used that authority, Hart said.

The FCC in its order said it wouldn’t apply 30 statutory provisions under the 1934 law, rendering inapplicable more than 700 rules to establish what it called a “light-touch regulatory framework.”

Republican Commissioner Ajit Pai, in a dissent, said the FCC was replacing Internet freedom with government control. “It seizes unilateral authority to regulate Internet conduct,” Pai said.

Since the commission vote, the text has undergone final edits to respond to the dissents of the two Republicans on the five-member agency led by Chairman Tom Wheeler, a Democrat. Wheeler said in his statement the rules preserve incentives for private investment while ensuring networks “are fast, fair, and open for all Americans.”

Lawsuits Possible

Next steps include publication in the Federal Register, which sets the stage for expected lawsuits by companies that say the regulations are an unfair restriction that could lead to rate regulation.

The rules prohibit fixed and wireless Internet service providers led by AT&T, Verizon Communications Inc. and Comcast from interfering with online traffic, or offering faster service in return for payment -- known as fast lanes.

Verizon and Comcast didn’t offer fresh statements Thursday; AT&T’s Senior Executive Vice President-External and Legislative Affairs Jim Cicconi said in an e-mailed statement the release of the order “begins a period of uncertainty that will damage broadband investment” as courts, Congress or a future FCC consider changes to the rules.

‘Unnecessarily Opaque’

Editing the document after the FCC’s vote makes sure the agency addresses opposing views as courts have demanded, Jonathan Sallet, the agency’s general counsel, said in a March 2 blog post.

The procedure is “unnecessarily opaque,” Michael O’Rielly, an FCC Republican commissioner, said in a March 9 blog post.

FCC commissioners are to testify next week in the Republican-led Congress on the Internet regulations.

Hearings have been called by Representative Greg Walden, an Oregon Republican who has said the FCC action is “a mistake” that will depress investment, and Senator John Thune, a South Dakota Republican who has said the rules will discourage innovation.

President Barack Obama welcomed the rules, saying they will protect innovation and “create a level playing field for the next generation of entrepreneurs.”