By John D. McKinnon and Brent Kendall
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.
Write to John McKinnon at john.mckinnon@wsj.com
(END) Dow Jones Newswires
June 15, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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