NEW YORK (MainStreet) — Yesterday the Federal Communications Commission (FCC) lost on a technicality. In a 2-1 ruling, the D.C. Circuit Court of Appeals struck down an agency regulation governing net neutrality. This loss, following a similar defeat in 2010, has sweeping implications for competition on the Internet and marks a major victory for broadband providers who oppose this form of government regulation over broadband traffic.

Unfortunately it also marks a major loss for the rest of us.

Net neutrality, despite its somewhat technocratic term, is the straightforward legal idea that Internet service providers must treat every website equally. This principle would forbid, for example, Comcast from making a deal to stream Netflix twice as fast as Amazon or Microsoft from paying Verizon to block access to any search engine but Bing. Otherwise known as "Internet Openness" or "Internet Freedom," it's the idea that all websites should compete equally.

To understand fully how important net neutrality is, you have to remember that on the Internet bandwidth is a zero sum game. There's only so much to go around, so making one website twice as fast means slowing down another. Sites which loads faster will work better and attract more users. Startups without the funding to buy into this land rush could never compete on an equal footing. Imagine where we'd all be, for example, if Yahoo had been able to slow Google down to a crawl back when it first began, or pay off Internet service providers (ISPs) to block it altogether.

Without net neutrality, we will almost certainly see an arms race among websites and service providers. It would probably look very similar to the current state of streaming media, with every different company constantly cutting deals that leave your favorite media scattered across a dozen different services.

ISPs argue that competition in the free market would help ensure that companies don't abuse their power. Unhappy customers can leave for greener pastures. In practice, however, that rarely happens. The broadband industry already enjoys rock bottom customer satisfaction and stays afloat largely through a captive consumer base. Users often get locked in by geography, de facto monopolies and apartment buildings wired only for one service.

There is also some irony in relying on the free market to regulate an idea specifically designed to stifle competition.

The recently overturned rule banned broadband providers from giving this kind of preferential treatment. The court ruled on the basis of an obscure classification in the telecommunications industry between "Telecommunications Services" and "Information Service Providers." There's quite a lot of history behind how and why this distinction matters, but the hornbook version is pretty straightforward.

American law inherited from the British an idea called common carriage, which says that the public always has a fundamental right of equal access to public roads and waterways. Under common carriage you can set up toll roads and ferries, but only on an egalitarian basis. Everyone gets equal access, and if it's for pay, each person pays the same. Later on, Congress expanded this idea to include wire services such as telephones, as they run their lines along or under public rights of way.

The public has the right to full and equal access to anything governed under common carriage law. If broadband Internet cables count as public rights of way (as telephone lines do), then the FCC could regulate them. In fact it might have to.

In 1996 Congress passed the Telecommunications Act of 1996 in which it divided the market into two categories: "telecommunications services" and "information services providers." Broadly speaking, information services providers actually process information while telecommunications services simply move it from place to place. For example, your telephone company actually doesn't create information, it just conveys your conversation from point A to point B.

Accordingly, telecommunication services are subject to common carrier laws while information service providers are not.

Unfortunately in 2002 the FCC classified broadband services as an "information services provider." This classification exempted them from common carriage laws which, as the D.C. Court ruled Tuesday, means that the FCC has no authority to regulate how they manage their traffic. Congress could do so, but as of right now, common carriage is the water's edge as far as the FCC is concerned.

On the law, the D.C. Appellate Court is absolutely right. Before the FCC can regulate broadband traffic, that industry must be subject to the common carrier laws. That's the limit of the agency's power. As the court held in its ruling, "[g]iven that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such."

However the FCC could also reclassify the entire broadband industry to fall under that law. It decides which industries count as "telecommunications services" and which are "information services providers." The mystifying part to all of this is why the FCC has chosen to have two regulations overturned and fight several lengthy battles instead of simply reclassifying broadband providers. It has the authority and as recently as 2010 openly considered doing so.

Although magic words are rare in the law, reclassifying broadband providers would solve this problem. In fact, it's the only way to solve this problem short of major new legislation from Congress, and the FCC could do so relatively easily. It would face court challenges by entrenched interests but ones that the agency would win. Right now, the entire net neutrality issue turns on a technicality and a court whose hands will remain bound by it.

The FCC needs to fix that.

—Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website