The Federal Communications Commission on Thursday adopted rules to protect an open Internet by prohibiting pay-to-play fast lanes that could favor the traffic of some companies and users above others.
The rules, a product of more than a year of heated debate between net neutrality advocates on one side, and some broadband providers including Comcast (CMCSA - Get Report) , Verizon (VZ) and AT&T (T) on the other, applies Title II of the 1934 Communications Act to the Internet, thereby classifying it as a public utility. The rule making was the result of Chairman Tom Wheeler's decision to rewrite an earlier version which was overturned by a federal appeals court.
The vote, which split 3 to 2 along party lines, enacts rules that will prohibit Internet service providers from discriminating one set of traffic over another, or allowing for paid prioritization that would favor users able to pay for preferential treatment. The new regulations, argued Wheeler, are necessary to prevent dominant broadband suppliers from abusing their ownership of broadband wires to maximize revenue and profits.
"The action that we take today is an irrefutable reflection of the principle that no one, whether government or corporate, should control free and open access to the Internet," Wheeler said. "The Internet is the most powerful and pervasive platform on the planet. It is simply too important to be left without rules and without a referee on the field."
The rules, though, may never be implemented. Verizon, which successfully led a court battle a year ago that struck down key provisions of an earlier stab at net neutrality, castigated the FCC's decision as bad for consumers and detriment to innovation.
"Today's decision by the FCC to encumber broadband Internet services with badly antiquated regulations is a radical step that presages a time of uncertainty for consumers, innovators and investors," said Michael E. Glover, Verizon senior vice president, public policy and government affairs, in a press release dated February 26, 1934 and written with an older-model typewriter. "The FCC's move is especially regrettable because it is wholly unnecessary."
Verizon, Comcast and others, have insisted that they don't partake in throttling, discriminating or applying paid prioritization. Net neutrality rules, they argue, are a response to a problem that doesn't exist.
FCC Commissioner Ajit Pai, a Republican designee, blasted the new rules as "utility-style regulation" that would result in more taxes, higher-prices and slower service, the result of less investment by Internet service operators.
"The Internet has become a powerful force for freedom, here and around the world," Pai said. "So it is sad to witness the FCC's unprecedented attempts to replace that freedom with government control."
In an attempt to placate the industry and avoid another lawsuit seeking to strike down the FCC's rules, Wheeler said the commission would stay out of of rate regulation. The rules, he said, are not intended to restrict how a company operates, disputing the notion that net neutrality would adversely impact a broadband provider's business.
Sprint (S) , T-Mobile US (PCS) and Google's (GOOG) Google Fiber, Wheeler said, have asserted that they are comfortable with the approach the FCC has taken on net neutrality. Wheeler even cited Cablevision Systems (CVC) CEO James Dolan as unworried by the prospect of the new rules.
"The idea of more regulation is never great for us, but to be honest, we don't see at least what the Chairman has been discussing as having any real effect on our business," Dolan told investors on Wednesday in a conference call.
The Internet's single biggest user, Netflix (NFLX - Get Report) , has been an outspoken advocate of net neutrality. The streaming video service has also been critical of consolidation among broadband operators having petitioned the FCC in August to reject Comcast's pending $45 billion merger with Time Warner. The merger, Netflix argued, would place too much power in one company.
However, Daniel Ernst, principal with Hudson Square Research, said the debate over Title II "good theater" but not much real drama for Netflix or the broadband providers.
"Given the plan lacks rate regulation or unbundling requirements, in practice the new rules will have zero impact on the competitive landscape," Ernst said via e-mail. "The key for Netflix remains their investment in content, which attracts more customers, which in turn provides more funds to invest in more content. None of that virtuous cycle is affected by the FCC."
Net neutrality advocates were jubilant about the FCC's new rules. By applying Title II to net neutrality, newer, emerging comanies and consumers are the big winners, said Craig Aaron, CEO of Free Press, a Washington-based consumer group. The rules, he said, are intended to give consumers recourse if their Internet service providers interfere with what they do online, such as which Web sites they can visit or what they can download.
"The fight to protect the open Internet has united everyone - grassroots activists, technologists, new civil rights leaders, parents, teachers, students, musicians, artists and millions and millions of Internet users," Aaron said in a press release. "We've proven that we're a force to be reckoned with in Washington."
Verizon didn't indicate whether it would challenge these rules in court. A year ago, the company successfully convinced a federal appeals court to strike down key parts of the FCC's open-Internet rules, which the commission had approved in 2010. The court ruled that the federal government cannot enforce net neutrality.