In a battle that could determine the future of the Internet, a federal appeals court Tuesday struck down federal rules blocking large Internet providers from charging higher rates for the biggest online users, raising the prospect of higher costs and slower connections for popular consumer services such as Amazon.com, Netflix and eBay.
The U.S. Court of Appeals for the District of Columbia ruled that the Federal Communications Commission lacked the authority to force broadband Internet providers such as Verizon, AT&T and Comcast to treat all customers — big and small — the same. The court also said the FCC could not tell providers how to regulate their traffic.
The ruling was the latest salvo in the fierce — and expensive — battle over "net neutrality" and the balance of power between private networks and the Obama administration over the rules of the road for the Internet.
Critics of the FCC rule say it imposes burdensome regulations on the development of the Web, which has blossomed into a global communications and data network without any government oversight. Many conservative and libertarian critics also see the net neutrality push as the opening wedge of an Obama administration push to regulate online traffic based on its political or ideological content.
Net neutrality partisans say the regulations are needed prevent big Internet networks such as Comcast from abusing their power by giving preferential treatment to websites that pay more, favoring in-house services over their rivals' or slowing traffic to certain heavily trafficked sites unless they pay a premium.
Fight isn't over
While striking down the FCC's 2011 rules imposing net neutrality, the court ruled that the agency does have the authority to regulate Web traffic, potentially opening the door for further disputes.
FCC Chairman Thomas Wheeler said the agency was considering its options, including an appeal.
"I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment," he said in a statement, adding that the FCC would work "to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."
Verizon insisted that the ruling would not change how users browse the Internet.
"Today's decision will not change consumers' ability to access and use the Internet as they do now," the company said in a statement. "The court's decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet."
Jim Lakely, co-director of the Center on the Digital Economy at the Chicago-based Heartland Institute, a libertarian think tank, expressed disappointment that the court did not kill net neutrality for good.
"Government-dictated net neutrality is a heavy-handed solution to a non-existent market failure," he said. "Supporters of a vibrant and innovative digital economy dodged a bullet today, but one gets the feeling it won't be for long."
Capitol Hill reacts
The ruling also drew mixed reactions from Capitol Hill.
"This decision is a blow to the principles of fairness and competition that our innovation economy is built on ," said Sen. Maria Cantwell, Washington Democrat. "[T]his ruling puts the reins of power in the hands of telecom conglomerates, allowing them to create fast and slow lanes on a tiered Internet."
Ms. Cantwell, a member of the Senate Committee on Commerce, Science and Transportation, said she would pursue a legislative change to the regulations.
Sen. John McCain, Arizona Republican, applauded the decision, saying the FCC "overstepped its authority."
"I have long opposed efforts that would allow the government to regulate the Internet, and today's decision is a win for consumers and broadband innovation," he said.
The three-judge panel ruled that the FCC could not regulate the broadband industry under laws that did not apply to that industry. The court also threw out an FCC rule that barred providers from blocking Internet traffic outright.
"Given 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," the court's decision said.
The court documents list several examples of concerns shared by net neutrality advocates, including access to media websites. In one example, activists warn that a provider such as Comcast could limit traffic to major news sites while redirecting users to its own aggregated news page or could control traffic for politically oriented sites such as MSNBC or Fox News.
The court ruling "means that Internet users will be pitted against the biggest phone and cable companies — and in the absence of any oversight, these companies can now block and discriminate against their customers' communications at will," said Craig Aaron, president and CEO of Free Press, an advocacy group supporting net neutrality.
"The biggest broadband providers will race to turn the open and vibrant Web into something that looks like cable TV," he said. "They'll establish fast lanes for the few giant companies that can afford to pay exorbitant tolls and reserve the slow lanes for everyone else."
Mr. Aaron blamed former FCC Chairman Julius Genachowski — who served during President Obama's first term — for gutting several broadband regulations and putting the agency's oversight authority on shaky legal ground.
Senate Judiciary Committee Chairman Patrick J. Leahy, Vermont Democrat, said the ruling could harm innovation online.
"Network neutrality is a bedrock principle of the Internet, one that has allowed it to grow and flourish into the ultimate marketplace of ideas," he said. "It is crucial that the Internet remain a place where a better idea, product or service can succeed on its merits, not based on a financial relationship with a broadband provider."
Rep. Marsha Blackburn, Tennessee Republican, called the ruling a "victory for America's innovators and the free market" and said she has long opposed the "socialistic regulations."
"Instead of putting in place more rules that restrict our freedom, this administration should be working with Congress to enact solutions that encourage more innovation and job creation," she said.
The five-member FCC under Mr. Obama had three Democratic and two Republican members, and the panel itself divided on partisan lines Tuesday.
"It is time for the commission to take 'no' for an answer," said FCC Commissioner Ajit Pai, a Republican nominee. "Unless Congress acts, we should stay our hand and refrain from any further attempt to micromanage how broadband providers run their networks."
Commissioner Mignon Clyburn, a Democratic appointee, said the FCC needs to protect access to the Internet, and that consumers should not "become casualties in our efforts to balance competing interests."
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