Canada Markets open in 6 hrs 49 mins

FCC’s Gutting of Obama-Era U.S. Net Neutrality Rules Upheld

Andrew Harris and Todd Shields

(Bloomberg) -- A U.S. appeals court upheld the Federal Communications Commission’s decision to gut Obama-era “net neutrality” rules, handing a victory to broadband providers and a loss to companies that rely on the internet to reach consumers.

The court in a 3-0 decision ratified the FCC’s 2017 reversal of the earlier rules, even as the judges eased the path for states to issue their own rules.

The decision assures more struggles over net neutrality, a policy of treating web traffic equally that has moved from tech jargon to cultural touchstone, with TV personalities such as John Oliver jumping into the debate.

The FCC claimed a win. Its Republican majority led by an appointee of President Donald Trump in 2017 voted to kill rules that required broadband providers such as Comcast Corp. and AT&T Inc. to treat all web traffic equally.

“Today’s decision is a victory for consumers, broadband deployment, and the free and open internet,” FCC Chairman Ajit Pai said in a statement. “The court affirmed the FCC’s decision to repeal 1930s utility-style regulation of the internet imposed by the prior administration.”

Net-neutrality supporters seized on a part of the ruling that will permit states to come up with their own internet regulations.

“It is clear that the fight over net neutrality is just beginning,” Andrew Jay Schwartzman, an attorney for challengers to the FCC rule, said in an email. “The FCC can try to fix its mistakes, but the court made it clear that the commission cannot block states from passing their own net neutrality statutes and issuing executive orders.”

Tuesday’s ruling is a win for the broadband industry and a setback for companies that rely on the internet for distributing their content, including Facebook Inc., Alphabet Inc.’s Google and the likes of Netflix Inc. and EBay Inc. They had feared that internet service providers could slow their content to favor business partners.

“The court got it right,” Jonathan Spalter, president of the USTelecom trade group with members including AT&T and Verizon Communications Inc., said in an emailed statement. “The FCC’s 2017 order restored the smarter, more nimble, pro-consumer and bipartisan policy framework.”

NCTA – The Internet & Television Association, was “gratified” with the ruling, Michael Powell, president of the trade group, said in an emailed statement. Members of the group include Comcast, one of the largest U.S. broadband providers.

Video Games

The Internet Association will “continue to fight for nationwide, strong, enforceable net neutrality protections,” Michael Beckerman, president of the trade group with members including Google, Facebook, Twitter Inc., and Uber Technologies Inc., said in an emailed statement.

“This ruling fails to ensure a fair and open internet for video game players and all internet users,” Stanley Pierre-Louis, president of the Entertainment Software Association, said in an email. Pierre-Louis pointed out that the ruling “opens the door to state action.”

The FCC and broadband providers may defeat state broadband regulation later, in this case or in related lawsuits, Matthew Schettenhelm, a Bloomberg Intelligence analyst, said in a note.

Judges in Tuesday’s decision indicated they were loath to set the communications industry, and the nation, on a different regulatory course yet again. The rules took effect last year.

“We decline to yet again flick the on-off switch” of heavier regulation, the court said in its opinion.

Critics said the new regulatory regime adopted under Pai invited predatory behavior, while broadband providers said competition would prevent abuses. Opponents of the new rules were the web software developer Mozilla Corp., the streaming video service Vimeo and a coalition of governments including New York, California, Illinois, Massachusetts, the District of Columbia and Santa Clara County, California.

At issue was whether Pai correctly decided to treat broadband internet as a lightly-regulated information service, subject only to Federal Trade Commission consumer protection-style oversight. Two years earlier, the agency’s prior leadership declared broadband was a form of telecommunications.

The panel was comprised of Obama appointees Patricia Millett and Robert Wilkins, and Senior Judge Stephen Williams, a Ronald Reagan-nominee and the lone judge who voted to strike down “net neutrality” as part of a prior panel in 2016.

The judges issued one unified opinion, unsigned by any one of them, accompanied by three separate ones, where they elaborated on their concerns and the reasons for their conclusions.

Millett in a concurring opinion said she sided with the FCC with “substantial reservation” and was bound by a 2005 Supreme Court ruling that gave the agency discretion to classify cable modem connections.

“I am deeply concerned that the result is unhinged from the realities of modern broadband service,” Millett wrote. She and Wilkins said either the Supreme Court or Congress need to take up the issue.

Williams dissented on the part of the ruling that allows states to set policy. He said that the internet can’t be divided into state markets, and that state actions “would frustrate an agency’s authorized policy.”

The judges told the FCC to reconsider portions of its decision about implications of its rule for public safety, the regulation of attachments to telephone poles, and concerns about telecommunications subsidy programs.

Both sides said they want Congress to step in. So far lawmakers have been unable to agree, and there are few indications legislation might succeed soon.

(Updates with reaction beginning in 10th paragraph.)

--With assistance from Susan Decker.

To contact the reporters on this story: Andrew Harris in federal court in Washington at aharris16@bloomberg.net;Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, ;David Glovin at dglovin@bloomberg.net, Elizabeth Wasserman

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.