(GOOG) Court Ruling on Net Neutrality Changes The Game

The Federal Communications Commission’s (“FCC”) so-called “Net Neutrality” rule suffered a big blow as a federal appeals court ruled that the US regulator lacks the authority to impose such regulations. The US Appeals Court for the District of Columbia unanimously voted to rule out FCC’s authority to dictate the way the incumbent cable and Internet Service Providers (ISPs) manage their networks.

The court’s decision will not only dwindle the prospect of Net Neutrality but may also affect the implementation of FCC’s recently unveiled National Broadband Plan which is aimed at offering far-reaching accessibility of broadband Internet in the US.

As a reminder, the Net Neutrality regulation is aimed at preventing the ISPs and cable multi-service operators (MSOs) from blocking or restricting access to legal web site contents or applications. The FCC has already collected public opinion on the open Internet rule (currently applicable to wireline networks), which if enacted, will be extended to wireless.

The Net Neutrality regulation, which consists of a set of proposals, represents the first major initiative ever by the US telecom regulator to control the way the broadband Internet industry is managed. So far, broadband has been categorized by the FCC as a lightly regulated service.

Net Neutrality is backed by the Congress and the White House, who are in favor of more regulation of the Internet. The FCC has set six principles to guide legitimate network management by the incumbent service providers.

The rationale behind the Net Neutrality rule is that it will prohibit network operators from restricting any legal online content, devices, applications or services that competitive service providers wish to run through the respective carrier’s networks. Operators have been accused of blocking or slowing traffic according to the revenue they generate from online content.

However, the proposed “free and open Internet” rule also offers some flexibility to network carriers to effectively manage their networks by preventing network congestion and blocking spam, viruses and illegal contents. While operators need to publicly disclose the way they manage their networks, they may be allowed to sell premium Internet services to the customers who pay more for their services.

The proposed net neutrality has become a bone of contention between the advocates of the rule and leading US network operators. Web content and application providers such as Google (GOOG), Amazon (AMZN) and eBay (EBAY) have joined a handful of public interest groups to raise their voices against the discrimination by the ISPs and cable companies.

Net neutrality, if enforced, content providers will benefit from the increased data traffic over the Internet enabled by the next-generation wireless broadband technologies.

US wireless and cable network operators such as AT&T (T), Comcast (CMCSA), Verizon (VZ) and Qwest (Q), however, have been lobbying against Net Neutrality, insisting that increased data traffic of bandwidth-intensive services and applications such as video streaming require them to actively manage their networks.

Operators clamor that the new regulation will discourage investment associated with expansion and upgrade of their networks and would also throttle innovation and competition. Government intervention through the implementation of Net Neutrality poses a significant threat to network service providers.

The federal court ruling represents a major victory for US cable giant Comcast, which has strongly challenged the FCC’s authority to mandate such regulation. The FCC accused Comcast in 2008 for slowing net traffic on its network and preventing subscribers from using file-sharing services (such as BitTorrent) to download large files including movies and music. The regulator asked the cable MSO to stop such practices, which is now being overruled by the court.

Although the FCC has not yet formally revealed its future course of action, the agency may appeal the court’s decision, re-classify broadband to impose more regulation or request Congress to give it more legal authority to regulate broadband Internet. Nevertheless, the regulator remains firm in its commitments to enact Net Neutrality.

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