FCC Loses Key Ruling on Internet 'Neutrality'

WASHINGTON (AP) - A federal court threw the future of Internet regulations into doubt Tuesday with a far-reaching decision that went against the Federal Communications Commission and could even hamper the government's plans to expand broadband access in the United States.

The U.S. Court of Appeals for the District of Columbia ruled that the FCC lacks authority to require broadband providers to give equal treatment to all Internet traffic flowing over their networks. That was a big victory for Comcast Corp., the nation's largest cable company, which had challenged the FCC's authority to impose such "network neutrality" obligations on broadband providers.

Supporters of network neutrality, including the FCC chairman, have argued that the policy is necessary to prevent broadband providers from favoring or discriminating against certain Web sites and online services, such as Internet phone programs or software that runs in a Web browser. Advocates contend there is precedent: Nondiscrimination rules have traditionally applied to so-called "common carrier" networks that serve the public, from roads and highways to electrical grids and telephone lines.

But broadband providers such as Comcast, AT&T Inc. and Verizon Communications Inc. argue that after spending billions of dollars on their networks, they should be able to sell premium services and manage their systems to prevent certain applications from hogging capacity.

Tuesday's unanimous ruling by the three-judge panel was a setback for the FCC because it questioned the agency's authority to regulate broadband. That could cause problems beyond the FCC's effort to adopt official net neutrality regulations. It also has serious implications for the ambitious national broadband-expansion plan released by the FCC last month. The FCC needs the authority to regulate broadband so that it can push ahead with some of the plan's key recommendations. Among other things, the FCC proposes to expand broadband by tapping the federal fund that subsidizes telephone service in poor and rural communities.

In a statement, the FCC said it remains "firmly committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans" and "will rest these policies ... on a solid legal foundation."

Comcast welcomed the decision, saying "our primary goal was always to clear our name and reputation."

The case centers on Comcast's actions in 2007 when it interfered with an online file-sharing service called BitTorrent, which lets people swap movies and other big files over the Internet. The next year the FCC banned Comcast from blocking subscribers from using BitTorrent. The commission, at the time headed by Republican Kevin Martin, based its order on a set of net neutrality principles it had adopted in 2005.

But Comcast argued that the FCC order was illegal because the agency was seeking to enforce mere policy principles, which don't have the force of regulations or law. That's one reason that Martin's successor, Democratic FCC Chairman Julius Genachowski, is trying to formalize those rules.

The cable company had also argued the FCC lacks authority to mandate net neutrality because it had deregulated broadband under the Bush administration, a decision upheld by the Supreme Court in 2005.

The FCC now defines broadband as a lightly regulated information service. That means it is not subject to the "common carrier" obligations that make traditional telecommunications services share their networks with competitors and treat all traffic equally. But the FCC maintains that existing law gives it authority to set rules for information services.

Tuesday's court decision rejected that reasoning, concluding that Congress has not given the FCC "untrammeled freedom" to regulate without explicit legal authority.

With so much at stake, the FCC now has several options. It could ask Congress to give it explicit authority to regulate broadband. Or it could appeal Tuesday's decision.

But both of those steps could take too long because the agency "has too many important things they have to do right away," said Ben Scott, policy director for the public interest group Free Press. Free Press was among the groups that alerted the FCC after The Associated Press ran tests and reported that Comcast was interfering with attempts by some subscribers to share files online.

Scott believes that the likeliest step by the FCC is that it will simply reclassify broadband as a more heavily regulated telecommunications service. That, ironically, could be the worst-case outcome from the perspective of the phone and cable companies.

"Comcast swung an ax at the FCC to protest the BitTorrent order," Scott said. "And they sliced right through the FCC's arm and plunged the ax into their own back."

The battle over the FCC's legal jurisdiction comes amid a larger policy dispute over the merits of net neutrality. Backed by Internet companies such as Google Inc. and the online calling service Skype, the FCC says rules are needed to prevent phone and cable companies from prioritizing some traffic or degrading or services that compete with their core businesses. Indeed, BitTorrent can be used to transfer large files such as online video, which could threaten Comcast's cable TV business.

But broadband providers point to the fact that applications such as BitTorrent use an outsized amount of network capacity.

For its part, the FCC offered no details on its next step, but stressed that it remains committed to the principle of net neutrality.

"Today's court decision invalidated the prior commission's approach to preserving an open Internet," the agency's statement said. "But the court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end."

Time Warner, Comcast to Test Web-Usage Plans

Time Warner & Comcast Need to Rethink Network As Internet Traffic Increases And Slows Things Down

Comcast Corp. and Time Warner Cable Inc. will Thursday each begin tests of ways to manage Web traffic on their Internet networks, a contentious issue that has drawn scrutiny from regulators and consumer groups.

Comcast said it will test limiting bandwidth available to heavy Internet users at times of network congestion. The cable operator will test the approach in the Chambersburg, Pa., and Warrenton, Va., markets Thursday. Tests will also soon be under way in Colorado Springs, Co.

Time Warner Cable will try a different approach. The cable operator said it plans to start metering new subscribers -- charging them $1 a gigabyte for Internet usage above a monthly allowance -- beginning Thursday in Beaumont, Texas.

"We realize this will require a cultural shift away from the all-you-can-eat model consumers have grown used to and we want to see what our customers' response will be," said Time Warner Cable spokesman Alex Dudley.

The growth of video and music file sharing has created problems for Internet service providers but particularly cable companies, whose Internet networks are shared among users at the neighborhood level. That means users consuming lots of bandwidth can slow the network performance for those living nearby.

Comcast had said it would experiment with ways to cope with surging Internet traffic on its network. The company had admitted to slowing certain types of bandwidth-heavy applications such as peer to peer file sharing technologies. But advocates of so called net neutrality, who say service providers should not prioritize one type of Internet traffic over another, argue Comcast's approach unfairly targets certain applications and will ultimately hinder consumer choice. By curbing the amount of bandwidth available to heavy users rather than throttling particular applications, the company may deflect some criticism.

Congress is considering legislation that would rein in a carrier's ability to throttle traffic on its network, and the Federal Communications Commission is also investigating the issue.

Time Warner says about 5% of the company's subscribers account for half of local bandwidth use. Mr. Dudley said metered billing is an attempt to deal fairly with the explosive growth of Internet traffic, and the huge amounts of bandwidth consumed by a minority of customers. "We want to find the most equitable way to deal with this issue," said Mr. Dudley.

By: Vishesh Kumar
The Wall Street Journal; June 04, 2008

Comcast, Time Warner Cable in Wireless Talks


The two biggest U.S. cable providers, Comcast Corp. and Time Warner Cable Inc., are discussing a plan to provide funding for a new wireless company that would be operated by Sprint Nextel Corp. and Clearwire Corp., people familiar with the talks say.

The partnership would create a nationwide wireless network using WiMax technology, which is designed to provide high-speed Web access from laptops, cellphones and other mobile devices, as well as high-quality mobile video. Sprint and Clearwire have been working for months to cooperate on a WiMax rollout and are now trying to raise at least $3 billion for a joint venture.

Under the plan the parties are reviewing, Comcast -- the largest cable operator with 24 million subscribers -- would put as much as $1 billion into the venture, with No. 2 operator Time Warner Cable adding $500 million. The sixth- biggest cable operator, Bright House Networks, is also involved in the talks and would contribute between $100 million and $200 million, people familiar with the matter said. Comcast Chief Executive Brian Roberts has played a prominent role in the talks.

Sprint, of Overland Park, Kan., and Clearwire, a Kirkland, Wash., start-up founded by wireless pioneer Craig McCaw, are trying to line up other funding too. Intel Corp. has signaled a willingness to put in about $1 billion or more, depending on the terms, people familiar with the discussion say. And Google Inc. could provide hundreds of millions of dollars, the people say. The exact amount each would contribute could change, and people involved in the discussions said it is still possible the entire deal could fall through. Google and Intel both declined to comment.

Entering the wireless business is becoming a bigger priority for cable companies as they compete fiercely for customers with telecom giants AT&T Inc. and Verizon Communications Inc. Those phone companies have encroached on cable's turf by entering the pay-TV business and are positioning themselves to offer a " quadruple play" of services that includes landline phone, high-speed Web access, cellphone, and video. "That's obviously a concern, if Verizon can put together a converged service offering that starts to peel people away from cable operators, " said Mark Rowland, head of the wireless practice at IBB Consulting.

Cable companies' push into wireless would mark the next chapter in that escalating rivalry. It isn't clear precisely what wireless services the cable operators intend to offer via the WiMax venture. Executives at some of the operators feel the U.S. wireless market is already crowded, with 80% of U.S. consumers already owning a cellphone.

The companies are likely to try to distinguish themselves with advanced mobile data and video services that take advantage of the stockpiles of content they are already adept at licensing. People familiar with the discussions said some cable companies are looking at options to develop their own mobile devices in partnerships with manufacturers.

Sprint CEO Dan Hesse is pressing all parties to wrap up discussions in time for the wireless industry's trade show next week in Las Vegas, so Sprint can have something to present to investors. In addition to the $3 billion Sprint and Clearwire are trying to raise now to start rolling out WiMax, they will likely need more to complete a nationwide network. Sprint previously had told Wall Street the venture would cost $5 billion by 2010.

Mr. Hesse wants Sprint to begin building the WiMax network quickly so it can get a head-start over competitors AT&T and Verizon Wireless on advanced wireless broadband services. WiMax promises faster speeds than current technologies and a wider range of video and other services.

In exchange for funding the WiMax joint venture, the cable companies would get equity in the business and would be able to purchase wholesale access to the network to offer their own high-speed wireless data and voice services to customers, the people familiar with the discussions said.

The cable industry has been flirting with the idea of getting into wireless for years, but hasn't had a clear strategy. Investors have also discouraged cable companies from embarking on any big spending projects. A consortium of cable operators including Comcast, Time Warner Cable, Bright House Networks and Cox Communications Inc. bought more than $2 billion in radio spectrum in a 2006 government auction but never put it to use.

The same companies created a separate joint venture with Sprint in 2005, dubbed Pivot, that offered cellphone service in about 30 markets by the time it stopped marketing late last year amid low demand. One key problem was that cable providers didn't have significant control over pricing and marketing. They are asking for that control in the new WiMax venture. Comcast and other cable operators have also mulled acquiring a major wireless carrier.

Cox, the third-biggest cable operator, appears to be pursuing a separate wireless push. It acquired 22 radio spectrum licenses for $305 million last week, which would allow Cox to offer wireless service in its markets, predominantly in the south and southwest.

If cable operators dive into wireless, that will put more pressure on satellite TV providers, their other major competitors, to do the same. Satellite providers on their own can't offer high-speed Web access or voice services. Dish Network Corp. took a step into the wireless business through the FCC auction, winning 168 licenses throughout the country for $712 million. DirecTV Group Inc. hasn't announced any plans in wireless.

"This is like a game of three dimensional chess because the cable operators aren't just thinking about how this helps them compete with Verizon and AT&T, but how this helps them block potential threats from DirecTV and Dish," says Bernstein analyst Craig Moffett.


By Amol Sharma and Vishesh Kumar
The Wall Street JournalMarch 26, 2008