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Court TKOs the FCC

A Washington, D.C., three-judge panel handed the FCC a 3:0 smackdown last week in the commission’s effort at regulatory expansionism. This time the action concerned Comcast. The court ruled that the FCC did not have the authority to regulate Comcast’s network management practices. The court said the FCC was basically asking for “anything goes” authority over all networks and the Internet.

Even FCC members expected the courts to overturn the FCC’s action against Comcast. FCC commissioner Robert McDowell said at the time of the agency’s ruling that it was illegal and, “ ... is sure to doom this order on appeal.”

The case stemmed from a 2007 business decision by Comcast to reduce Internet transmission speeds of its customers using peer-to-peer and BitTorrent file-sharing services. Comcast said it had the right to manage signal delivery over its networks.

Reports suggested that Comcast was using software from SandVine that severs the link between peers if certain transfer conditions are met. This reduces the number of peers available in a BitTorrent transfer and blocks some Gnutella transfers. The FCC issued a cease and desist order against the Comcast action, and it resulted in the above court case.

The real issue going forward is: What does this mean to Internet Service Providers, (ISP) and even to broadcasters as they increasingly look to new delivery channels?

First, it means that ISPs do have the right to manage their networks in business ways they see best. Even so, you can bet that service providers won’t be eager to generate a lot of negative publicity about throttling back anyone’s Internet speeds.

Second, expect the FCC to take further action to reestablish control over the Internet. Some experts say the commission has three options:

• The FCC could petition Congress for new legislation, giving the FCC specific new authority to regulate the Internet. This is a mid-range option in terms of regulation. Precisely what might be included in any legislation is anyone’s guess.

• The FCC could ask for a more narrow law, something addressing only net neutrality. This might envision restrictions in what ISPs could do with respect to speeds and characterization of delivery services. In other words, an ISP might be prevented from delivering YouTube at one speed and a local TV station’s Web site at another speed.

• Finally, the FCC could ask Congress for authority to reclassify broadband/Internet delivery as a Title II service. This would permit the commission to fully control prices, options, competition and other business factors. This would create Internet and ISP regulations much like those covering telephone companies. Bernstein Research analyst Craig Moffett calls this last choice, the “nuclear option.”

Moffett said that reclassifying broadband as a Title II service “would broadly throw into question capital investment plans for all broadband carriers, potentially for years, while the issue was adjudicated.”

Others agree with that assessment. Adam Thierer of the Progress and Freedom Foundation said if the FCC thinks “Everyone under the sun to be a common carrier, it will become Regulatory World War III.”

In addition, such a move would likely be resisted by Republicans in Congress, and assuming it passed, tied up in the courts for years.

Even so, with a Democrat majority (for now) in Congress, Obama’s chosen bureaucrats are likely to find friends in high places in their efforts to establish control over the Internet.