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What Does the FCC's Proposal Mean and Who Wins?

Today Federal Communications Chairman Julius Genachowski laid out plans to establish the FCC's authority to regulate broadband. Genachowski wants to ensure an "open Internet" and prohibit "unreasonable discrimination" by broadband providers against certain websites. He's not issuing laws or mandating so-called net neutrality today -- at this point he's simply looking to secure the commission's direct authority.

Genachowski says his proposed framework creates a new model, what he's calling "a third way." It's intended to walks the line between stringent "Title 2" regulation that's been applied to Telecom companies for decades and the FCC's current authority over the Internet. That authority was limited last month by an appeals court ruling on FCC vs. Comcast, finding that the FCC did not have the right to cite Comcast for slowing down certain customers' Internet traffic. Now Genachowski says he wants to "restore the status quo" from before that ruling.

There's no question that this is a win for Internet companies that users to have unfettered access to video content that uses quite a bit of Internet bandwidth. Google, which owns YouTube, Amazon, Netflix, eBay and Skype are all members of the Open Internet Coalition, which today issued a statement applauding the FCC's plan.

But what does this mean for broadband providers like Comcast, Time Warner Cable, Cablevision, AT&T and Verizon? Their stocks moved lower on the news -- investors seeing regulation as a roadblock for growth, and an overhang on shares. A number of these companies have said that they'd consider legal action if Telecom "Title 2" regulations were applied to them. As Piper Jaffray's Chris Larsen said to me earlier, any regulation is bad for an industry, especially one that's growing fast and needs flexibility as technology evolves in the future.

To assuage these fears, the FCC has tried to clarify that it wants to only pick a handful of Title 2's dozens of regulations in its new plan and it has no interest in regulating how, or how much Internet providers charge. (See my colleague David Faber's blog on the issue here.)

Comcast and AT&T have taken different tactics. Comcast says that while it believes current oversight is sufficient it will work with the FCC. Saying "we are prepared to work constructively with the Commission to determine whether there is a "third way" approach that allows the Commission to take limited but effective measures to preserve an open Internet and implement critical features of the National Broadband Plan, but does not cast the kind of regulatory cloud that would chill investment and innovation by ISPs."

AT&T takes a much more negative tone -- the company says it's willing to work with the FCC to create a framework, but it's much more critical of the FCC's strategy and perspective. AT&T says it's up to Congress to craft laws and that the company thinks federal courts will reach the same decision -- assuming and implying a certain number of legal challenges down the line.

Here's an excerpt from AT&T's statement: "We are deeply disappointed that, in order to deal with an adverse court decision, the FCC chairman has decided to subject all broadband facilities, including Internet backbones, to common carriage regulation under Title II. We believe this is without legal basis. Make no mistake—when it regulates the networks that comprise the Internet, the FCC is in fact, and for the first time, regulating the Internet itself. There is no statutory basis for doing so—indeed it is directly contrary to Congress’s stated intentions—and is being done without any compelling evidence that would justify a reversal of the FCC’s prior decisions on this issue. If the FCC follows through with the chairman’s stated intent, it will have a direct impact on jobs and investment in one of the areas of the US economy that many hoped could help lead the recovery.... We will work with them constructively in hopes of outlining legal alternatives that can ensure adequate authority for the Commission without undue risk to jobs and investment.”

Three of the FCC's five commissioners have to approve Genachowski's plan and today two came out in opposition to it. Commissioners Robert McDowell and Meredith Baker issued a joint statement saying that this firmly classifies Internet as a telephone service, and is not a "third way." They say it’s "disappointing and deeply concerns us."

The debate is already intensely political. Today House Republican leader John Boehner issued a statement attacking the FCC's plan, calling a "government takeover of the Internet." It's quite likely that this could end up in court, and many expect it to be in the hands of Congress (as AT&T suggests) to legislate on this issue.

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.