Net fix: Who's to blame for the Net neutrality mess? Look to Verizon

Verizon fought hard to overturn 2010 rules governing Internet access. But it now faces the possibility that the FCC will impose even stricter regulations than the ones it had thrown out.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
6 min read

This story is part of a CNET special report looking at the challenges of Net neutrality, and what rules -- if any -- are needed to fuel innovation and protect US consumers.

When a court threw out the Federal Communications Commission's 4-year-old rules for governing the Internet a year ago this week, the broadband industry congratulated itself on winning a long, hard-fought battle.

Now they're probably kicking themselves.

In May protesters picketed in Washington, DC, urging the FCC to reclassify broadband as a Title II utility service. Kevin Huang/Fight for the Future

The lack of rules mandating that Internet service providers give equal access to content and applications has led to 12 months of wrangling among the FCC, broadband providers and, thanks to one highly entertaining rant by comedian John Oliver, the public over how the US should regulate the Internet.

The debate also drew in President Obama, who in November endorsed Net neutrality -- the idea that Internet providers give equal access to content and applications, and not force content providers to pay for faster delivery. Obama said there should be no toll takers between you and your favorite online sites and services.

That endorsement empowered the FCC to propose even stricter rules on how Internet traffic should flow.

"This is the law of unintended consequences," said Craig Moffett, an equities analyst with investment firm MoffettNathanson. "This was a Pandora's box that never should have been opened."

Who's to thank for all this drama? Look to Verizon, which filed suit against the FCC in 2010 before the ink was even dry on the regulations. Sure, the United States Court of Appeals for the DC circuit overturned the FCC's 2010 Open Internet rules, but it based that decision on a legal technicality and -- this is important -- upheld the FCC's authority to regulate Internet openness.

The court's decision has led the agency, under the direction of FCC Chairman Tom Wheeler, to craft rules that are likely to be even tougher than those 2010 guidelines that got dismantled. The FCC is set to propose those rules on February 5, with a vote scheduled for February 26. Specifics of what will be included in the upcoming order are starting to trickle out.

Wheeler, a former cable industry lobbyist appointed to the top FCC job by the president in November 2013, shared some of the details of his plan in an exclusive interview with CNET News this week.

The new rules will likely reclassify broadband as an old-style public utility, explicitly prohibit paid-priority services that could generate more revenue for broadband operators, include wireless services in the Net neutrality rules and possibly regulate private contracts among network providers. That means for the first time in the Internet's history the government could set rates on services, require broadband providers to share their networks with competitors, dictate the services Internet operators can offer and intervene in private contract disputes between network providers.

"To apply 1930s-era utility regulation to the Internet ... would be a radical reversal for what has been an open, competitive and innovative Internet economy, and would be particularly harmful to wireless broadband," said Richard Young, a spokesman for Verizon.

Verizon would prefer to keep broadband designated as an "advanced telecommunications" service, its current classification, and argues that it is the best approach for "innovators and consumers alike," Young said.

Early controversy

Wheeler's revised proposal is a far cry from early indications that he was considering a plan to let Internet service providers, like cable companies, create a "fast lane" for customers willing to pay a premium.

The idea of a fast lane catapulted the Net neutrality debate into the mainstream media, with HBO's Oliver delivering a 13-minute rant that argued the FCC was about to break the Internet by allowing cable companies to "shakedown" content companies like Netflix and Amazon -- forcing them to pay extra fees to deliver high-bandwidth programs, like TV shows and movies.

Wheeler says he never intended for fast lanes to be created. His initial proposal, which was made public last year, was merely an attempt to reinstate the existing guidelines in the 2010 Open Internet rules. Those rules never explicitly prohibited providers from offering paid-priority services.

But after reading some of the more than 3.7 million public comments the FCC received in September over the issue, and after having conversations with consumer advocates and Internet startups, Wheeler said his thinking evolved. He realized the old approach wasn't enough to protect the Internet for everyone.

It's a question of language. "As filings were submitted and as I met with entrepreneurs and consumers all over the country, it became clear that the adverb 'commercially' modifying 'reasonable' was of great concern because it could be interpreted as saying, 'what is reasonable for the commercial ISP,' rather than 'what is reasonable for consumers, innovators and the operation of the Internet,'" he said about the language used in the proposed rules. "That was not where I wanted to go."

Wheeler feared the rules he wanted to put in place would be too vulnerable to legal challenges. That's when he and his team , as early as last summer, began looking at reclassifying broadband as a Title II service, he said. That's different from the 2010 rules because Title II is based on the utility-style telecommunications classifications and law, which include a slew of provisions and requirements that broadband providers fear, including rate regulation and requirements to share their networks with competitors.

A bad call?

For its part, Verizon hasn't said if suing the FCC was a mistake.

But it definitely was the victim of bad timing. Comcast announced its $45 billion bid to buy fellow cable provider Time Warner Cable one month after the court handed Verizon its victory. The merger, which will wed the No. 1 and No. 2 cable providers in the country, has proved hugely unpopular among the public. And it has helped rally consumers and consumer advocates concerned about the lack of competition for broadband and paid TV.

"What Verizon couldn't have known was that Comcast would announce a purchase of Time Warner Cable," Moffett said. "That transaction has inflamed an already sensitive regulatory situation."

Stiffer rules across the board

The new Net neutrality rules will likely do more than reclassify broadband providers as utilities. That's because they will apply stricter rules to both wired and wireless broadband services. Under the older 2010 rules, only wired broadband providers were prohibited from blocking any "lawful content, applications, services."

This will likely change, Wheeler told CNET News. "Wireless can't carry 55 percent of the Internet's traffic and expect to be exempt from Open Internet requirements," he said.

And then there's the most talked-about issue: Internet fast lanes. Wheeler said the rules will likely ban them. Although paid-priority access may be allowed for specific types of services, like a medical monitoring app, it won't be allowed for delivering faster access to an Amazon shopping cart.

Other areas of the Internet could be regulated, too

Network connections between broadband providers, like Comcast, and Internet backbone providers, such as Level 3, delivering video streaming services to local broadband networks have never been included in Net neutrality regulation. The debate over Net neutrality has prompted popular video-streaming service Netflix, in particular, to push the FCC to look at these relationships as well. Netflix accused broadband providers including Comcast and Verizon of deliberately slowing down their service at so-called "interconnection" points so they can negotiate better deals.

Wheeler hasn't said whether the upcoming regulations will address such deals, but has hinted it could. "You'll have to wait and see what the order has on that," he said when asked about interconnection deals. "You will find it [the new Net neutrality order] expansive and using all the tools in the tool chest."

The FCC is writing the new rules with the expectation that broadband providers will sue, Wheeler added. Indeed, the broadband industry has already signaled they will unite to challenge any new rules that change the classification of broadband services.

In the face of these new regulations, the broadband providers are probably wishing they could go back to 2010.

"Nobody wants to go back to court on this," Jan Dawson, chief analyst Jackdaw Research said. "So if they're kicking themselves, it's not just about triggering more regulation, but about this creating more uncertainty about regulation in the market."

Watch this: What newly proposed FCC rules mean for consumers