Bloomberg News

Netflix Would Stream Freely Under U.S. Internet Rule Rewrite

February 19, 2014

The U.S. plans to rewrite rules that would prevent Internet service providers from slowing Web traffic from companies such as Netflix Inc. (NFLX:US) and Amazon.com Inc. (AMZN:US)

Tom Wheeler, the chairman of the Federal Communications Commission, said the rules will seek to forbid content blocking and ensure providers treat Web traffic equally. The same goals had been included in 2010 regulations that were vacated last month by an appeals court, which said the FCC had overreached.

The court’s ruling gave Verizon Communications Inc. (VZ:US) and other Internet service providers new latitude to charge companies such as Netflix, Amazon, Google Inc. and EBay Inc. for fast connections. The FCC today, without addressing pricing, moved toward barring discrimination against Web companies and said it wouldn’t appeal the court ruling.

Related: FCC to Fight Open-Internet Court Defeat, Chairman Says

“Today we initiate several steps to ensure that the Internet remains a platform for innovation, economic growth, and free expression,” Wheeler said in an e-mailed statement.

It’s the latest step in a debate over whether Web content suppliers need protection from Verizon, Comcast Corp. (CMCSA:US) and other companies that control Internet access to homes and businesses. Without rules, providers could charge content companies higher rates for preferred treatment -- expenses that may be passed on to consumers and change the industry’s economics.

In the case of Netflix, the world’s largest subscription streaming service, expenses could climb to hundreds of millions of dollars a year, according to Wedbush Securities.

Broadband Deals

The appeals court said in its ruling in a case brought by Verizon that the FCC chose a faulty legal foundation. The FCC has the authority to expand the use of high-speed, or broadband, connections, the court said, laying out the justification seized upon by Wheeler today.

Comcast, the largest U.S. cable company, is bound by the old rules until 2018 under a previous agreement with the FCC. The Philadelphia-based company’s proposed acquisition of Time Warner Cable Inc. (TWC:US) would bring Time Warner customers under the rules, too, Comcast has said. Comcast in an e-mailed statement today called Wheeler’s approach “thoughtful.”

Wheeler needs to carry a vote at the FCC, where he and two other Democrats form a majority. The original rules passed on a 3-to-2 Democratic-led vote in 2010.

Partisan Stakes

Republicans criticized Wheeler’s action.

“Today’s announcement reminds me of the movie ‘Groundhog Day,’” Republican Commissioner Ajit Pai said in an e-mailed statement. In the movie, the same day repeats over and over. “I am skeptical that this effort will end any differently from the last,” he said.

Democratic Commissioner Mignon Clyburn expressed support, as did congressional Democrats. President Barack Obama’s administration, in a White House blog post yesterday, said it “strongly supports” Wheeler’s efforts “to maintain a free and open Internet.”

FCC Commissioner Jessica Rosenworcel, a Democrat, in an e-mailed statement didn’t mention Wheeler or his action, and said she supports an open Internet.

Wheeler should have moved to declare Internet service a public utility akin to telephone service in order to claim authority to pass regulations, Craig Aaron, president of the policy group Free Press, said in an e-mailed statement. Failure to do so is “baffling and short-sighted,” Aaron said.

Internet Regulation

The FCC may examine how to lower legal barriers to cities and towns offering high-speed Internet, Wheeler said. The agency will seek to ensure network operators disclose how they manage traffic so content providers have the information they need create and maintain products, he said.

“We have always focused on providing our customers with the services and experience they want, and this focus has not changed,” Ed McFadden, a spokesman for New York-based Verizon, said in an e-mailed statement today.

The FCC has said that without rules to ensure equal access to the Internet, service providers could favor wealthier, established players over startups, squelching innovation.

The White House in its blog past yesterday said that if Web traffic doesn’t flow freely, “the Internet could turn into a high-priced private toll road that would be inaccessible to the next generation of visionaries.”

Representative Henry Waxman of California, the top Democrat on the House Energy and Commerce Committee, said in an e-mailed statement Wheeler is trying to do the same thing Democrats have proposed in legislation: “stopping broadband providers from using their market power to block or interfere with the content consumers want to access.”

Republicans saw it differently.

“The Obama administration refuses to abandon its furious pursuit of these harmful policies to put government in charge of the Web,” House Energy and Commerce Committee Chairman Fred Upton, a Michigan Republican, and technology subcommittee Chairman Greg Walden, a Oregon Republican, said in an e-mailed statement.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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Companies Mentioned

  • NFLX
    (Netflix Inc)
    • $479.36 USD
    • -1.57
    • -0.33%
  • AMZN
    (Amazon.com Inc)
    • $341.83 USD
    • 7.81
    • 2.28%
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