FCC chair, Obama split on Internet rules

WASHINGTON - Hours after President Barack Obama called for the Federal Communications Commission to pass tougher regulations on high-speed Internet providers, the agency's Democratic chairman told a group of business executives that he was moving in a different direction.

Huddled in an FCC conference room Monday with officials from major Web companies, including Google, Yahoo and Etsy, agency Chairman Tom Wheeler said he preferred a more nuanced solution. His approach would deliver some of what Obama wants but also would address the concerns of the companies that provide Internet access to millions of Americans, such as Comcast, Time Warner Cable and AT&T.

"What you want is what everyone wants: an open Internet that doesn't affect your business," a visibly frustrated Wheeler said at the meeting, according to four people who attended. "What I've got to figure out is how to split the baby."

The dissonance between Obama and Wheeler has the makings of a major policy fight affecting multibillion-dollar industries. The president wants clear rules to prevent Internet service providers from auctioning the fastest speeds to the highest bidders, a scenario that could favor rich Web firms over startups.

Wheeler, a former lobbyist for the cable and telecommunications industry, has floated proposals that would limit the ability of service providers to charge Web companies, such as Netflix or Google, to reach their customers. But critics have argued that his approach would give the providers too much leeway to favor some services over others.

Given the high stakes, White House aides had wrestled over whether Obama should publicly prod the FCC to adopt the strongest rules possible on the "net neutrality" issue. Ultimately, aides felt that a public stance would galvanize allies in Congress as well as young, tech-savvy progressives, a key part of the Democratic base, according to several people familiar with the matter. The decision to speak out also comes as Democrats are aggressively courting Silicon Valley in preparation for the 2016 campaigns.

But the move by the White House has put Wheeler in an uncomfortable spotlight. The two men have long been allies. Wheeler raised hundreds of thousands of dollars for Obama's campaign and advised the president on his transition into the White House. Obama last year appointed Wheeler to lead the FCC as it was poised to tackle its biggest issue in years - the rules that govern content on the Web.

A growing source of frustration for White House and congressional Democrats is that they have three of their own on the five-member commission at the FCC, a majority that should give them the power to push through a policy of their liking. But if Wheeler charts a different course, he could bring the other members along with him.

And, as Wheeler reminded participants at his meeting with Web companies Monday, the FCC does not answer to the Obama administration.

"I am an independent agency," Wheeler told them repeatedly, according to several officials.

Both Wheeler and the FCC declined to comment for this story. The White House had no additional comment beyond the president's statement.

Obama's statement Monday caught industry observers by surprise, but it was the product of mounting concern at the White House that Wheeler and the FCC were clouding the issue.

Administration aides worried that Wheeler's efforts to strike a compromise between open-Internet advocates and telecom firms would result in rules that were murky and ineffective, according to officials familiar with the thinking, who spoke on the condition of anonymity because the discussions were private. The FCC has tried to solve the Internet access issue with a compromise approach, only to have it struck down in court this year under a challenge from Verizon.

Obama promised during his 2008 campaign that he would seek rules supporting net neutrality, or the principle that all Internet traffic should be treated the same. Ultimately, the White House decided that telecom companies probably would challenge any strong FCC rules in court anyway, so why not fully support calls by the tech lobby for far-reaching rules protecting an open Internet?

The aides saw a political upside to a strong statement. A key contingent of the president's base - young, tech-savvy progressives - would be energized by the action, and a strong statement on net neutrality could also help his relationship with congressional Democrats, according to government and industry officials.

Obama also saw a more immediate opportunity to retake the political high ground from Republicans, according to a Democratic congressional aide. Should GOP lawmakers vote to overturn any protections enacted by the FCC, a presidential veto would put Obama on the side of millions of consumers who have called on the FCC to adopt strong regulations.

"I see him almost salivating over a congressional fight, or a fight with the carriers, over this issue," said the aide, who spoke on the condition of anonymity because he is not authorized to talk on the record. "This is a populist issue he thinks he can win on."

The president's statement galvanized supporters of net neutrality. Sens. Elizabeth Warren, D-Mass., Mark Udall, a Colorado Democrat, and John Rockefeller IV, a West Virginia Democrat, quickly issued statements calling on the FCC to move quickly to implement the president's plan.

"The president set a solid target out there," said Evan Engstrom, policy director for Engine Advocacy, which represents tech startups.

But the move puts Wheeler in an uncomfortable position.

Wheeler worries that the president's more drastic approach is too simplistic, according to people familiar with his thinking. With his long experience in the telecommunications industry, Wheeler is well aware of concerns that ill-considered regulations could stifle innovation and slow the growth of the country's broadband infrastructure, those people said. And he worries that the White House is being naive about the ripple effects of changing how a major piece of national infrastructure is governed.

One telecom industry lobbyist was sympathetic to Wheeler's position: "I don't think anybody goes into the FCC saying, 'I want to be at the center of drama.' But they seem to find themselves there frequently."

Behind closed doors, Wheeler has fretted about how Republicans on Capitol Hill would react to far-reaching net neutrality rules, according to people familiar with his deliberations. Already on Monday, the Senate Republican leadership dismissed Obama's plan as "last century's rules."

Obama would probably veto an attempt by Republicans to rollback any FCC rules. But Congress could hamstring the FCC by withholding funding on other, lower-profile issues, and it could put Wheeler in the hot seat during congressional hearings or as the target of lengthy investigations.