FCC reclaims powers over Internet access companies

Federal Communications Commission Chairman Julius Genachowski claims power to regulate companies that provide Internet access, opening a fight with cable television and telephone companies.

Time Warner Cable Inc. and Cablevision Systems Corp., which sell Web connections, fell as much as 7 percent in New York trading.

Genachowski's proposal lays a foundation for net neutrality rules to bar Internet service providers from interfering with users' traffic. The plan provides "only the modest authority" needed after a U.S. court ruling in a case involving Comcast Corp. reduced its power over Web services, Genachowski said today in a statement.

Google Inc., Amazon.com Inc. and EBay Inc. are among Web companies backing stronger FCC powers over Internet providers, with support from consumer advocacy groups. Comcast, AT&T Inc. and U.S. access providers have said new regulations aren't needed and could stifle investment.

The FCC has "set off a politically charged conflagration and deep-pocketed lobbying war" pitting AT&T Inc., Comcast and Verizon Communications Inc. against Google, Amazon and Web phone company Skype Technologies SA, Jeffrey Silva, a Washington-based analyst with Medley Global Advisors LLC, said yesterday in an interview.

Genachowski's plan requires commission approval, and two fellow Democratic commissioners have signaled they will support the chairman, giving him a majority. The FCC will vote following a comment period, spokeswoman Jen Howard said in an interview.

The proposal "deeply concerns us," said Republican commissioners Robert McDowell and Meredith Attwell Baker in a joint e-mail statement. "It is a stark departure from the long- established bipartisan framework."

Companies that sell access to the Internet probably will fight Genachowski in Congress and in court, Silva said.

"It's going to be years-long litigation, and the cable guys can't give an inch," said Chris Marangi, an analyst with Gabelli & Co. in Rye, New York.

Comcast is "disappointed" by Genachowski's action, said Washington-based spokeswoman Sena Fitzmaurice in an e-mailed statement. "We are concerned about the investment and innovation risks." Comcast shares fell as much as 5 percent.

Genachowski is proposing to extend a suite of regulations for telephone services to Internet access providers, with a pledge not to apply some of the rules. The telephone rules weren't challenged in the April 6 court decision for Comcast, which found the FCC lacked the authority for using the rules it had wielded.

Regulating network providers under rules written in the early 20th century is a bad decision, Tom Rutledge, Cablevision's chief operating officer, said on the company's first-quarter conference call today.

"We've built fantastic products as a result of the competitive situation that has existed under existing law," Rutledge said. "We don't think there's a real problem."

The FCC's proposed change is a "nuclear option" with "profoundly negative impact on capital investment" because companies could be subject to thousands of pages of regulation, Craig Moffett, a New York-based analyst with Sanford C. Bernstein & Co., said in a note today.

"'This development is an unequivocal negative" for companies including cable operators and Verizon, which could be forced to share its $23 billion high-speed fiber FiOS network with competitors, Moffet said.

The decision will let the FCC "ensure consumers are fully protected against blocking or degradation of websites and applications of their choice by broadband providers," said Markham Erickson, executive director of the Open Internet Coalition, in an e-mailed statement.

The coalition, whose members include Google, EBay, Amazon and consumer groups, urged Genachowski to use the telephone rules in place of the regulations attacked in the Comcast case.

The agency had censured Comcast, the largest U.S. cable provider, for blocking customers using the BitTorrent file- sharing software that can send and receive videos. Comcast said it acted to alleviate network congestion.

By shearing the FCC of authority, the ruling could have left the way open for cable and phone companies to block or slow outside providers such as Google's YouTube while providing faster performance for their own applications, said open- Internet groups such as Washington-based Public Knowledge.

Companies such as AT&T said the pressures of competition would prevent them from mistreating Web users.

Expanding telephone rules to Web access providers "would mark a radical and unlawful departure" from 15 years of Internet policy under Republicans and Democrats, executives for AT&T, Verizon and Time Warner Cable said in an April 29 letter to Genachowski. The same companies in a Feb. 22 letter to the FCC said invoking phone rules would have "far-reaching and destructive consequences," including lawsuits.

Republicans questioned the FCC's assertion of authority.

Using "outdated monopoly telephone rules is a major mistake," Senator John Ensign, a Nevada Republican, said in an e-mail. "The government has taken over a lot of industries just this year, and the last thing that our economy needs right now is for the government to take over the Internet, too."

Representative Henry Waxman of California and Senator Jay Rockefeller of West Virginia, heads of the commerce committee in each chamber, urged Genachowski yesterday to consider all options to retain authority over access providers. The Democrats said they may back a law giving the agency more power.

Michael Balmoris, a Washington spokesman for Dallas-based AT&T, the biggest U.S. phone company, declined to comment yesterday.