In a significant blow to net neutrality, a federal appeals court in Washington, D.C., has ruled that the Federal Communications Commission does not have the authority to bar Internet service providers from favoring one type of traffic over another.

The commission had argued that it has the authority to require Internet services companies like Verizon, Comcast and AT&T to treat all Internet packets crossing its network equally, essentially acting like common carriers.

In a prepared statement, FCC Chairman Tom Wheeler said the FCC would consider an appeal:

“The D.C. Circuit has correctly held that ‘Section 706 . . . vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure’ and therefore may ‘promulgate rules governing broadband providers’ treatment of Internet traffic.’ I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”

Verizon and other service providers had countered that, since it bore the expense of building the networks, it should have a say in how it regulates the traffic that travels on them. If the ruling sticks it will likely fundamentally change the way the Internet operates, and it’s a pretty sure bet the case will wind up before the Supreme Court.

Verizon vowed to uphold its commitment to an open Internet:

“One thing is for sure: today’s decision will not change consumers’ ability to access and use the Internet as they do now. The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court’s decision.”

For companies like Facebook, Google, Twitter and others, the ruling means that service providers can essentially speed up Internet services with companies that have a business arrangement with providers. Theoretically, Verizon could create faster, priority access to its own video services, but slow down traffic for, say, Netflix streams — unless customers are willing to pay additional fees.

As Craig Aaron, CEO of the Free Press, an Internet activist organization, said in a statement issued shortly after the ruling came down, the decision means

“… that Internet users will be pitted against the biggest phone and cable companies — and in the absence of any oversight, these companies can now block and discriminate against their customers’ communications at will. … Now, just as Verizon promised it would in court, the biggest broadband providers will race to turn the open and vibrant Web into something that looks like cable TV. They’ll establish fast lanes for the few giant companies that can afford to pay exorbitant tolls and reserve the slow lanes for everyone else.”

Michael Powell, president of the National Cable and Telecommunications Association, the principal lobbying group for the cable industry and a former FCC chairman during the Bush Administration, warned against a rush to judgement.

“The cable industry has always embraced the principles of an open Internet and the Court decision will not change that. Consumers have always been entitled to enjoy the legal web content of their choosing and they will continue to do so. …Today’s historic Court decision means that the FCC has been granted jurisdiction over the Internet. While we fully expect some to rush to judgment about the fate of the open Internet, we should remember neither the adoption of the Open Internet Order, nor its partial repeal, has led or will lead to significant changes in how ISPs manage their networks. The cable industry has always made it clear that it does not — and will not — block our customer’s ability to access lawful Internet content, applications or services.”

Verizon’s lawyers have made no secret of the company’s intentions, during arguments in court, to seek new pricing models for its services.

It’s not the first time that an appeals court has raised questions about the FCC’s authority in this matter. In 2010 the court ruled essentially the same thing: That the FCC’s authority under the law doesn’t cover telling Internet providers how they can run their networks.

After that decision came down, the FCC, under former Chairman Julius Genachowski, issued an Open Internet Order that required service providers to disclose their network management practices and forbade them from blocking legal content and carrying out “unreasonable discrimination” against legal traffic.

A lot of this is going to boil down to technical and contextual details. A key part of the decision, written by Judge David Tatel, pivots on the legal context in which the FCC was seeking to exert its authority in the first place. If, under the Telecommunications Act, a law enacted in 1996, Internet providers are to be legally considered telecommunications services, covered under Title II of that act, the FCC’s rules would be more likely to stand.

Instead, when the Commission issued the Open Internet Order in 2010, it acted by using its authority under another section of the law, Title I, which classifies them as “information services.” The FCC has fewer regulatory options under Title I than under Title II.

“Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such,” Tatel wrote in the opinion, which you can read in full below.

As Art Brodsky, an Internet activist, put it a little more directly on Twitter:

One logical move for the FCC, and it will be difficult, may be to try and reclassify broadband under Title II. It won’t be easy and the broadband companies will likely fight it.

Here’s the 81-page ruling.

Verizon vs Fcc



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