By Ryan Knutson and Thomas Gryta
The last time the Federal Communications Commission tried to
impose rules on net neutrality, Verizon Communications Inc. decided
to sue the government alone.
This time, it is likely to have company.
Big telecom firms are mobilizing for a fight now that FCC
Chairman Tom Wheeler has indicated he will propose to regulate the
Internet as a public utility--including data traveling over
wireless networks, which the industry has fought to keep
separate.
The regulator's comments, at a giant industry conference in Las
Vegas late Wednesday, threaten the industry's multiyear strategy of
shifting from heavily regulated businesses like phone calls to data
services that enjoy a lighter touch.
Industry trade groups that represent wireless carriers, telecom
companies and cable providers would likely lead the charge.
"Of all the options on the table at the FCC, it is the most
extreme and most dangerous legal path forward," said Helgi Walker,
the lawyer who beat the FCC twice in legal challenges brought by
Comcast Corp. and Verizon. "There is no need to go there."
Mr. Wheeler said he would present the new rules to the
commission Feb. 5 and call a vote on Feb. 26.
Reclassifying broadband as a public utility--or in regulatory
parlance, as a telecommunications service under Title II of the
1934 Telecommunications Act--is something public interest groups
have been advocating for years, as broadband service has become as
important to most Americans as telephone lines were in the last
century.
Strong net-neutrality rules would require the companies that
control Internet lines to treat content equally. Carriers say they
have no interest in blocking content, but want to have the option
to develop services that would let companies like health-care
services pay for priority delivery. They also worry Title II would
give the FCC the power to regulate prices or require them to let
rivals resell Internet access using wires they built.
More subtly, carriers like Verizon and AT&T have invested
billions of dollars in converting their copper networks into data
networks that aren't as heavily regulated. Verizon spent billions
building out its fiber-based FiOS Internet service, and AT&T
launched U-Verse Internet service. Both companies began replacing
the legacy equipment at the core of their networks with newer
technology that was subject to less regulatory oversight.
Ivan Seidenberg, Verizon's chief executive until 2011, said at
an industry conference a little over a year ago that those
investments were driven in large part because of regulations. There
"was a gap in the rules at the time," Mr. Seidenberg said. "It
turned out pretty well."
While the FCC isn't expected to enforce some of the most onerous
regulations, like price controls when it comes to data networks,
carriers worry future commissioners might be less forgiving.
The FCC signaled it would consider Title II regulation last
summer, but was spurred forward in November, when President Barack
Obama took the unusual step of publicly calling for the Internet to
be regulated as a utility.
By early December, telecom and cable companies were receiving
signals that Title II was inevitable. Mr. Wheeler's comments at the
CES conference Wednesday were taken as confirmation.
"The issue here is how we make sure that consumers and
innovators have open access to networks," Mr. Wheeler said. "There
is a way to do Title II right, that says there are many parts of
Title II that are inappropriate, and would thwart investment, but
that a model has been set in the wireless business," Mr. Wheeler
said.
The industry will have its work cut out for it in court if the
FCC decides to go that route. In previous challenges, the industry
has won because the courts questioned the FCC's regulatory basis
for imposing rules on Internet traffic.
Reclassifying the Internet under Title II would address that
issue, and analysts at Guggenheim Securities said the FCC wins the
majority of challenges to its rules.
Write to Ryan Knutson at ryan.knutson@wsj.com and Thomas Gryta
at Thomas.Gryta@wsj.com
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