Internet Gets New Rules of the Road
Consumers Guaranteed Right to View Content; Service Providers Allowed to Sell Faster, Priority Speeds for Extra Money
By AMY SCHATZ And SHAYNDI RAICE
WASHINGTON—Consumers for the first time got federally approved rules guaranteeing their right to view what they want on the Internet. The new framework could also result in tiered charges for web access and alter how companies profit from the network.
The Federal Communications Commission on Tuesday voted 3-2 to back Chairman Julius Genachowski's plan for what is commonly known as "net neutrality," or rules prohibiting Internet providers from interfering with legal web traffic. President Barack Obama said the FCC's action will "help preserve the free and open nature of the Internet."
The move was prompted by worries that large phone and cable firms were getting too powerful as Internet gatekeepers.
Most consumers haven't had a problem viewing whatever they want online; few instances have arisen of an Internet provider blocking or slowing services.
Rather, the FCC rules are designed to prevent potential future harms and they could shape how Americans access and use the Internet years from now. In the future, the Internet industry will be increasingly centered around the fastest-growing categories of Internet traffic—online video, gaming and mobile services, analysts say. Cisco Systems Inc., the broadband network provider, has forecast those services could quadruple by 2014.
The FCC has approved rules that would give the federal government authority to regulate Internet traffic and prevent broadband providers from selectively blocking web traffic. WSJ's Amy Schatz explains what the new rules really mean.
Comcast Corp. and other Internet providers have experimented with ways to handle the growing problem of network congestion. Recently, Mr. Genachowski suggested that instead of selectively slowing certain traffic to cope with congestion, providers could consider charging consumers for how much data they consume. That would be a departure from the flat monthly fees consumers pay now for Web access. It's something providers privately say is one of the only ways to make a profit and fund network infrastructure.
Such a system could pose a challenge to companies like Netflix Inc., which streams movies over broadband networks to televisions and computers. Netflix Tuesday said the FCC decision did not go far enough toward protecting content providers.
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The new rules will also allow phone and cable companies to sell to Internet companies like Amazon.com Inc. faster data delivery for extra money, particularly on wireless networks. That would let a company that offers streaming video, like Google Inc.'s YouTube, pay a wireless company like Verizon Communications Inc. a bonus for guaranteed delivery of its videos to consumers' smart phones.
But FCC officials said any such priority service must be disclosed, and they said they would likely probe and reject such efforts. That could prompt some of the many expected legal challenges to the new rules, since it is not clear if the FCC has authority to enforce them.
Consumer groups and other organizations, including the American Library Association, oppose such high-speed toll lanes, arguing all Americans should have the same quality of Internet access.
The FCC's decision is a mixed bag for consumers. The new rules—which haven't been released in full—say that land-line broadband providers can't block legal content from websites, or "unreasonably discriminate" against companies like Skype or Netflix that want to use broadband networks to provide video or voice services. They also require providers to give consumers more information about their Internet service, like actual download speeds or usage limits.
But the rules come with some wiggle room for the industry. Service providers will be allowed to engage in "reasonable network management" to cope with congestion on their systems.
Wireless companies are less restricted by the new rules—a win for the industry because consumers are increasingly accessing the web using hand-held devices such as iPhones or Blackberries. Mr. Genachowski said mobile carriers faced more congestion issues than other companies and need more leeway to manage their networks.
Wireless companies would be prohibited from blocking Internet voice services but they could block access to many other applications, citing congestion issues.
Reaction the FCC's rules was mixed. AT&T Inc. said the rules were "not ideal" but would bring some "market certainty so that investment and job creation can go forward." Verizon said it was "deeply concerned" because it didn't think the rules were needed. A coalition of Internet companies including Google said the rules were a good first step but stronger regulations on wireless networks were needed to ensure the same rules apply to both wired and wireless Internet.
Steve Wozniak, a co-founder of Apple Inc. and a staunch proponent of keeping the Internet unregulated, after an FCC hearing on Tuesday.
Some venture capital firms that invest in innovative applications and wireless technology expressed concern about how the rules will impact the wireless business. "The problem is that there's so much ambiguity in the rules," said Brad Burnham of Union Square Ventures, which has invested in startups including Foursquare and Twitter Inc.
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