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FCC Wins First Round of Legal Battle on Net Neutrality Rules
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In a landmark judgment yesterday, the federal appeals court in Washington D.C. upheld the net neutrality rules proposed by the FCC (Federal Communications Commission). This came as a major setback for the U.S. Internet service provider (ISP) industry. Several large ISPs and industry group questioned the legal validity of the newly adopted net neutrality rules.
In a historic decision, the FCC had approved net neutrality rules, on Feb 26, 2015, after a majority vote. The new laws reclassified high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act.
Importantly, these regulations will be applicable to both mobile and fixed broadband networks. The reclassification of the Internet called for a radical change in the way the government treats high-speed broadband service. This will now give the FCC stronger control over the ISPs.
What Is Net Neutrality?
Net neutrality implies an open-Internet atmosphere which will prohibit ISPs, especially the telecom and cable TV operators, from discriminating against applications. In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs had been discriminating against several web-based contents and applications. In such a scenario, content developers have had to pay heavy sums to ISPs for accelerated data transfer.
The new law, if implemented, will ban common ISP practices such as data traffic blocking, slowing any data traffic and paid prioritization. Notably, paid prioritization is a method by which content developers strike favorable deals with ISPs for quick and smooth transmission of their data traffic.
The FCC will closely monitor and put a check on all such deals in the future to ensure a level ground for all. Moreover, the FCC will also supervise interconnection deals, in which content developers pay ISPs to connect to their networks.
Arguments Against Net Neutrality
All ISPs, along with several cable and telecommunications industry bodies have vehemently opposed net neutrality. These groups believe that a slight law reformation under section 706 of the 1996 Telecom Act should have been enough to enforce net neutrality.
The major argument against net neutrality is that ISPs have to spend several billion dollars to install and upgrade high-speed mobile/fixed broadband network. Disallowing discriminatory pricing policy will significantly reduce their revenues and margins which will in turn result in lower investments in the high-speed broadband sector. Consequently, broadband equipment service providers will suffer (due to lesser investment by ISPs) and jobs will be at stake in the sector.
The Beneficiaries
Content developers and consumer groups will be the beneficiaries of the net neutrality law implementation. Netflix, Google, Amazon, Hulu and Twitter are some of the companies poised to take advantage of this change. At present, these companies pay a special charge to the ISPs for speedy transmission of their content. The new rule will significantly alter online access charges of content including video, music, email, photos, social networks and navigational maps for consumers.
What Next?
The three-judge bench of the federal appeals court in Washington D.C. upheld the FCC's net neutrality rules in a 2-1 verdict. While Justice David S. Tatel and Justice Sri Srinivasan gave a favorable verdict on net neutrality, Justice Stephan F. Williams partly concurred and partly dissented with his fellow judges.
Immediately after the court ruling, major ISPs including AT&T Inc. (T - Free Report) , Verizon Communications Inc. (VZ - Free Report) , Comcast Corp. (CMCSA - Free Report) and CenturyLink Inc. together with leading ISP industry groups, such as, National Cable & Telecommunications Association and United States Telecom Association have made it clear that the next round of legal battle will be fought in the U.S. Supreme Court.
According to a report by LightReadng, the Supreme Court bench currently consist of eight judges. Of the eight, four judges seem to be traditionally liberal and could be expected to vote with the DC Circuit. However, the remaining four judges appear to be traditionally conservative and could be expected to vote against the DC Circuit. In the event of a deadlock in the Supreme Court, the DC Circuit Court decision would be held.
Telecommunications is a necessary utility. The need for telecom in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance. Net neutrality norms may discourage large investments in the telecom sector, but these will also cut down the cost of online access for end-users since content providers will no longer have to pay extra fees to ISPs. The Supreme Court will determine whether net neutrality is legally valid and practicable. The fate of the U.S. ISP industry will depend largely on this verdict.
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FCC Wins First Round of Legal Battle on Net Neutrality Rules
In a landmark judgment yesterday, the federal appeals court in Washington D.C. upheld the net neutrality rules proposed by the FCC (Federal Communications Commission). This came as a major setback for the U.S. Internet service provider (ISP) industry. Several large ISPs and industry group questioned the legal validity of the newly adopted net neutrality rules.
In a historic decision, the FCC had approved net neutrality rules, on Feb 26, 2015, after a majority vote. The new laws reclassified high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act.
Importantly, these regulations will be applicable to both mobile and fixed broadband networks. The reclassification of the Internet called for a radical change in the way the government treats high-speed broadband service. This will now give the FCC stronger control over the ISPs.
What Is Net Neutrality?
Net neutrality implies an open-Internet atmosphere which will prohibit ISPs, especially the telecom and cable TV operators, from discriminating against applications. In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs had been discriminating against several web-based contents and applications. In such a scenario, content developers have had to pay heavy sums to ISPs for accelerated data transfer.
The new law, if implemented, will ban common ISP practices such as data traffic blocking, slowing any data traffic and paid prioritization. Notably, paid prioritization is a method by which content developers strike favorable deals with ISPs for quick and smooth transmission of their data traffic.
The FCC will closely monitor and put a check on all such deals in the future to ensure a level ground for all. Moreover, the FCC will also supervise interconnection deals, in which content developers pay ISPs to connect to their networks.
Arguments Against Net Neutrality
All ISPs, along with several cable and telecommunications industry bodies have vehemently opposed net neutrality. These groups believe that a slight law reformation under section 706 of the 1996 Telecom Act should have been enough to enforce net neutrality.
The major argument against net neutrality is that ISPs have to spend several billion dollars to install and upgrade high-speed mobile/fixed broadband network. Disallowing discriminatory pricing policy will significantly reduce their revenues and margins which will in turn result in lower investments in the high-speed broadband sector. Consequently, broadband equipment service providers will suffer (due to lesser investment by ISPs) and jobs will be at stake in the sector.
The Beneficiaries
Content developers and consumer groups will be the beneficiaries of the net neutrality law implementation. Netflix, Google, Amazon, Hulu and Twitter are some of the companies poised to take advantage of this change. At present, these companies pay a special charge to the ISPs for speedy transmission of their content. The new rule will significantly alter online access charges of content including video, music, email, photos, social networks and navigational maps for consumers.
What Next?
The three-judge bench of the federal appeals court in Washington D.C. upheld the FCC's net neutrality rules in a 2-1 verdict. While Justice David S. Tatel and Justice Sri Srinivasan gave a favorable verdict on net neutrality, Justice Stephan F. Williams partly concurred and partly dissented with his fellow judges.
Immediately after the court ruling, major ISPs including AT&T Inc. (T - Free Report) , Verizon Communications Inc. (VZ - Free Report) , Comcast Corp. (CMCSA - Free Report) and CenturyLink Inc. together with leading ISP industry groups, such as, National Cable & Telecommunications Association and United States Telecom Association have made it clear that the next round of legal battle will be fought in the U.S. Supreme Court.
According to a report by LightReadng, the Supreme Court bench currently consist of eight judges. Of the eight, four judges seem to be traditionally liberal and could be expected to vote with the DC Circuit. However, the remaining four judges appear to be traditionally conservative and could be expected to vote against the DC Circuit. In the event of a deadlock in the Supreme Court, the DC Circuit Court decision would be held.
DIVERSIFIED COMM SERVICES Industry Price Index
DIVERSIFIED COMM SERVICES Industry Price Index
Bottom Line
Telecommunications is a necessary utility. The need for telecom in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance. Net neutrality norms may discourage large investments in the telecom sector, but these will also cut down the cost of online access for end-users since content providers will no longer have to pay extra fees to ISPs. The Supreme Court will determine whether net neutrality is legally valid and practicable. The fate of the U.S. ISP industry will depend largely on this verdict.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>