FCC Votes on Net Neutrality

The US telecom regulator Federal Communications Commission (“FCC”) has reportedly voted unanimously for the implementation of the so-called “Net Neutrality” regulation, which is aimed at preventing Internet Service Providers (ISPs) and cable companies from blocking or restricting access to legal web site contents and applications. If enacted, the open Internet rule, which is presently applicable to wireline networks, will be extended to wireless.

All five FCC commissioners (including the FCC chairman Julius Genachowski), represented by three democrats and two republicans voted in favor of the proposed new rule, which will now invite public comments, a process which is expected to continue till Jan 14, 2010. This will be followed by the review of the public feedback by the FCC with a final rule is expected not before March 2010. However, the republicans remain skeptical about the proposed rule.

The net neutrality regulation, which consists of a set of proposals, represents the first major initiative ever by the U.S. telecom regulator to control the way the Internet industry is managed. The rule is also backed by the Congress and the White House who are in favor of more regulation of the Internet. The FCC has set six principles to guide legitimate network management by the incumbent service providers.  

The rationale behind the net neutrality rule is that it will prohibit network operators from restricting any legal online content, devices, applications or services that competitive service providers wishes to run through the respective carrier’s networks. Operators have been accused of blocking or slowing traffic according to the revenues they generate from online contents.

However, the proposed “free and open Internet” rule also offers some flexibility to the network carriers to effectively manage their networks by preventing network congestion and blocking spam, viruses and illegal contents. While operators need to publicly disclose the way they manage their networks, they may be allowed to sell premium Internet services to the customers who pay more for their services.

The release of FCC’s proposal for net neutrality in September 2009 has become a bone of contention between the advocates of the rule and leading U.S. network operators. Large web content and application providers such as Google (GOOG - Analyst Report), Amazon (AMZN - Analyst Report) and eBay (EBAY - Analyst Report) have joined a handful of public interest groups to raise voice against the discrimination by the ISPs and cable companies.

U.S. wireless and cable network operators such as AT&T (T - Analyst Report), Comcast (CMCSA - Snapshot Report), Verizon (VZ - Analyst Report) and Qwest (Q - Analyst Report) however, have insisted that increased data traffic of bandwidth-intensive services and applications such as video streaming requires them to actively manage their networks.

Moreover, operators have argued that the new regulation will discourage investment associated with expansion and upgrade of their networks and would also throttle innovation and competition. As a result, government intervention through the implementation of net neutrality conjures significant threat to the network service providers. On the contrary, the rule will boost web content providers who will benefit from the increased data traffic over the Internet enabled by the next-generation wireless broadband technologies.