A demonstrator opposed to the roll back of net neutrality rules holds a sign outside the Federal Communications Commission (FCC) headquarters (Photographer: Andrew Harrer/Bloomberg)

Net Neutrality Rules Swept Aside by Republican-Led U.S. FCC

(Bloomberg) -- The U.S. Federal Communications Commission swept aside rules barring broadband providers from favoring the internet traffic of websites willing to pay for speedier service, sending the future of net neutrality on to a likely court challenge.

The Republican-led commission voted 3-to-2 on Thursday to remove Obama-era prohibitions on blocking web traffic, slowing it or demanding payment for faster passage via their networks. Over objections from its Democrats, the FCC gave up most authority over broadband providers such as AT&T Inc. and Comcast Corp. and handed enforcement to other agencies.

“It is time for us to restore internet freedom,” said FCC Chairman Ajit Pai, who was chosen by President Donald Trump to lead the agency, and who dissented when the FCC adopted the rules under Democratic leadership in 2015. “We are restoring the light-touch framework that has governed the internet for most of its existence.”

The change is to occur after the Office of Management and Budget reviews a portion of the rules and “that can take months,” Kris Monteith, chief of the FCC’s Wireline Bureau, told reporters. The draft order had said the rule change would take effect 60 days after being published in the Federal Register that chronicles regulatory activity.

The new rules drew immediate threats of lawsuits seeking to overturn the action. Pai said he’s confident of prevailing in court. “There’s no question that what we did was lawful,” Pai said in a news conference.

Free Press, an activist group that helped organize opposition to Pai’s order, announced it planned "to sue the FCC on the basis of its broke process, deeply flawed legal reasoning, willful rejection of evidence that contradicts its preordained conclusions, and absolute disregard for public input."

The attorneys general of Washington and New York states also said they would sue.

Eliminating the regulations frees broadband providers to begin charging websites for smooth passage over their networks. Critics said that threatens to pose barriers for smaller companies and startups, which can’t afford fees that established web companies may pay to broadband providers, or won’t have the heft to brush aside demands for payment. Broadband providers said they have no plans for anti-competitive “fast lanes,” since consumers demand unfettered web access.

"Today’s action does not mark the ‘end of the Internet as we know it;’ rather it heralds in a new era of light regulation that will benefit consumers,” David L. Cohen, Comcast’s senior executive vice president and chief diversity officer, said in a statement.

The FCC’s vote concludes a tumultuous eight-month passage since Pai proposed gutting the earlier rules. The agency took in nearly 24 million comments, but many of those appeared to be of dubious origin including almost half a million routed through Russia.

That prompted New York State Attorney General Eric Schneiderman to say he would sue over the "illegal rollback of net neutrality" and cited "two million fake comments that use the stolen identities of people across the country."

Dozens of Democratic lawmakers expressed opposition, while Republicans lauded Pai’s plan.

Protesters were demonstrating in front of the FCC building as the meeting got underway. Shortly before 1 p.m., just before the vote, a female staff member approached the dais and handed Pai a piece of paper. Pai adjourned the meeting "on advice of security" and armed security guards told attendees to leave bags and coats behind.

The meeting resumed about 10 minutes later and the vote was taken.

The reaction in Congress broke down along party lines.

The FCC’s action will “return the internet to a consumer-driven marketplace free of innovation-stifling regulations,” Senate Majority Leader Mitch McConnell, a Kentucky Republican, said in remarks prepared before the agency’s vote.

Two Republican members of the House with responsibility for technology policy
said "the table is set" for legislation.

The vote "will help more Americans than ever before access the web, video streaming, telemedicine, and the innovations of the future made possible by increased investment in broadband," Energy and Commerce Committee Chairman Greg Walden and Communications and Technology Subcommittee Chairman Marsha Blackburn said in a joint statement.

"What you’re going to see is Congress step forward and take some action to put in place some free and open Internet rules," Blackburn told Bloomberg TV on Wednesday. "There are things that we all agree on, like I said—no blocking, no throttling, addressing latency."

Democratic Senator Amy Klobuchar, of Minnesota, said the FCC with its vote “will put internet service providers, not consumers, in charge of determining the future of the internet.”

Pai argued that the Obama-era rules brought needless government intrusion to a thriving sector, and discouraged investment in broadband. Supporters said investment has flowed unhindered, and that rules are needed to keep internet service providers from unfairly exploiting their position as gateways to homes and businesses.

The FCC with its 2015 rules claimed powers that could include regulating rates charged by internet service providers. The agency said it wouldn’t immediately do so, but the prospect helped propel broadband providers’ opposition.

The cable and telephone companies also criticized the breadth of what critics called utility-style regulations, including a portion written to allow the FCC to vet data-handling practices it couldn’t yet envision. Companies supporting Pai’s rollback proposal included AT&T, Verizon Communications Inc. and cable providers led by Comcast and Charter Communications Inc.

Web companies such as Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc. wanted to keep the previous regulations. “Having clear, legally sustainable rules in place finally established rules of the road and provided legal certainty,” the Internet Association, a trade group for web companies, said in comments to the FCC. “The commission should maintain its existing net neutrality rules and must not weaken their firm legal basis.”

Google issued a statement after the vote saying, "We will work with other net neutrality supporters large and small to promote strong, enforceable protections."

With its vote the FCC rescinded its 2015 decision to treat internet service providers using a portion of the laws designed to regulate utilities. Much of the debate over net neutrality has revolved around this question of classification: whether Washington regulators can wield the kind of intrusive rulemaking that’s also used, for instance, to tell telephone providers when and where they can stop offering service.

The FCC also abandoned the bulk of its oversight role, saying antitrust authorities and the Federal Trade Commission can monitor for anti-competitive practices. Critics say those agencies don’t have expertise and act only after abuses occur, rather than setting rules that guide behavior.

In addition, the authority of the FTC is under question in a case before federal judges in California, where AT&T is contesting a sanction from the FTC for deceiving smartphone consumers who paid for unlimited data only to have their download speeds cut.

"We are very disappointed in the FCC action," the second-ranking House Democrat, Steny Hoyer of Maryland, said on Bloomberg TV immediately after the vote. "Access to information on a nondiscriminatory basis is absolutely essential in a democracy. We want to see all information, all users, treated equally."

Opponents of Pai’s rules are expected to ask U.S. judges to overturn the ruling and restore the old rules. Issues before the judges will include whether the FCC has adequate grounds to reverse a decision taken less than three years earlier. Judges last year upheld the previous rules.

Congress could write a law to overrule the FCC’s action, but it hasn’t acted as Democrats dismiss Republican invitations to legislate to a permanently weaken the 2015 rules. The Democrats’ “wall of resistance” may weaken in the new year after partisan fervor heightened by Thursday’s vote has a chance to abate, Cowen & Co. analyst Paul Gallant said in a Nov. 21 note. A bill might restore some basic net neutrality protections and also bar the FCC from regulating rates, Gallant said.

©2017 Bloomberg L.P.