BusinessWeek Posted:
Federal Communications Commission Chairman Julius Genachowski claimed power to regulate companies that provide Internet access, opening a fight with cable and telephone companies and sparking opposition from Republicans.
Comcast Corp., Time Warner Cable Inc. and Cablevision Systems Corp., cable operators that sell Web connections, fell more than 6 percent in New York trading.
Genachowski’s proposal lays a foundation for net neutrality rules to bar Internet service providers from interfering with users’ traffic. The plan provides “only the modest authority” needed after a U.S. court stripped its power over the Web, Genachowski, a Democrat, said today in a statement.
The plan is “a government takeover of the Internet,” said House Republican Leader John Boehner of Ohio. “Under this job- killing big government scheme, the Obama administration is seeking to expand the power of the federal government.”
Google Inc., Amazon.com Inc. and EBay Inc. are among Web companies backing stronger FCC powers over Internet providers, with support from consumer advocacy groups. Comcast, AT&T Inc. and U.S. access providers have said new regulations aren’t needed and could damp investment.
The FCC “set off a politically charged conflagration and deep-pocketed lobbying war” pitting AT&T Inc., Comcast and Verizon Communications Inc. against Google, Amazon and Web phone company Skype Technologies SA, Jeffrey Silva, a Washington-based analyst with Medley Global Advisors LLC, said yesterday in an interview.
Democratic Support
“Consumers do need basic protection” from anticompetitive conduct by Internet service providers, Genachowski said. “The FCC needs backstop authority to prevent these companies from restricting lawful innovation or speech.”
Genachowski’s plan requires commission approval, and two fellow Democrats have signaled they will support the chairman, giving him a majority. The FCC will vote following a comment period, spokeswoman Jen Howard said in an interview.
“This dramatic step to regulate the Internet is unnecessary,” said Republican commissioners Robert McDowell and Meredith Attwell Baker in a joint e-mail statement. “It is a stark departure from the long-established bipartisan framework.”
The proposal is “government meddling” that “casts uncertainty on the future of broadband,” or high-speed service, Representative Joe Barton of Texas, senior Republican on the Energy and Commerce Committee, said in a statement.
‘Basic Rules’
Web companies led by Google, EBay and IAC/InterActiveCorp praised Genachowski’s move as a way to give consumers open access to the Internet. “It does so without regulating the Internet but only applying basic rules of the road,” the companies said in a letter today to Genachowski.
Verizon, AT&T and Comcast faulted Genachowski’s plan and said investment in new technologies and service may be at risk. Battles at the FCC and in court “can only bring confusion and delay,” said Tom Tauke, Verizon’s executive vice president of public affairs, in a statement.
Genachowski is proposing to extend a suite of regulations for telephone services to Internet access providers, with a pledge not to apply some of the rules. The telephone rules weren’t challenged by the U.S. Court of Appeals, which ruled on April 6 that the FCC lacked authority to manage Comcast’s Internet practices.
The FCC had censured Comcast, the largest U.S. cable provider, for blocking customers using the BitTorrent file- sharing software that can send and receive videos. Comcast said it acted to alleviate network congestion. The appeals court sided with Comcast.
Block, Slow Traffic
By shearing FCC authority, the ruling could have left the way open for cable and phone companies to block or slow providers such as Google’s YouTube while providing faster performance for their own applications, said open-Internet groups such as Washington-based Public Knowledge.
Companies such as AT&T said the pressures of competition would prevent them from mistreating Web users.
The change is a “nuclear option” with “profoundly negative impact” on investment because companies could be subject to more regulation, Craig Moffett, a New York-based analyst with Sanford C. Bernstein & Co., said in a note today.
Verizon might be required share its $23 billion high-speed fiber FiOS network with competitors, Moffett said.
“It’s going to be years-long litigation, and the cable guys can’t give an inch,” said Chris Marangi, an analyst with Gabelli & Co. in Rye, New York.
Comcast fell $1.23, or 6.2 percent, the most since October, to $18.51 at 4 p.m. in Nasdaq Stock Market trading. Time Warner Cable fell $4.43, or 8.1 percent, to $50.56, and Cablevision fell $1.87, or 7 percent, to $24.94.
