Net neutrality will go into effect on wireless, but will be contested - 2011 predictions

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Net neutrality has been the main issue among the wireless industry's Washington, D.C., residents during the past year. FCC Chairman Julius Genachowski made the topic a cornerstone of his so-far turbulent tenure at the agency, and despite a number of setbacks--mainly a court ruling that called into question the FCC's authority over Internet traffic--Genachowski pushed forward with a proposal that imposes net neutrality regulations over wireline networks and, to a lesser extent, wireless networks.

Under the new rules, Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T), Sprint Nextel (NYSE:S), T-Mobile USA and other wireless carriers will be barred from blocking services like Google Voice and Skype that compete with their own voice and video offerings, as well as those in which they have an attributable interest. However, wireless carriers will not face the same restrictions wired operators will on blocking Web traffic and other applications--a ban on unreasonable discrimination in transmitting lawful network traffic.

Wireless carriers also will face transparency requirements on network management policies and a basic "no-blocking" rule on lawful content and applications. The no-blocking rule won't generally apply to carriers engaged in the operations of application storefronts. The rules will allow for reasonable network management--which is defined as actions that are "appropriate and tailored to a legitimate network management purpose, taking into account network architecture."

Of course, the rules aren't agreeable to most lobbyists. On the telecom side, entities like Verizon Wireless (NYSE:VZ) and CTIA argue the FCC has no need to regulate Internet traffic, considering the heated competition in the market without such oversight. On the other side stand a range of Internet and public interest entities, which worry that the FCC didn't go far enough to ensure equal and fair treatment of Web surfers' bits and bytes.

Thus, We expect the FCC will face significant opposition to its new rules from a range of players. Specifically, we expect those on the telecom side to attempt to tie the FCC's rules up in court by calling into question the agency's authority to implement net neutrality. Indeed, the FCC's two Republican commissioners voted against the rules, partly due to their belief that the agency does not have the authority to impose net neutrality regulations.