Yesterday's court ruling striking down key components of the FCC's net neutrality rules likely sparked celebrations among the executive ranks of carriers like AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). At the FCC, meanwhile, regulators are likely considering a handful of options to regain oversight of Internet traffic and Internet providers.
Although the ruling likely won't have any immediate impact to Internet users, the stakes remain high. For Internet providers, the removal of net neutrality rules could create significant new sources of revenues through deals with content providers like Facebook and Netflix, where these companies would pay carriers to ensure the delivery of their offerings. But public-interest advocates, President Obama and others continue to argue net neutrality rules are necessary to encourage ongoing economic investment in the Internet ecosystem.
Perhaps to preempt widespread concern over the issue, both AT&T and Verizon said they remain committed to the concept of an "open Internet."
"AT&T has been committed to the open Internet since our endorsement of the FCC's statement of Internet freedoms in 2004," Jim Cicconi, AT&T's senior executive VP of external and legislative affairs, wrote in a post. "We worked constructively to help craft the FCC's net neutrality rule, and testified in support of it in the Congress. As the FCC assesses the impact of today's court decision, AT&T can assure all of our customers and stakeholders that our commitment to protect and maintain an open Internet will not change."
Similarly: "Today's decision will not change consumers' ability to access and use the Internet as they do now," Randal Milch, Verizon's general counsel and EVP for public policy, law and security wrote in a post yesterday. "The court's decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court's decision."
Nonetheless, despite these assurances, FCC Chairman Tom Wheeler and President Obama responded with concern over the court's ruling. Wheeler specifically mentioned an appeal of the court's ruling as an option for the agency.
According to a number of observers, the FCC could respond in a handful of ways to its legal loss:
1. The agency could appeal the federal appeals court ruling against its net neutrality rules, potentially to the Supreme Court.
2. The FCC could attempt to recover its oversight over broadband by revising its net neutrality rationale via its Section 706 authority.
3. The agency could attempt to classify broadband as a Title II common carrier service, a complicated move former FCC Chairman Julius Genachowski chose to avoid in drafting the agency's 2010 net neutrality regulations.
4. The FCC could use Congress' ongoing efforts to amend the 1996 Telecommunications Act as a way to assert its ability to issue net neutrality rules.
5. The FCC could do nothing, or it could pursue a combination of the above items.
"Our expectation is the FCC will explore options under Section 706 even while attempting a Supreme Court appeal," wrote Jeffrey Silva, an analyst at Medley Global Advisors.
Whatever the ultimate result, the issue likely will take years to resolve, potentially paving the way for wireless carriers and others to test a range of possible business models. Already AT&T is working to launch its Sponsored Data service plans, which allow content providers and others to pay for subscribers' access to their services. Although AT&T came under fire for the plans, it argues they don't violate the principles of net neutrality.
"While it is difficult to quantify the opportunity and timing for the carriers at this time, we believe that this ruling could eventually result in incremental revenue generation for the carriers," noted a group of financial analysts from Credit Suisse. "The timing will depend on the FCC's next move. The revenue opportunity will depend on demand and pricing for prioritized access."
Indeed, Netflix's stock fell after the court's ruling against net neutrality rules due to concerns the company would have to pay carriers to prioritize its video streams.
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