Verizon, FCC to square off in court over net neutrality

The long-awaited court fight over net neutrality has finally arrived: Verizon Communications (NYSE:VZ) and the FCC are set to square off in federal court today over the FCC's open Internet rules, with the fate of net neutrality for wireless and wired networks in the balance.

The U.S. Court of Appeals for the D.C. Circuit will hear oral arguments in the case. That court is the same that in April 2010 struck down the FCC's authority to sanction Comcast for blocking subscribers from using a file-sharing service. A decision in the new case likely will not be coming until later this year or sometime in early 2014.

In May, following its merger with T-Mobile US (NYSE:TMUS), MetroPCS decided to drop its lawsuit against the FCC's net neutrality rules, leaving Verizon as the sole challenger. The issues remain the same though: The FCC argues its rules are necessary to prevent Internet companies from prioritizing certain types traffic, in effect creating a "fast-lane" on the Internet. Verizon argues the FCC overstepped its legal authority and that the rules are not needed.

As the New York Times notes, Verizon argues in its court filings that the FCC has documented only four examples, over six years, of purported blocking of Internet content by service providers. During those six years, the company said, "end users successfully accessed the Internet content, applications and services of their choice literally billions of times."

Under the FCC's rules, which the commission passed by a 3-2 party line vote in December 2010, wireless carriers are barred from blocking services such as 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, the rules go light on wireless carriers, which do not face the same restrictions wired operators do on blocking Web traffic and other applications--a ban on unreasonable discrimination in transmitting lawful network traffic. The rules were a key piece of former FCC Chairman Julius Genachowski's legacy.

Wireless carriers also 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 do 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."

"If the federal court decides that the FCC doesn't have the power to create open Internet rules, there could be a residual impact on the FCC's ability to make decisions that involve the future of what has now become our primary communications tool," Gigi Sohn, president of public interest group Public Knowledge, said in a statement.

The outcome of the case could affect so-called toll-free data plans from wireless carriers. Under these plans, content providers could subsidize the cost of users' access to their services, thus essentially making it free for users to access those services. In May, the Wall Street Journal reported that ESPN was in discussions with at least one large U.S. carrier about subsidizing wireless access to its content. AT&T (NYSE:T) CEO Randall Stephenson has long been in favor of such a model, but Verizon Communications CFO Fran Shammo said last month that although content providers have approached Verizon Wireless about wanting to subsidize content delivery, there are still technology hurdles to making that a reality.

Net neutrality advocates, including representatives from public interest groups, have said such plans will favor rich and large content companies over smaller ones and are therefore unfair.

For more:
- see this WSJ article (sub. req.)
- see this NYT article
- see this The Hill article
- see this IDG News Service article 

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