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New bid by FCC to craft rules for Internet

Its chairman moves quickly after a court tossed out an earlier net neutrality plan.

By Jim Puzzanghera and Dawn C. Chmielewski

9:02 PM EST, February 19, 2014

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WASHINGTON — Beaten back twice by the courts, the nation's top communications regulator will make a last-ditch attempt to craft rules aimed at ensuring the Internet remains open and free of interference from a rapidly consolidating broadband industry.

Federal Communications Commission Chairman Tom Wheeler, moving quickly after a court tossed out most of the agency's so-called net neutrality rules last month, started a new effort Wednesday to recraft regulations that advocates say would form the cornerstone for future broadband and pay-TV service.

"The stakes are high, for your wallet and your free speech," Delara Derakhshani, policy counsel for Consumers Union, said in urging the public to let the FCC know how they feel about the issue.

A federal appeals court last month overturned rules prohibiting Internet service providers from blocking consumers' access to websites and discriminating against some content, such as video-streaming services, that compete with the carriers' own on-demand offerings.

Wheeler said he and his fellow commissioners would try to draft new rules in the coming months that would stand up to future legal challenges from companies such as Verizon Communications Inc.

"The Internet is and must remain the greatest engine of free expression, innovation, economic growth and opportunity the world has ever known," said Wheeler, an assertive former telecom industry lobbyist.

Wheeler took over the agency in November after being nominated by President Obama. He was a major fundraiser for Obama, who made net neutrality a key plank in his 2008 campaign.

The FCC's new effort comes as Netflix Inc. has been feuding with Verizon and Comcast Corp. over who should pay for upgrading older Internet infrastructure to improve online speeds. Many who watched the second season of the Netflix hit "House of Cards" over the weekend, for instance, complained about slow Internet speeds that disrupted their viewing.

Outside of regulation, the FCC could impose net neutrality rules on any approval of Comcast's bid to buy Time Warner Cable Inc., a deal that would create a behemoth with 30 million of the nation's 92 million broadband customers and 30% of pay-television subscribers.

To win approval for its 2011 acquisition of NBC Universal, Comcast promised to adhere to the agency's net neutrality rules until January 2018, regardless of what the courts ruled. Comcast has said it would extend that promise to Time Warner Cable customers.

The issue of treating all Internet traffic equally is crucial to companies such as Netflix, Hulu and Amazon.com Inc., which rely on high-speed connections to deliver movies and television shows seamlessly to the home.

Netflix Chief Executive Reed Hastings worried that the appellate court's Jan. 14 ruling would enable Internet providers to impose fees on companies such as his in order to give priority treatment to the video content the companies stream across the network.

A domestic Internet service provider "now can legally impede the video streams that members request from Netflix, degrading the experience," Hastings wrote in a message to investors at the time.

"The motivation could help get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold ... we would vigorously protest," he wrote.

Hastings said he doubted that Internet providers would deliberately "throttle," or slow Internet speeds, for fear of angering customers or attracting increased regulatory scrutiny.

It's a sentiment echoed by Anthony DiClemente, an Internet and media analyst with Nomura Securities.

"Should some sort of scenario unfold where the Verizons or Comcasts of the world would try and charge either the consumer or Netflix for bandwidth usage, I think that the consumers would protest," he said.

The FCC's efforts, at this point, are designed to avoid taking the controversial step of formally designating high-speed Internet service as a telecom service subject to utility-like regulation.

Many consumer groups and Democrats have advocated such a move because it is more likely to pass legal muster.

More than 105,000 people signed a petition to the White House urging Obama to direct the FCC to do so.

Though it said it "vigorously supports" the principle of a "robust, free and open Internet," the White House pointed out this week that the FCC is an independent agency.

The big telecom companies and many Republicans strongly oppose reclassifying the industry, calling such a move an unnecessary power grab by regulators for control of Internet service providers that could stifle the Internet's growth.

"No matter how many times the court says 'no,' the Obama administration refuses to abandon its furious pursuit of these harmful policies to put government in charge of the Web," said Fred Upton of Michigan and Greg Walden of Oregon, two top House Republicans on communications policy.

Telephone and cable companies that provide most of the nation's broadband connections are among the most influential in the nation's capital. Comcast, Verizon, AT&T Inc. and the trade group National Cable & Telecommunications Assn. spent a total of $68.2 million on lobbying last year, according to the Center for Responsive Politics.

In addition, AT&T, Comcast, Verizon, NCTA and Time Warner Cable employees and corporate political action committees have contributed about $4.2 million to congressional candidates in the 2013-14 election cycle so far.

"We continue to believe that the values of an open Internet can be preserved, while avoiding a damaging move to heavier regulation," said Michael Powell, NCTA's president and a former FCC chairman.

But Wheeler said he will keep open the option of reclassifying broadband as a telecom service "to utilize, if warranted."

Wheeler is attempting "a very tricky proposition" in trying to rewrite the rules without reclassifying broadband as a telecom service, said Jeffrey S. Silva, a telecom analyst at Medley Global Advisors.

But taking that step risks strong political backlash against the agency, such as House Republicans' attempting to cut its budget, that could prevent Wheeler from accomplishing other priorities, Silva said.

In last month's decision, a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia found that the FCC did not have the authority to enforce net neutrality rules because it did not classify broadband Internet service as a telecom service.

But the court appeared to give the FCC authority to impose new rules under a 1996 law that allows the agency to enact measures encouraging the deployment of broadband infrastructure.

Wheeler, who hopes he'll win court approval of new rules by following that path, will be the third FCC chairman to try to establish a solid basis to keep the Internet free from restrictions imposed by network owners. But he isn't winning support so far from fellow Republicans on the five-member commission.

"Today's announcement reminds me of the movie, 'Groundhog Day,'" said FCC Commissioner Ajit Pai, one of two Republicans on the panel. "Net neutrality has always been a solution in search of a problem."

jim.puzzanghera@latimes.com

dawn.chmielewski@latimes.com

Puzzanghera reported from Washington, Chmielewski from Los Angeles. Times staff writer Chris O'Brien contributed to this report.