U.S. President Barack Obama on Monday struck a blow to large cable and wireless companies by publicly pressuring the federal communications regulator to adopt tougher rules that would treat internet providers more like public utilities.
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Shares of major Internet service providers Comcast Corp and Time Warner Cable Inc fell sharply after Obama said ISPs should be reclassified to face stricter regulations and banned from striking paid "fast lane" deals with content companies.
'Simply put: No service should be stuck in a 'slow lane' because it does not pay a fee.' - U.S. President Barack Obama
"Simply put: No service should be stuck in a 'slow lane' because it does not pay a fee," Obama said in a statement. "That kind of gatekeeping would undermine the level playing field essential to the internet's growth,"
Obama's detailed statement on the issue of "net neutrality," a platform in his 2008 presidential campaign, was a rare intervention by the White House into the policy-setting of an independent agency.
It came after the received nearly 4 million comments, many resulting from consumer advocates' online rallying efforts, flooded the Federal Communications Commission in response to Chairman Tom Wheeler's proposal of new Internet traffic rules in May.
'Commercially reasonable' deals
Wheeler's proposal would have prohibited ISPs from blocking any content but allowed them to make "commercially reasonable" deals with content providers to ensure smooth and fast traffic.
Although Wheeler had pledged to police deals that would harm consumers, public interest groups worried that the proposed rules would create "fast lanes" for the companies that pay up and relegate others to "slow lanes."
ISPs say they have not and will not strike such "paid prioritization" deals, but some analysts say stricter regulations could also threaten so-called interconnection deals such as one Netflix Inc struck this year with Comcast, Verizon Communications Inc and AT&T Inc to smooth traffic delivery by directly connecting to their servers.
"For the companies with interconnection deals, there is a potential revenue implication," said Recon Analytics lead analyst Roger Entner.
Cable and wireless companies on Monday issued strongly worded statements warning that the move to reclassify broadband as a utility-style telecom service threatened investments and innovation.
Obama, who is travelling in Asia, posted a statement and video message online acknowledging the FCC is an independent agency and that the decision is "theirs alone." But he sided with consumer advocates in calling for the FCC to ban paid prioritization and reclassify ISPs to be regulated more like public utilities.
Same rules for mobile ISPs
He also said the FCC's new rules should apply equally to mobile and wired ISPs, with recognition of special challenges that come with managing wireless networks. This dismayed the wireless industry.
'The president's call ... would turn the internet into a government-regulated utility and stifle our nation's dynamic and robust internet sector.' - John Thune, Republican Senator
Regardless of the FCC's ultimate decision, observers have said it would land in court as large ISPs have fought hard against potential reclassification during the commission's previous attempts to set net neutrality rules.
Verizon on Monday said a "gratuitous" move to reclassify would probably not stand up in court, while AT&T said it would expect to participate in a legal challenge.
Wheeler, Obama's close friend and former major fundraiser, took on net neutrality after a federal court in January struck down the FCC's previous rules, which allowed "commercially reasonable" discrimination of traffic but indicated the commission would disapprove of pay-for-priority deals.
FCC chair also opposes internet fast lanes
On Monday, Wheeler reiterated that he, too, opposed internet fast lanes or harmful prioritization deals but said that approaches including reclassification of ISPs to regulate them more strictly raised substantive legal questions.
"We must take the time to get the job done correctly, once and for all, in order to successfully protect consumers and innovators online," he said in a statement.
Wheeler had originally pushed to reinstate net neutrality rules before the end of the year, but experts on Monday said the latest developments probably pushed the process into 2015.
Republicans quickly seized on Obama's advance into the FCC's policymaking, which came days after they won control of both chambers of Congress in a midterm election viewed as a repudiation of the president's policies.
Cable and wireless companies were expected to turn to Republican lawmaker allies for stricter oversight of the FCC.
"The president's call ... would turn the internet into a government-regulated utility and stifle our nation's dynamic and robust internet sector with rules written nearly 80 years ago for plain old telephone service," said Senator John Thune, a Republican who is expected to take over the Senate Commerce Committee.
However, lobbyists have told Reuters any attempts to overturn new net neutrality rules would likely prompt a White House veto.
Comcast, which is under regulatory scrutiny for a bid to buy Time Warner Cable, was by far the most actively traded stock on U.S. markets, with more than 47 million shares changing hands by 2:22 p.m. ET.
Time Warner Cable shares fell as much as 7.2 per cent, while Comcast dropped as much as 6.1 per cent.