Will Appeals Court Overturn “Network Neutrality” Rules?

A U.S. Court of Appeals finally will hear a Verizon challenge to Federal Communications Commission network neutrality rules. How the court rules could lead to big changes for the broadband access business.

Specifically, if the court sustains the network neutrality rules, it is possible the “best effort only” rules that now apply to fixed access providers likely will be extended to mobile service providers as well.

It is conceivable that new rules could be considered that extend FCC rules over terms and conditions of service, including such items as prices or data caps.

The case, which is before the Court of Appeals for the D.C. Circuit, is Verizon’s challenge to the FCC’s controversial net neutrality rules.

Since 2010, U.S. cable TV and telco providers of high-speed access services have operated under “network neutrality” rules that stipulate all access for consumer customers must be provided on a “best effort only” basis.

The idea is that such rules prevent cable and telco Internet service providers from creating new “for fee” services providing their own services, or creating a situation where services and apps provided by third parties might use “quality-assured” or “expedited” delivery.

The danger, some would say, is that larger app providers could pay for such services, similar to content delivery network features provided by firms such as Akamai, to the disadvantage of smaller firms.

The concerns are legitimate, to the extent that technology can be used as a competitive weapon in business. On the other hand, forbidding quality of service or packet prioritization does have some downside for consumers as well. When networks are congested, consumers using real-time services, especially VoIP or videoconferencing and multi-player gaming arguably will benefit from having those services prioritized.

There is much at stake. If the Appeals Court overturns the network neutrality rules, fixed and mobile network high-speed access services with quality of service features could be created and sold, either directly to consumers or to third party application providers.

On the contrary, if the rules are sustained, some think the rules will be extended to mobile networks that arguably need quality of service mechanisms to maintain end user experience. Up to this point, the legality of the network neutrality rules as applied to mobile service providers has been unclear, as the FCC has said it has the authority to apply net neutrality rules, but simply has avoided doing so.

If the FCC loses on appeal, some believe the FCC will try other avenues to maintain the rules. The FCC might try to do so by reclassifying broadband Internet as a “telecommunications service” under the Communications Act, which would give the FCC more authority to regulate it.

Many observers think that would lessen innovation and reduce investment in the business, on the part of access providers.

“Should the D.C. Circuit uphold the FCC’s order, I would expect to see revitalized efforts to expand the Commission’s regulation of the Internet. In particular, I would not be surprised if the FCC looked into whether we should stiffen our oversight of the network management practices of wireless broadband providers and whether we should begin to regulate usage-based pricing,” Federal Communications Commission member Ajit Pai said.

So 2013 could be a big year for the broadband access business, with courts either affirming the validity of network neutrality rules or denying the Commission’s right to levy such rules. But that won’t be the end of the story, in all likelihood.

The FCC might try another approach, by classifying high-speed access as a common carrier service. Such moves would predictably be met initially by service provider resistance, then another round of legal challenges.