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What We Read Today 26 February 2015

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Tougher Internet rules hit US cable, telecom companies (Alina Selyukh, Reuters)  The Federal Communications Commission (FTC) voted on Thursday imposed the toughest rules yet on Internet service providers, aiming to ensure fair treatment of all web traffic through their networks.  The vote was along party lines.

Democrats argue that enforcing new "net neutrality" rules that seek to restrict broadband providers' power to control download speeds on the web will protect "smaller users" against being crowded out of faster service by those that can pay more to receive faster transmission.

Republicans argue that the new rules amount to a "government power grab" that will stifle investments" and curtail innovations that could occur if a greater profit were to be obtained.

A previous attempt to invoke net neutrality rules was struck down in Federal Courts in January 2014 on the basis that broadband services were grouped in a classification by the FTC as "information providers" which are more lightly regulated.  The new ruling separates broadband services from information providers and places the former into the category of "telecommunications services".  These are subjected to regulation as public utilities as are other traditional telephone services.  However, the new ruling includes no price regulations, tariffs or requirements to give competitors access to networks.

Reuters says that the "vote starts a countdown to expected lawsuits from cable and telecoms providers".

Econintersect:  The reclassification of broadband services from "information providers" to "telecommunications services" may have significant ramifications on the structure of the industry.  The new ruling implies that internet service providers (ISPs) will be prohibited from directly or indirectly (through collaboration) being engaged in any aspect of content ownership.  We are not aware that this has taken hold in broadband in general but that might have developed following the model of cable which has had content controlled, and in some cases developed, by cable service providers.  In our opinion this would have created a severe conflict of interest situation, especially with the absence of regulation of prices, tariffs or competitor access, which continues to be codified. 

We are not clear at this point what distinctions may exist between cable, wireless and fixed line service providers:  Will cable providers like Comcast and Time Warner be able to continue content ownership relationships?  For example, Time Warner owns 50% of the CW Television Network, as well as Warner Bros. Television (WBTV), the television production arm of Warner Bros. Entertainment.  Do these relationships fall outside what is permitted under the new ruling?  If they do will their existence be grandfathered? And for how long?

Does this new ruling impact what divestitures will be required for final approval of the proposed Comcast – Time Warner merger?

See also What You Need to Know About the Net Neutrality Decision (Justin Bachman, Bloomberg BusinessBloomberg does not see any of the issues Econintersect raised above.

The FCC vote on net neutrality means lots of rhetoric and lawyers but not too much for consumers, at least for now.



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