It is as if the shadow of former US president George W. Bush had emerged over the Federal Communications Commission on Tuesday, stopping the US
media regulator in its tracks even before it could begin implementing
an ambitious plan to overhaul the US communications industry.

A US appeals court ruling that largely invalidated any attempts by the FCC to regulate broadband internet services has dramatically upped the ante for the regulator,
which is now controlled by Democrats.

Julius Genachowski, the FCC’s chairman, wants to expand broadband services across the US. But to achieve that he will have to wrestle back the legal and political authority to regulate the very companies
he is also asking to invest billions of dollars in new and faster
internet networks.

After the court ruling, Mr Genachowski hinted that the FCC was willing to give itself greater authority over broadband companies as a means to regulate them.

For years, the Bush administration whittled away the rules regulating the broadband industry in the belief that booming demand for fast internet service
would create a flurry of competition among wireless and cable companies
to provide broadband services.

Under the arcane policies ruling how certain companies could be regulated, the Bush-era FCC classified broadband as an “information service”, also known as “Title 1 service”,
which freed broadband companies from the stricter regulatory regime
saved for telecommunications providers – “Title 2” services.

The competition the Bush administration believed would flourish under deregulation failed to materialise. In 2008, the FCC censured Comcast for blocking customers from using a video-sharing service.

But Comcast challenged the FCC in court, saying it had no authority to dictate how the company managed its network. On Tuesday the court
agreed, handing Comcast a victory.

Analysts said the FCC had several options. It could move to challenge the appeals court ruling at the Supreme Court. More immediately, it could press ahead with attempts
to regulate broadband providers under the strict confines laid out by
the lower court.

But, in what is seen as its most likely option, it could reverse Bush-era policies and redesignate broadband as a “Title 2” service, opening the door to a new era of regulation,
including controls on pricing.

But the strategy is rife with legal and political risk. Consumer advocates say Comcast, AT&T and other politically powerful companies would fight “tooth and nail” against heavier regulation.

“The trump card that the cable companies and the telecommunications companies have is that they will argue [re-regulation] will just create
so much uncertainty that it will just chill investment. And right now
policymakers are trying to encourage investment,” said Rebecca
Arbogast, an analyst at Stifel Nicolaus in Washington.

Wall Street analysts at Bernstein Research said a “Title 2” designation would “broadly throw into question” capital investment plans for all
broadband service providers.

“Telecom and cable operators have privately indicated that a “Title 2” designation would result in a radical downsizing of their broadband investment plans to account for
the enormous regulatory uncertainty it would introduce,” they said.

Cable and other groups would almost definitely challenge such a designation in court. But attorneys who have studied the issue say the FCC has the
right to change course on such designations and it was unclear whether
the ruling would ultimately be judged as a “win” for Comcast.

The company said: “Comcast remains committed to the FCC’s existing open internet principles and we will continue to work constructively with
this FCC as it determines how best to increase broadband adoption and
preserve an open and vibrant Internet.”

US internet reform plan hit by court ruling

The Obama administration’s ambitious plans to expand broadband services and open networks were dealt a blow on Tuesday when a US appeals court ruled that the Federal Communications Commission did not have the authority to regulate the high-speed internet systems.

The ruling raised the possibility that the FCC would seek jurisdiction to regulate companies such as Comcast, AT&T and other broadband providers.

It could get those new powers by a simple vote in which it would reclassify broadband as a telecommunications service, which is heavily regulated under the law. Such a move would prompt strong opposition
from the industry and its backers in Congress.

The FCC indicated on Tuesday that it would follow that path, saying it was “committed to promoting an open internet”. It said: “The court in no
way disagreed with the importance of preserving a free and open
internet, nor did it close the door to other methods for achieving this
important end.”

An attempt to reverse the Bush administration’s deregulation of broadband companies has been dubbed the “nuclear option” by some Wall Street analysts. Doing so would give the FCC the
authority to pass so-called “net neutrality” standards, a key goal of
the Obama White House.

The FCC has already begun imposing net neutrality rules that would bar broadband carriers from restricting or blocking certain content providers. But the appeals court ruling in
effect quashed those efforts, along with other initiatives that were
included in a national broadband plan unveiled weeks ago.

“The court has destroyed the FCC’s justification for broadband policy in one stroke today,” said Ben Scott, policy director of Free Press, which
supports net neutrality reform.

Consumer advocates and lobbyists for internet providers such as Google are also prodding the FCC to act assertively.

“We would hope that they take this decision and move forward with the broadband plan. The alternative is that they can’t move forward and
consumers are left without any protection,” said Markham Erickson, a
partner at Holch & Erickson, which represents a number of internet
companies including Google.

The case stemmed from a 2008 decision by the FCC to censure Comcast, the largest US cable group, after it found that the company had blocked customers from using a video sharing
service. In a 3-0 decision, the appeals court on Tuesday found that
Congress had not given the FCC the authority to regulate Comcast’s
network management practices.

The ruling represented a major victory for Comcast, which issued a statement after the ruling saying it “remains committed to the FCC’s existing open internet principles”.

But it is far from clear whether Comcast will emerge as the ultimate winner.

Any move by the FCC to reregulate Comcast and other broadband providers will have sweeping implications for its business, including on price
regulation.

US watchdog prepares for broadband shake-up

US regulators are due to unveil plans on Tuesday aimed at improving the country’s mediocre performance in the global broadband race. But they are already learning the hard way that change will not be easy.

The Obama administration came to power with ambitious plans to boost the nation’s flagging communications infrastructure. Having been at the
forefront of broadband deployment a decade ago, the US has slipped back
to a middling position among Organisation for Economic Co-operation and
Development countries, according to a Harvard University study
commissioned by the Federal Communications Commission last year.

One idea has already been floated by the FCC to help remedy this: enticing TV broadcasters to give up part of their spectrum in return for some of the estimated $50bn (€36bn, £33bn) in proceeds from
re-auctioning it for use in wireless broadband networks.

But that has gone down badly with many broadcasters, who claim they are being railroaded into giving up airwaves they could still use.

One broadcast television chief executive says: “If I want to try to go into a large collective bargain situation, I wouldn’t hire extremists, who
have been completely inappropriate and obnoxious.”

Colin Crowell, senior counsellor to Julius Genachowski, FCC chairman, shrugs off this broadcaster’s accusation of “political inexperience”. He calls the
debate “the most open and participatory in the agency’s history”. Yet
even allowing for the heat generated when vested interests are
threatened, such strong reactions show how hard a job Mr Obama’s
ambitious new FCC chairman faces.

On Tuesday the agency is to unveil its national broadband plan – ambitious proposals to increase the reach and capacity of the nation’s networks.

The shortage of available spectrum is widely seen as the single biggest obstacle to progress. While many countries forced their local telecoms companies to
give preferential access on their networks to rival internet service
providers, ensuring a competitive broadband market, the US abandoned a
similar attempt early last decade. That has made the wireless networks
the best hope for fostering new broadband competition.

Blair Levin, who heads the FCC’s broadband initiative, quotes an estimate that the US will need 500 megahertz of extra spectrum over the next
decade, but currently only has 50MHz earmarked for release. The FCC’s
plan is expected to kick off a series of so-called rulemaking
procedures that, after consultation and revision, are likely to take
years to complete.

In some cases this will mean fighting old battles. An earlier rule to force cable TV companies to open set-top boxes to rivals, making it
easier for alternative internet services to reach TV sets, has proved
ineffectual, and the FCC seems bent on trying again.

Adding to the agency’s headaches, meanwhile, is a looming court ruling that is widely expected to constrain further its powers, making it difficult to implement some of the key broadband proposals.

Comcast, the US cable company, has challenged the legality of actions the FCC took against it in 2008, after the regulator censured it for illegally
blocking traffic on a file-sharing network. A loss in this case is
likely to have an impact well beyond the narrow issue of the agency’s
ability to regulate how companies manage network traffic.

Some industry observers believe the FCC could seek to pre-empt the court and recommend it be granted more authority to regulate cable and other
internet service providers, subjecting them to the same, more
restrictive rules, as telecoms providers.

For now, the agency denies it will use the broadband plan to push for an extension of its regulatory authority.

Yet the FCC has not ruled out looking to Congress for help, should it lose the Comcast case.