Appeals Court Strikes Down Net Neutrality

14 Jan, 2014 By: Erik Gruenwedel

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Ruling could be a blow to SVOD services such as Netflix, which depend on third-party ISPs delivering their streams

A U.S. District Court of Appeals for the District of Columbia Jan. 14 has ruled against the Federal Communications Commission’s efforts to afford Internet traffic equal status — a policy known as net neutrality.

The court found the FCC did not have the authority in 2010 to introduce regulations determining how the Internet is delivered to consumers. The government argued that without regulations select ISPs could choke off traffic in favor of their own interests.

“Without broadband provider market power, consumers, of course, have options,” the court wrote. “They can go to another broadband provider if they want to reach particular edge providers or if their connections to particular edge providers have been degraded.”

The FCC passed the net neutrality rules in 2011, preventing Internet service providers (ISPs) from prioritizing Internet traffic, favoring content partners or slowing service to customers who stream or download content. The regulations gave the FCC the ability to impose fines and bring injunctions against companies.

Verizon Communications challenged the policy in court

Rich Karpinski, senior analyst with the Yankee Group, in September said that if the court ruled against the FCC, ISPs like Verizon could choose to optimize its own streaming services — such as Redbox Instant — over competing services such as Netflix.

Indeed, Netflix CEO Reed Hastings in 2012 fired a shot across the bow when he blogged his displeasure with allegations that streaming Netflix through his Comcast cable ISP required higher data usage than Comcast’s own Xfinity Streampix SVOD service.

Hastings had been critical of what he perceived was a conflict of interest by ISPs maintaining inordinate control of the “last mile” of broadband connectivity into consumers’ homes while at the same time launching competing video services.

Hastings’ public grousing apparently got the attention of the FCC, which shortly thereafter took a closer look at the issue.

“The big challenge for the FCC here is the pace at which the industry is changing,” Karpinski wrote. “Common carriage makes sense in a world where dialtone was crucial, but many customers are cutting the cord voluntarily. Net neutrality makes sense in the wire-line broadband market, where in some cases there aren't multiple competitors in a market — and at the same time, available bandwidth is relatively plentiful, making it hard to make a case for discriminating against different sources of traffic.”

Gigi B. Sohn, CEO of the nonprofit public Internet rights group Public Knowledge, said that the decision will have a far-reaching impact on how ISPs can and can’t treat their customers.

“There could be a residual impact on the FCC's ability to make decisions that involve the future of what has now become our main communications tool,” Sohn said in a statement.

A Netflix representative declined to comment.

Michael Beckerman, CEO of The Internet Association, said it was studying the decision.

"The Internet creates new jobs, new technologies, and new ways of communicating around the globe," Beckerman said in a statement. "Yet, the continued success of this amazing platform should not be taken for granted. The Internet Association supports enforceable rules that ensure an open Internet, free from government control or discriminatory, anticompetitive actions by gatekeepers."

 

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