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Analyst Opinion

Comcast wins Net Neutrality Court Decision - Is this a Pyrrhic Victory?

Matt Davis

On April 6, 2010 a U.S. appeals court ruled that the Federal Communications Commission exceeded its authority in its August 1, 2008 ruling that Comcast's network management practices discriminated among applications and were invasive and anti-competitive. As a result, Comcast was not fined, but ordered to fully disclose its network management practices to the Commission, submit a compliance plan describing how it plans to stop the practices in question and openly disclose to customers and the Commission new practices that will replace the practices in question.

The following month, Comcast appealed this ruling, arguing that since it was based on the Commission's broadband policy statement (FCC 05-15, adopted August 5, 2005), it was unenforceable, because these were principles or guidelines and not firm rules.

IDC believes that the appeals court ruling in Comcast's favor did not come as surprise to the FCC. This opinion is based on the fact that on September 21, 2009 the FCC advocated that the principles listed in the 2005 broadband policy statement be adopted as official rules (a Notice of Proposes Rulemaking or NPRM) and furthermore adding two new principles that are clearly aimed at resolving issues similar to the Comcast situation. It was clear that the FCC saw this decision coming.

The original broadband policy document essentially states the following principles:

Consumer are entitled to access the lawful Internet content of their choice
Consumers can run applications and use services of their choice, subject to the needs of law enforcement.
Consumers are entitled to connect their choice of legal devices that do not harm the network
Consumers have access to competition among network providers, application and service providers, and content providers.

The two additional principles are;

While implied in the fourth principle, a new fifth principle clearly lays out the concept of "nondiscrimination" which is the concept of an equal competitive playing field when delivering Internet applications, services and content. To create and maintain this equality, all Internet traffic regardless of its type or origin must be treated equally from a traffic management perspective.

The second additional principle is a call for transparency-mandating that any traffic shaping or policy control be disclosed to consumers.
Essentially, these two additional principles spell out Comcast's perceived violation, and are now clearly stated and proposed as rules rather than principals.

In addition to issuing the NPRM, the massive March 2010 National Broadband Policy carefully lays the foundation to reclassify broadband from an unregulated information service to a regulated telecom service. This could be achieved by redirecting funds from the universal service fund (USF) created in 1934 to subsidize telephone service to a new "Connect America Fund (CAF)" that is focused on universal broadband. The FCC estimates that changing the USF to the CAF would potentially put $15.5 billion at its disposal. Once the government has skin in the game, it will want greater control over how the money is spent - hence the reclassification. Once broadband comes under Title 2 telecom regulation, the FCC will be in a much stronger position to sanction or fine regarding broadband rule violations.

In addition to these proposed rules, further insight can be gleaned by the April 6 reaction to the Comcast appeals ruling by the individual FCC Commissioners themselves - in very short statements, every Commissioner at the FCC, both for and opposed to Net Neutrality, references the potential of this reclassification. It is clearly the direction we are headed in.

Bottom Line: While many press reports cite this ruling as a blow to Net Neutrality IDC believes in the long term it will actually work against Comcast and the other facilities-based broadband providers. Simply put, the gloves are off now, the FCC established a principled framework that by and large the broadband providers reluctantly adhered to. Now that the veneer of that authority has been stripped, the FCC will move firmly and aggressively to place itself in the indisputable position to regulate broadband policy as it deems fitting for better consumer experience and protection. Whether or not aggressive Net Neutrality regulation is the best vehicle to accomplish this goal is still an open issue. However, the industry should not fool itself into thinking that this is the end of Net Neutrality.

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