UPDATE 3-Divided U.S. FCC adopts Internet traffic rules

Tue Dec 21, 2010 4:51pm EST

* Agency splits along party lines

* Republicans say rules unnecessary, legally dubious

* FCC chairman sees little immediate impact on consumers

* Would protect legal content but allow network management

* Could tip Internet TV battle toward cable (Adds lawmaker quote, Obama statement, legal expert)

By Jasmin Melvin

WASHINGTON, Dec 21 (Reuters) - A divided U.S. Federal Communications Commission adopted Internet traffic rules on Tuesday, provoking warnings they would be rejected in the courts and threats from Republican lawmakers to overturn them.

The rules highlight a huge divide between those who say the Internet should be allowed to flourish without regulation and those who say the power of big high-speed Internet providers like Comcast Corp (CMCSA.O) to discriminate against other players needs to be restrained.

Under the rules, the blocking of legal content would be banned but providers like Comcast and Verizon Communications (VZ.N) can "reasonably" manage their networks and charge consumers based on levels of Internet usage.

Wireless carriers like Sprint Nextel Corp (S.N), and Deutsche Telekom AG (DTEGn.DE) T-Mobile would get slightly more discretion to manage their networks but could not block access to websites, or to competing voice and video applications.

The rules are expected to go into effect early next year but FCC Chairman Julius Genachowski said consumers should expect few changes.

"In many respects, this is about preserving the freedom and openness of the Internet that has worked for many years," he told reporters after the FCC met in an open meeting.

LEGAL CHALLENGES

Experts say legal challenges could tie the rules up for years. "A definitive judicial resolution is still 3-5 years down the road," predicted Michael Botein, professor of law and director of the media law center at New York Law School.

Approved by Genachowski and his two fellow Democrats, the rules were quickly condemned by Republicans, and some companies, as excessive and unnecessary.

"Litigation will supplant innovation. Instead of investing in tomorrow's technologies, precious capital will be diverted to pay lawyers' fees," FCC Commissioner Robert McDowell warned.

McDowell and Republican colleague Meredith Attwell Baker voted against the rules, and predicted they would be overturned in court.

Commissioner Michael Copps, a Democrat, said he wished the FCC had taken stronger action, including treating the Internet under the tougher rules applying to telephone service.

"In years to come, I hope we can look back on this day as an important turning point in the struggle to ensure the continued openness of the Internet against powerful gatekeeper control," said Copps.

The FCC's ability to regulate the Internet has been in doubt since an appeals court in April said the agency lacked the authority to stop Comcast from blocking bandwidth-hogging applications.

Several Republicans lawmakers, who will be in control of the U.S. House of Representatives come January and more numerous in the Senate, vowed legislation to reverse the FCC.

"We plan to look at all legislative options for reversing the decision," said Representative Greg Walden, the incoming chairman of the House subcommittee on communications.

But any legislation would need to get support from Senate Democrats and even then could face a veto from President Barack Obama who welcomed the FCC action and said his administration would see that "the democratic spirit of the Internet remains intact."

MANY COMPANIES CRITICAL

Even Verizon, which along with Google (GOOG.O) had proposed Web traffic rules in August, was highly critical of the plan.

Verizon said the rules' assertion of authority without solid legal underpinnings would lead to continued uncertainty for industry, innovators, and investors. "In the long run, that is harmful to consumers and the nation."

Cable companies Comcast and Time Warner Cable (TWC.N) were among the few companies to describe the FCC rules as striking a "balance" between competing interests.

Comcast is waiting for regulatory approval of its purchase of a controlling stake in NBC Universal, a deal that would create the largest U.S. media company with TV networks, a movie studio and theme parks.

The rules could help cable companies in competition with plans by Microsoft Corp (MSFT.O), Google and Amazon.com (AMZN.O) to deliver competing video content over the same Internet lines the cable companies run to customers' homes.

Charging consumers more for data-intensive tasks like downloading videos could tip the economics of Internet-delivered television back toward cable. The FCC has said it will monitor usage-based pricing for abuses.

Adoption of the measure had been expected after Copps and Mignon Clyburn issued statements on Monday saying they would support the proposal despite some misgivings that it did not go far enough.

Genachowski told Tuesday's FCC meeting that the Internet was currently unprotected and he invoked the names of two Republican predecessors to argue for adoption of the rules.

"The rules of the road we adopt today are rooted in ideas first articulated by Republican Chairmen Michael Powell and Kevin Martin, and endorsed in a unanimous FCC policy statement in 2005," said Genachowski. (Reporting by Jasmin Melvin; Additional reporting by Paul Thomasch and Jennifer Saba in New York; Editing by Tim Dobbyn)

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