UPDATE 1-US FCC says will act on Web neutrality if needed

(Recasts with comments from panelists)

CAMBRIDGE, Mass, Feb 25 (Reuters) - A top U.S. regulator on Monday said the U.S. Federal Communications Commission is ready to stop broadband providers from interfering with users' access, while a leading Internet service provider denied accusations it discriminates against users.

"I think it's important to understand that the commission is ready, willing and able to step in if necessary to correct any (unreasonable) practices that are ongoing today," FCC Chairman Kevin Martin said at a hearing on Internet practices.

Comcast Corp (CMCSA.O), the second-largest U.S. Internet service provider with more than 13 million subscribers, denies impairing some applications and reiterated that it merely manages the system for the good of all users.

"We don't block any Web sites or online applications, including (file sharing)," said David Cohen, Comcast's executive vice president.

The dispute over so-called "network neutrality" pits open-Internet advocates against some service providers such as Comcast, who say they need to take reasonable steps to manage traffic on their networks.

The FCC has been looking into complaints by consumer groups that Comcast has blocked some file-sharing services which are used to distribute large digital media files such as TV shows and movies.

The hearing, which included an executive with Verizon Communications (VZ.N) and professors from some of America's top law schools, is part of a broader FCC inquiry into what network management techniques are reasonable.

Cohen said Comcast manages some peer-to-peer file uploads at some times of the day. But he said the technique is designed to have a minimal impact on users.

"Don't let the rhetoric of some of the critics scare you. There's nothing wrong with network management. In fact, every broadband network is managed, and every network must be managed or no network would function," Cohen said.

Cohen said such management is imperative because studies show the soaring demand for bandwidth could soon outstrip network capacity. "Neither we nor any other network provider can build our way out of this problem," he said.

Martin acknowledged that broadband network operators have a legitimate need to manage the data moving over their networks. But he said that "does not mean that they can arbitrarily block access to particular applications or services."

Timothy Wu, a professor at Columbia Law School, said "whatever reasonable network management is, it should not include blocking of lawful applications."

Martin called for "transparency" in the way the companies manage their networks, and in their prices and services.

The network neutrality issue also has attracted the attention of lawmakers in Congress, who are weighing a net-neutrality bill introduced in the U.S. House of Representatives last week.

Critics of such an approach have argued that imposing network neutrality would hinder development of the Internet by creating uncertainty for investors and service providers. (Reporting by Svea Herbst-Bayliss in Cambridge and Peter Kaplan in Washington; editing by Tim Dobbyn)