UPDATE 4-Proposed FCC Web rule change draws wireless ire

* FCC chairman offers new rules for 'Net neutrality'

* Says operators cannot discriminate against Web content

* Says operators must make network management transparent

* Proposals formally expected in October
(Adds comments from Rockefeller, FCC commissioners)

By John Poirier and Sinead Carew

WASHINGTON/NEW YORK, Sept 21 (Reuters) - U.S. phone
companies may be forced to open their wireless networks to
rival Internet services like Skype and Google Voice under a
proposal brought out by the top telecom regulator to safeguard
so-called Internet neutrality.

The proposal, if adopted, would be a victory for consumer
advocates and big Internet companies like Google Inc (GOOG.O)
at the expense of telecom operators like AT&T Inc (T.N),
Verizon Communications (VZ.N) and Sprint Nextel Corp (S.N).

Federal Communications Commission Chairman Julius
Genachowski said operators should not be able to discriminate
against any Internet applications or content and would have to
make management practices for Web traffic transparent.

While he appeared to address operators' network management
concerns, the wireless industry criticized the proposal and
analysts said it could hurt profits for mobile operators, which
had not been targeted by previous Net neutrality requirements.

"The risk to the wireless carriers is that they won't be
able to stop customers from using free voice and text services
like Skype or Google voice," said Bernstein analyst Craig
Moffett. "Voice and text are where they make all of their
money."

The FCC has already been examining why Apple Inc (AAPL.O)
rejected Google Voice for use on iPhone, sold by AT&T.

The new proposal could result in mobile customers cutting
their phone bills by opting for minimum carrier voice plans and
doing without text-messaging plans if they use mobile voice and
text services from Skype and Google.

Piper Jaffray analyst Christopher Larsen downplayed the
risk, saying that if they have to, operators would be sure to
find a way to change their fees in order to maintain profits.

Advocates of Net neutrality have long argued that service
providers must be barred from blocking or slowing Internet
traffic based on the content being sent or downloaded.

But service providers say the increasing volume of
bandwidth-hogging services -- such as video sharing -- puts
pressure on them as it requires active network management, and
some argue that Net neutrality could stifle innovation.

AT&T, the No. 2 U.S. mobile service, said it was concerned
about an extension of Net neutrality rules to the competitive
mobile industry.

The new regulations would limit consumer choices and
"affect content providers, application developers, device
manufacturers and network builders," said an executive at
Verizon, which owns the No. 1 mobile service with Vodafone
Group Plc (VOD.L).

Wireless trade group CTIA, whose members include AT&T,
Verizon Wireless and Sprint Nextel (S.N), said it was concerned
the proposal would have "unintended consequences." Leading
Cable provider Comcast Corp (CMCSA.O) said it was pleased
Genachowski "recognized that networks need to be managed."

For his proposal to be adopted, Genachowski, a Democrat,
needs majority approval from FCC commissioners, who include two
other Democrats and two Republicans. Democrats Michael Copps
and Mignon Clyburn lauded the move while Republicans Robert
McDowell and Meredith Attwell Baker expressed reservations.

The rule will be formally proposed at an October meeting.
Colin Crowell, Genachowski's special counselor, told reporters
a final rule would likely arrive next spring.

Skype applauded the proposal and Google said it "could not
be more pleased." Consumer groups saw the move as a victory.

"This is a tremendous day for millions of us who have been
clamoring to keep the Internet free from discrimination." said
John Silver, executive director of advocacy group Free Press.

ANTI-DISCRIMINATION, PRO TRANSPARENCY

Genachowski proposed adding two new principles to four
existing principles the FCC issued several years ago. They
would prevent network operators from blocking consumer access
to any lawful Internet content, applications, and services.
Users would also be able to use any non-harmful devices.

In an effort to reassure businesses, Genachowski said
providers will not need to disclose personal subscriber data or
anything that might compromise network security.

In a speech in Troy, New York, President Barack Obama said
the government should make "common-sense ground rules" to
ensure a "level playing field" for all Internet participants.

West Virginia Democrat John Rockefeller, chairman of the
Senate Commerce Committee, applauded the proposals.

The proposal coincides with a deadline for the FCC to file
a court brief in a case against Comcast, which is challenging
the agency's authority to regulate actions involving the Web.

The FCC defended its position by arguing that it has broad
authority under the 1996 Telecommunications Act.

While Google shares ended 1.1 percent higher at $497 on the
Nasdaq, Sprint shares were down 0.7 percent at $4.25 on the New
York Stock Exchange. AT&T ended down 0.7 percent and Verizon
shares dipped 0.3 percent on the NYSE.
(Additional reporting by Sinead Carew and Caren Bohan in New
York; Editing by Maureen Bavdek, Dave Zimmerman and Matthew
Lewis)