WASHINGTON A divided Federal Communications Commission banned Internet service providers like Comcast Corp from blocking traffic on their networks, provoking warnings the rules would be rejected in the courts and threats from Republican lawmakers to overturn them.
The 3-2 decision on Tuesday highlighted a huge divide between those who say the Internet should flourish without regulation and those who say the power of high-speed Internet providers to discriminate against competitors needs to be restrained.
But the FCC did allow Internet providers like Comcast, AT&T Inc and Verizon Communications Inc to "reasonably" manage their networks and to charge consumers based on levels of Internet usage.
Wireless carriers like Sprint Nextel Corp, and Deutsche Telekom AG T-Mobile would get slightly more discretion to manage their networks but could not block access to websites, nor access to competing voice and video applications.
The FCC is also requiring broadband Internet providers to publicly disclose their network management policies.
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.
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.
Nomura Equity Research analyst Michael McCormack said there was a high probability the rules would be softened or nullified by either the courts or Congress.
Approved by Genachowski and fellow Democrats Michael Copps and Mignon Clyburn, the rules were quickly condemned by Republicans and many 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.
But Copps said he wished the FCC had taken stronger action, saying previous communications technologies had fallen victim to consolidated control, a reference to the AT&T telephone monopoly, later broken up in an antitrust lawsuit.
"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.
Craig Aaron, managing director of public interest group Free Press, said the rules failed to do enough to stop the phone and cable companies from dividing the Internet into fast and slow lanes.
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 control the U.S. House of Representatives come January and be 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
Verizon, which along with Google 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 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, Google and Amazon.com 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.
Level 3 Communications, a company that helps Netflix Inc stream videos online, has accused Comcast of charging it unfair fees to deliver content to Comcast subscribers.
(Reporting by Jasmin Melvin; Additional reporting by Paul Thomasch, Jennifer Saba and Ritsuko Ando in New York; Editing by Tim Dobbyn)