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Court Strikes Net Neutrality Rules in Blow to eBay and Amazon

In a potentially major blow to eBay, Amazon and other ecommerce and Web companies, a U.S. appellate court has struck down a set of rules that had barred Internet service providers from playing favorites with the online traffic passing over their networks.

The ecommerce heavyweights, along with a constellation of other Internet firms such as Google and Facebook, have long been advocates of so-called net neutrality, the principle that ISPs cannot block or discriminate against transmissions of lawful content.

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit struck down the major elements of the 2010 open Internet order enacted by the Federal Communications Commission, arguing that the commission exceeded its statutory authority in drafting the rules.

The challenge to the order was brought by Verizon, which had argued that the rules unlawfully prohibited it from entering into side agreements with websites and content providers to charge extra for faster delivery.

That scenario, replicated across the various service providers, invites the possibility of a fragmented Internet where wealthy companies that can afford to pay the tolls can buy passage on a fast lane, while startups and smaller websites, such as independent online sellers, would be relegated to the second tier of service, net neutrality supporters have argued.

Spokespeople for eBay did not immediately respond to requests for comment on the court’s ruling, though the company’s position on the issue of net neutrality is well established.

In its explanation of its advocacy for net neutrality, the company warns about the potential for higher fees for site owners – and end users – without rules of the road mandating an open Internet.

“Some cable and telecommunications companies that own broadband networks in the U.S. are proposing to replace the open Internet with a new fee-based system where the large providers can pick and choose which websites will operate with preferences on their new “closed” networks. In this world, special access charges will be levied on Internet content providers as well as consumers,” eBay says.

“Replacing the Internet with technologically advanced but restricted “private networks” of any form will undermine the Internet as we know it and reduce the ability of Internet users to reach a global market. Small business sellers rely on that global community and could be hardest hit by new fees and tiered services that impede existing and potential customers from accessing their sites,” the company adds.

Before such fees trickle down to individual sellers, it’s easy to imagine ISPs leaning on well-heeled content providers such as Netflix, Google (and its YouTube video site) or Amazon (with its growing content network) for expedited delivery fees.

“We believe some Internet edge/content companies may actually seek to strike broadband deals that improve their service or customers’ experience. If so, and if they’re successful, others could come under pressure to do the same,” Stifel analyst Christopher King wrote in a research note. “Of course, those are big “ifs,” and who will have market leverage remains the $64,000 (and more) question. We believe many big Internet edge/content providers will retain significant leverage, but there’s more uncertainty about smaller providers, which is a government concern.”

Verizon, for its part, offered an assurance that the court’s ruling won’t amount to a fundamental shift in the way businesses or consumers access the Web.

“One thing is for sure: today’s decision will not change consumers’ ability to access and use the Internet as they do now,” Randal Milch, the telecom’s general counsel and executive vice president of public policy, law and security, wrote in a blog post. “The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court’s decision.”

The federal court’s ruling vacating the FCC’s open Internet order leaves the commission and net neutrality supporters with a few options. Commission Chairman Tom Wheeler noted that the court’s ruling upheld the agency’s general authority to regulate in the broadband sector.

“The FCC’s legal ability – its jurisdiction – to oversee developments on the broadband networks on which the Internet depends is critically important,” Wheeler wrote in a blog post. “The court’s decision addressed but one aspect of this authority. In the broad context, however, there is not any serious question about such authority.”

Apart from asserting FCC jurisdiction over the broadband sector, Wheeler did not indicate how, specifically, the commission plans to proceed. In a separate statement, though, Wheeler said: “We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”

King suggested that the FCC will “take a long, hard look at the court’s opinion,” and that it might try to rework the provision of the open Internet order against outright blocking of websites. Reviving the provision barring ISPs from discriminating against certain content, also vacated by the court, would be “a heavier lift.”

The Internet Association, a pro-net neutrality trade group that counts eBay, Amazon and Google among its members, said that it intends to renew efforts to rally members of Congress behind legislation to grant the FCC specific net neutrality authority.

Alternatively, the FCC could move on its own to reclassify broadband service as a telecommunications service – the same “Title II” classification that covers so-called common carriers such as telephone providers. The court acknowledged that if the FCC had taken that step, its net neutrality order likely would have been upheld. However, reclassifying broadband, which the FCC has proposed in the past, is a politically charged issue, certain to meet with firm resistance from the telecom sector and many members of Congress.

“We expect net neutrality advocates to urge the FCC to reclassify broadband as a Title II telecom service, but we are skeptical that Chairman Wheeler will want to rush into such a decision, given the fierce telco/cable pushback he could expect and the various legal and market complexities,” King said. “We would think he would first consider an appeal and what the FCC could do on remand. We do think, however, he will be interested in holding Title II reclassification in reserve in case he feels he needs it to preserve the FCC’s open Internet framework – and as a Sword of Damocles to encourage telco/cable good behavior in the market and regulatory cooperation in any remand efforts.”

Kenneth Corbin on Linkedin
Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.