Net Neutrality: Now the Battle and Uncertainty Really Begin

Apr. 7.10 | About: Comcast Corporation (CMCSA)

Comcast (NASDAQ:CMCSA) scored a legal victory against the Federal Communications Commission over network neutrality regulation, but the victory may turn out to be a bit hollow in the long run. In fact, this ruling may have just stirred the pot of uncertainty more.

On Tuesday, a federal appeals court shot down the FCC’s claim that Comcast couldn’t manage Internet traffic on its network and block BitTorrent data. Once the ruling was handed down the reaction was swift. In fact, it broke down along the long-established lines. Those for network neutrality freaked. Comcast obviously agreed with the ruling. But let’s push all of those initial reactions aside. What’s the long-term picture here?

In a research note, Stifel Nicolaus outlined the fallout. Some of the points were obvious and others not so much.

Will the FCC go nuclear? The big question in the last 24 hours revolves around whether the FCC will move to reclassify broadband providers as a so-called Title II service providers (think telephone companies), which would mean more regulation and FCC authority. Stifel Nicolaus notes:

Title II is the worst fear of cable/telco broadband providers, which have warned of disastrous consequences. We expect they would try several strategies to avoid this outcome, including arguing for an overhaul of the communications statute (which would likely take years and could implicate Google, Apple and other edge/tech companies), threatening that reclassification would chill broadband investment, and working to develop industry principles to address government’s concerns on net neutrality and consumer protection.

What will Congress do? Does Congress want to take on Net neutrality right now? Congress could simply grant the FCC more power and create Network neutrality regulation. The open question is whether Congress will go there right now.

How does Tuesday’s ruling impact the National Broadband Plan?
For some parts of the plan, Comcast’s legal win will have little impact on the country’s broadband plan. Others may see some fallout. Here’s Stifel Nicolaus’ handicapping:

Another question is how the ruling affects the FCC’s ability to implement its National Broadband Plan. Assuming no reclassification or legislation, each issue needs to be analyzed separately. We believe the FCC will be able to proceed with its spectrum auctions and probably with the set-top box proceeding; universal service reform may be tougher, though not impossible and jurisdiction was already an issue; wireless data roaming requirements may be affected; consumer protection, privacy, transparency requirements, and cybersecurity measures are likely to be more difficult to adopt; the impact on wholesale competition, special access, and infrastructure access is less clear.

Could this Net neutrality flap get to the Supreme Court? The FCC could appeal Comcast’s legal win to the full district court circuit or directly to the Supreme Court. That approach is unlikely, but possible, according to analysts.

Will the communication laws be rewritten? Tuesday’s ruling probably means at some point there will be an overhaul of broadband policy. Stifel Nicolaus analysts note that a big rewrite could even include providers such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) into the mix.

In any case, the back and forth is just beginning.

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