Consumers could end up the losers in a high-stakes battle among regulators, broadband providers and online entertainment giants over access to the Internet's fastest speeds.
A new proposal from the head of the Federal Communications Commission would allow network owners such as AT&T Inc. to levy extra charges on Netflix Inc. and other online video purveyors for speedier delivery of content.
Those costs, consumer advocates said, ultimately would land on consumers' monthly bills. The hotly debated changes also could push smaller video content providers out of business, driving up costs for those services as well, the advocates warned.
"It could create a tiered Internet where consumers either pay more for content and speed, or get left behind with fewer choices," warned Delara Derakhshani, policy counsel for Consumers Union.
The proposal for a new set of network neutrality rules threatens to undermine the FCC's long-held principle of ensuring equal access to all content.
It would be a major victory for the network providers, which spend billions of dollars a year maintaining and upgrading their networks. They long have argued that companies consuming the most bandwidth — usually with video streams — should pay extra for that privilege.
The content providers have countered that equal access is necessary to maintain a level playing field in an exploding marketplace for streaming video.
"The proposed approach is the fastest lane to punish consumers and Internet innovators," video streaming firm Netflix said Thursday.
The plan would be particularly bad for smaller businesses and their customers, said Patrick Clinger, founder and chief executive of ProBoards Inc., an online forum service based in Lake Forest.
"What they are doing is essentially creating a system of haves and have-nots for the Internet," Clinger said.
"If smaller companies can't afford the faster lane, they won't be able to compete with larger companies," he said. "Customers of smaller companies would have a lower quality experience, and that could cost companies more business."
FCC Chairman Tom Wheeler sharply defended his plan Thursday, signaling the start of an intense debate likely to roil the industry in the coming months.
He pointed out that federal courts already have tossed out the FCC's net neutrality rules twice — most recently in January — so consumers are already unprotected from the vagaries of broadband providers and Internet companies.
The agency, he said, needed to revise its approach, which had largely outlawed the ability to pay for preferential delivery of content, or risk another reversal by the courts.
He said his plan would not allow Internet service providers or online companies to abuse consumers or small entrepreneurs.
"To be very direct, the proposal would establish that behavior harmful to consumers or competition by limiting the openness of the Internet will not be permitted," Wheeler wrote in a blog post Thursday.
His plan would include such safeguards as prohibiting network owners from blocking legal content and requiring them to provide a baseline level of service to subscribers.
The FCC also would make broadband providers act in a "commercially reasonable manner" to avoid any harm to consumers. And any deals for faster content delivery would be subject to FCC review.
The agency, for instance, could allow a faster connection that would allow a doctor to check information from a heart monitor on a patient being treated at home, said an agency official, who spoke on condition of anonymity because details of the proposal have not been made public.
The FCC has released only an outline of Wheeler's plan. A detailed version was circulated to the FCC's four other commissioners Thursday. It is expected to be released publicly May 15, when the members are scheduled to vote on starting the rule-making process and soliciting comments from consumers and businesses.
Wheeler, a Democrat, is open to even tougher rules for Internet traffic, such as putting broadband providers in the same highly regulated category as telephone companies, the FCC official said.
Many Democrats have advocated such a move. President Obama was a strong initial supporter of the concept that the government should make sure Internet service providers don't act as gatekeepers of legal content.
But consumer advocates and public interest groups have lambasted Wheeler's proposal. And that could make it difficult for him to get the votes of his fellow Democrats on the FCC.
Net neutrality is strongly supported by liberals, and Democratic lawmakers said they would be watching closely to make sure the rules aren't weak. Republicans strongly oppose any net neutrality rules, arguing the Internet has flourished because it has been mostly free of government regulation.
Without any evidence of consumer harm, the FCC is threatening regulation that would "change the future of the Internet as we know it," said Rep. Marsha Blackburn (R-Tenn.), who fired off a letter to Wheeler on Thursday calling for the FCC to do a cost-benefit analysis of his proposed rules.
George Foote, a Washington, D.C., lawyer for telecommunications companies, said "the Tom Wheeler Tollroad" would help expand high-speed Internet service and ultimately would benefit consumers.
"Allowing higher charges for faster speeds is consistent with a policy of attracting more investment to the most important network in America and improving broadband for all users," Foote said.
Broadband providers were cautious and hesitant to comment until details of Wheeler's proposal were available.
"Given the tremendous innovation and investment taking place in broadband Internet markets, the FCC should be very cautious about adopting proscriptive rules that could be unnecessary and harmful," said Ed McFadden, spokesman for Verizon Communications Inc. His company and other providers support an open Internet, he said.
The Writers Guild of America, West, worried that the new rules could mark a return to a system where only a few huge and entrenched companies controlled what Americans watch for entertainment.
The union for TV and film writers said it also was concerned that the proposal could stymie job growth.
Hollywood writers and producers have benefited enormously from the emergence of Internet streaming companies such as Netflix, Amazon, Crackle, Hulu and YouTube as content producers. Internet video has created new jobs for writers by expanding the pool of content producers.
"More competition leads to a greater variety of voices; it enhances free speech," said Marvin Vargas, a research analyst with the WGA, West. "Getting rid of the net neutrality rules would make the Internet service providers the gatekeepers."
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