Verizon Goes After FCC in Court Monday

24/7 Wall St.

Oral arguments are scheduled Monday in the federal appeals court in Washington, D.C., in a case brought by Verizon Communications Inc. (VZ) against the Federal Communications Commission (FCC). At issue are the net neutrality rules promulgated by the FCC in 2011. This is a very big deal.

Verizon essentially is challenging the FCC’s regulatory authority over broadband Internet providers like itself and Comcast Corp. (CMCSA). These companies want the ability to give priority to some communications and to charge more or throttle bandwidth for others. The FCC has ruled that prioritizing communications is not in the best interests of the public.

Comcast won a challenge against the FCC’s authority in 2010, and that victory gave rise to the rules that are being challenged today. If the FCC loses this case, the agency’s ability to regulate the nation’s communications and airwaves will be severely restricted -- and there are some who argue that the agency will become at best a toothless tiger.

Ultimately what the carriers seek is the ability to charge higher transmission fees to heavy bandwidth users like Netflix Inc. (NFLX), Google Inc. (GOOG) and Facebook Inc. (FB). Because Internet service providers are not classed as common carriers, the FCC has no authority to impose common carrier rules on the broadband companies.

Verizon even argues that restrictions on a broadband provider’s ability to control transmission of data is a violation of the company’s First Amendment rights. Verizon’s argument claims that its provision of broadband services is essentially an editorial function, much the same as the editorial function of a newspaper, which chooses which stories it will publish.

Companies like Facebook and Google that actually provide content and services over the Internet have objected to the broadband carriers’ attempts to throttle speeds and prioritize traffic. Such companies see broadband carriers as just fat pipes, carrying whatever data gets put into the pipes.

Google and Verizon reached a separate agreement in 2010 that would leave wired access unchanged but allow the carrier to charge more for mobile broadband. The tiered pricing that now prevails for mobile broadband access is the result.

The FCC denies that its rules extend common carrier status to Internet services and cautions that allowing the broadband carriers to charge fees based on usage will chill innovation. Maybe, but the FCC had better have more up its sleeve than that if it hopes to beat back a serious challenge to its very existence.

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