President Barack Obama on Monday embraced a radical change in how the government treats internet service, coming down on the side of consumer activists who fear slower download speeds and higher costs but angering US cable giants who say the plan would kill jobs.
Obama called on the Federal Communications Commission to more heavily regulate internet providers and treat broadband much as it would any other public utility. He said the FCC should explicitly prohibit internet providers like Verizon and AT&T from charging data hogs like Netflix extra to move their content more quickly. The announcement sent cable stocks tumbling.
The FCC, an independent regulatory body led by political appointees, is nearing a decision on whether broadband providers should be allowed to cut deals with the content providers but is stumbling over the legal complexities.
"We are stunned the president would abandon the longstanding, bipartisan policy of lightly regulating the internet and calling for extreme" regulation, said Michael Powell, president and CEO of the National Cable and Telecommunications Association, the primary lobbying arm of the cable industry, which supplies much of the nation's internet access.
This "tectonic shift in national policy, should it be adopted, would create devastating results," added Powell, who chaired the FCC during the Bush administration until 2005.
Netflix swung behind Obama, posting to its Facebook page that "consumers should pick winners and losers on the internet, not broadband gatekeepers." "Net neutrality" is the idea that internet service providers shouldn't block, slow or manipulate data moving across its networks. As long as content isn't against the law, such as child pornography or pirated music, a file or video posted on one site will load generally at the same speed as a similarly sized file or video on another site.
In 2010, the FCC embraced the concept in a rule. But last January, a federal appeals court struck down the regulation because the court said the FCC didn't technically have the legal authority to tell broadband providers how to manage their networks.
Obama said the FCC should explicitly ban any "paid prioritization" on the internet. The president also suggested that the FCC reclassify consumer broadband as a public utility under the 1934 Communications Act. That would mean the internet would be regulated more heavily in the way phone service is.
This approach is exactly what industry lobbyists have spent months fighting against. While internet providers say they support the concept of an open internet they want flexibility to think up new ways to package and sell internet services. And, given the billions of dollars spent to improve network infrastructure, some officials say it's only fair to make data hogs like Netflix bear some of the costs of handling heavy traffic.
AT&T on Monday threatened legal action if the FCC adopted Obama's plan, while Comcast Corp said reclassifying broadband regulation would be "a radical reversal that would harm investment and innovation, as today's immediate stock market reaction demonstrates." Similar statements were released by Time Warner Cable Inc, Cox Communications and several industry groups including CTIA-The Wireless Association, USTelecom, the Telecommunications Industry Association and Broadband for America.
White House spokesperson Josh Earnest, traveling with Obama in China, said the president "felt this was an appropriate time" to make his views known because of the FCC's regulatory timeline, and that the timing wasn't related to Obama's trip this week to Asia and Australia.
Asked whether Comcast had been consulted on the issue, Earnest said only that the White House had been in touch with the business community on a variety of issues.
"There are members of Congress on both sides of this," he added.
Many Republicans including House Speaker John Boehner and Senate Republican Leader Mitch McConnell swung behind industry in denouncing the plan as government overreach.
The internet association, which represents many content providers like Netflix, Twitter, eBay and Google, applauded Obama's proposal.
On Monday, as the Standard & Poor's 500 index edged up slightly, stock prices fell for big cable companies, including Time Warner Cable, Comcast, Cablevision and Charter Communications.
FCC Chairman Tom Wheeler, a former industry lobbyist and venture capitalist, said he welcomed the president's comments, but suggested that his proposal was easier said than done.
"The more deeply we examined the issues around the various legal options, the more it has become plain that there is more work to do," Wheeler said. The FCC isn't under a deadline to make a decision.