Verizon and regulators clash on internet rules

Developers and programmers participate in a coding challenge at the AWS Re:Invent conference at the Sands Expo in Las Vegas Nevada Nov. 28, 2012. REUTERS/Richard Brian

By Diane Bartz

WASHINGTON (Reuters) - U.S. judges hearing a potential landmark case on U.S. regulation of internet traffic on Monday focused on whether certain charges levied on websites by internet service providers would be illegal moves to block the sites.

The case revolves around a 2011 rule on so-called net neutrality. The rule requires internet providers treat all traffic equally and give consumers equal access to lawful content, even content that directly competes with the providers' services.

Verizon Communications Inc, the biggest U.S. wireless provider, has challenged the Federal Telecommunications Commission (FCC) rule.

Verizon says clauses in the rule against blocking lawful content and giving all internet traffic equal treatment violate the company's right to free speech and strip control of what its networks transmit and how.

The decision on the case by the U.S. Court of Appeals for the District of Colombia will have major implications on the debate over how much regulatory power the FCC should have over the Internet.

"It is just not credible that Congress would have authorized these kinds of rules. We think that they (FCC) lack statutory authority," attorney Helgi Walker, who argued for Verizon, told a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit.

The panel on Monday seemed sympathetic to the idea the FCC had the authority to regulate some elements of how internet service providers give access to content.

Two of the judges, however, seemed opposed to the part of the rule that calls for all traffic to receive equal treatment, said Harold Feld of the non-profit group Public Knowledge, who attended the hearing.

"The court wanted to see this as Verizon's right to cut a deal with big companies like Google. The whole reason that people adopt broadband is because there's all that (other) stuff out there," said Feld.

The outcome of the case may determine whether internet service providers can restrict some content by, for instance, blocking or slowing down access to particular sites or charging websites to deliver their content faster.

Judge Laurence Silberman repeatedly asked during the two-hour hearing if companies that provide internet service to consumers could charge websites for access to those consumers.

Silberman questioned whether it was blocking for a service provider to refuse to carry a website if the website refused to pay the provider.

"How else can you enforce this payment?" he asked.

Judge David Tatel said he reads an aspect of the rules as saying that you can't charge websites to merely exist online, but you can charge them for higher speed access.

FCC General Counsel Sean Lev told the court: "No one is being told that they cannot charge."

Silberman raised Verizon's argument that it had a First Amendment right to decide what websites its users had access to, using as an example access to a site with instructions on making chemical weapons.

Tatel, in what could indicate a potential ruling, asked Verizon attorney Helgi Walker if the company could charge websites for higher speed or other priority access if the court struck down the rule's so-called anti-discrimination clause calling for equal treatment of all traffic.

Walker did not answer the question. She suggested, however, that if the court left the blocking clause standing but knocked down the anti-discrimination clause, Verizon would be happy with the result.

"If all that was left standing is a no blocking (inaudible), then I don't think we'd be here today," Walker said.

Tatel authored the 2010 court opinion that struck down the FCC's earlier attempt to pursue a net neutrality case against Comcast Corp. The court said the agency lacked the authority to stop Comcast from blocking bandwidth-hogging applications.

The court did not indicate when it would issue a ruling in the Verizon challenge.

Verizon did not immediately respond to requests for comment after the hearing.

MetroPCS, another wireless provider that stood alongside Verizon in the case, dropped its lawsuit earlier this year after being acquired by Deutsche Telecom AG's T-Mobile USA.

The FCC's position in the Verizon case received a boost from the Supreme Court in May, when in a separate case it ruled in favor of giving regulatory agencies deference in interpreting the extent of their own regulatory authority.

The case is Verizon v. FCC, U.S. Court of Appeals for the District of Columbia Circuit, case No. 11-1355 (and consolidated cases).

(Additional reporting by Alina Selyukh; Editing by Ros Krasny, Andrew Hay and Tim Dobbyn)