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Why Is Tuesday's Court Decision on Net Neutrality Such a Big Deal? And What Happens Next?

Internet providers are now free to stop or slow sites and apps they dislike and offer faster access to services they like — an “upgrade” of the Internet that could make it look a lot more like cable TV, where you pay to get particular channels or bundles of channels.

Blame for the demolition of “net neutrality” goes to a federal court that agreed with objections filed by Verizon. And the tough thing for Internet users is that the court’s opinion of the Federal Communications Commission’s rules isn’t wrong. The FCC’s rules were weak.

The ruling by judges David S. Tatel, Laurence H. Silberman and Judith W. Rogers for the United States Court of Appeals for the District of Columbia Circuit said that because the FCC declined to classify broadband providers the way you probably think of them — as “common carriers” that deliver information without interference, as the phone companies are considered — it can’t impose common-carrier-style regulations through other means:

“Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such.”

So informed, the court zapped provisions in the FCC’s Open Internet Order of 2010 that banned broadband providers from blocking “lawful content, applications, services” or practicing “unreasonable discrimination” against “lawful network traffic.” The court did keep a transparency rule that providers must tell you if they block or discriminate for or against certain types of traffic.

Verizon, the company that filed the suit, says it won’t start blocking sites — but a statement posted under the name of General Counsel Randal Milch didn’t rule out slowing some sites or charging other sites for faster delivery: 

“Verizon has been and remains committed to the open Internet which provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want.” 

For an example of what’s now possible, see AT&T’s announcement from last week of a new “Sponsored Data” option on its wireless network through which a company could give you free data use to coax you into trying out its stuff. Or Google working with carriers in the Philippines to offer “Free Zone” mobile access to its services. Or Facebook providing free in-flight access to its services to GoGo WiFi users.

Those deals can be great if you get something for free. But for a startup looking to compete with a large, established company that can now buy its way to the head of the line — and not just on wireless but in wired broadband, where most Americans face a local monopoly or a duopoly — these deals are not nearly so awesome. Which means that free access may cost you in terms of less competition and less innovation in Web services and apps.

(Understand that Yahoo Tech is published by a large Internet firm whose fortunes could be hindered by unfriendly Internet providers. But you could say about the same of any newspaper, TV station or blogger.)

If you want to blame the court or Verizon for this state of affairs, don’t. The judges offered a fair reading of the law as it stands — and they had the good sense to ignore Verizon’s absurd, corporations-are-people argument that net-neutrality regulations stomp on its First Amendment rights. Verizon, in turn, did what most large corporations with many lawyers on retainer do: Try to engineer the loosest regulatory climate possible.

The FCC itself queued up this collapse back in 2002, when it chose to classify cable Internet providers not as “telecommunications services” but as “information services,” then repeated the mistake in 2005 when it put phone-based broadband under the same category

What’s the difference? The FCC says a telecommunications service “is used to deliver information without change in the form or content of the information,” while an “information service” consists of “applications that run over the ‘pipes’ of a communications network and depend on computers to generate, store, or process information.”

If you think the former sounds a whole lot more like how Internet access works — yes! I don’t pay Verizon to add some kind of value to the information other people post on the Internet; I pay it for a fast FiOS connection with the boring reliability of a good old dial tone, and without any lingering Verizon aftertaste.

But that’s not how the FCC acted under the Bush administration, and it declined multiple opportunities to undo that mistake under the Obama administration.

Now what? The FCC could try appealing, as Chairman Tom Wheeler suggested in a statement. But the court’s logic is clear and supported by all three judges on the panel. The FCC could undo its mistakes of 2005 and 2002 by saying that Internet access is, in fact, a telecommunications service like you probably thought it was all along. But why would it change course after playing a losing hand so stubbornly?

Congress could pass a law. But who are we kidding? Many Republicans hate the idea of giving the FCC added regulatory authority, and many Democrats don’t want to gut it further, so expect nothing to happen there.

We may be stuck with public shaming and scolding — maybe followed by a different three-letter agency, the Federal Trade Commission, stepping into particularly egregious cases to use its own authority to punish abuses of market power. All it will take is for some Internet users to have their ISP monkey with their connection and then make enough of a fuss about it. Who will be first?

Yahoo Tech is a brand new tech site from David Pogue and an all-star team of writers. Follow us on Facebook for all the latest.