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 Republicans and the nation's 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.
Consumer groups and content providers hailed Obama's move, with Netflix 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.
The uncertainty has prompted the public to file some 3.7 million comments with the FCC — more than double the number filed after Janet Jackson's infamous wardrobe malfunction at the 2004 Super Bowl.
On Monday, Obama waded into the fray and gave a major boost to Internet activists by saying the FCC should explicitly ban any "paid prioritization" on the Internet. Obama also suggested that the FCC reclassify consumer broadband as a public utility under the 1934 Communications Act so there's no legal ambiguity. That would mean the Internet would be regulated more heavily in the way phone service is.
"It is common sense that the same philosophy should guide any service that is based on the transmission of information — whether a phone call, or a packet of data," Obama said.
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.
Many Republicans including House Speaker John Boehner, R-Ohio, and Senate GOP Leader Mitch McConnell of Kentucky sided with industry in denouncing the plan as government overreach.
"'Net Neutrality' is Obamacare for the Internet," Sen. Ted Cruz, R-Texas, a tea party favorite, declared on Twitter. "The Internet should not operate at the speed of government."
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, has said he is open to using a "hybrid" approach that would draw from both Title II of the 1934 law and the 1996 Telecommunications Act. On Monday, Wheeler 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 reclassification and hybrid approaches before us raise substantive legal questions. We found we would need more time to examine these to ensure that whatever approach is taken, it can withstand any legal challenges it may face."
The FCC isn't under a deadline to make a decision.
The president's statement all but guarantees that the major cable companies will spend the next few months trying to encourage Congress to step in to protect their interests. Still, Internet activists are hoping that Obama's position will go a long way, even as his popularity among his party has waned.
"When the leader of the free world says the Internet should remain free, that's a game changer," said Sen. Edward Markey, D-Mass.
Michael Liedtke, Business Writer, in San Francisco and Ken Sweet in New York contributed to this report.
