• Panel Backs Phone-TV Rules But Rejects Net Neutrality
  • May 4, 2006
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • A key Congressional panel has approved a bill to make it easier for phone carriers to offer pay-TV services, but rejected a bid to offer enhanced protection for companies that deliver service over the Internet.

    The House Energy and Commerce Committee voted 42-12 on April 26, 2006, to grant so-called national franchising rights to phone companies that will ease their delivery of Web-based TV service. Phone companies are spending billions of dollars to construct fiber networks offering fast Internet connections and cable-like TV service. But they face an expensive and lengthy process to secure franchising licenses in the thousands of local municipalities they aim to serve. They are seeking to bypass the process with national franchising rights.

    At the same time, the Committee rejected a proposal to preserve so-called Net Neutrality -- the right of any company to deliver services over the Web free of discrimination. A majority of lawmakers, mostly Republicans, said there's little consensus over the definition of Net Neutrality and that discrimination on the Web is largely a non-issue.

    Phone companies lobbied hard for franchising relief while opposing Net Neutrality rules, and the panel vote represents a win for them. Cable operators have objected to parts of the franchising provision while consumer groups and Internet companies have pressed Congress to guarantee Net Neutrality.

    Critics of the television-franchising provision complained that the bill would allow phone companies to cherrypick which areas they served while ignoring poor customers. Supporters argued that phone companies need leeway, at least early on, to quickly build out expensive new fiber networks to compete with an entrenched cable industry. Over time, they said, phone companies would expand service to attract more customers, boosting competition and perhaps leading to lower cable prices. Lawmakers have complained for years about fast-rising cable costs.

    The fight over Net Neutrality has been even more heated. The debate has intensified in recent months after some phone industry executives said they would like to charge fees to Internet companies in exchange for promises of speedy and reliable connections for customers using their sites. Big phone companies say they need to find new revenue to support costly network upgrades. The concern is that such an approach could thwart the growth of new Internet companies that cannot afford fees, reducing competition and thus hurting the overall economy.

    So far, cases of network operators blocking users from certain sites are virtually nonexistent. Phone executives have repeatedly assured lawmakers that they would not block Web users from visiting any legitimate site at the speeds guaranteed by their monthly Internet service.

    If the Commerce Committee bill became law, the Federal Communications Commission could still punish network operators if they blocked access to certain Web sites. The House bill raises fines to as high as $500,000. Yet the Committee also included a provision that would bar the FCC from crafting a broad definition of Net Neutrality. The agency would be able to investigate access-blocking disputes on a case-by-case basis, but its authority would be otherwise curtailed. Last year, the FCC adopted loose principles in favor of Net Neutrality and warned network owners not to block access to Web sites.

    Significance: The Commerce Committee bill now goes to a vote by the full House, but it's unclear whether the proposal will become law. The Senate remains sharply divided over Net Neutrality rules. With the November elections coming, lawmakers could run out of time to reach an agreement. We will keep you posted on any further developments.