The policy was supposed to force broadband providers to treat all Internet traffic equally and not to discriminate by the source. The court found that although the FCC had "general authority" to regulate telecommunications, the agency itself had classified broadband providers in a way that exempted them from this type of regulation.
The ruling, a setback for the FCC and many in high-tech, means that broadband providers such as Verizon (VZ) and AT&T (T) are free to charge companies like Facebook (FB), Google (GOOG), and even startups for preferential or faster access to customers. That also means that a smaller video provider might find itself unable to compete effectively because a YouTube or Hulu could pay for faster connections to users.
The FCC said it may appeal the ruling.
"I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment," said FCC Chairman Tom Wheeler in a statement.
The agency adopted its Open Internet order after Comcast (CMCSA) won a lawsuit over a previous attempt to enforce net neutrality. The new set of rules was an attempt to offer a "reasoned explanation," as the court noted, for interpreting its authorizing legislation to include Internet traffic.
Carriers like Verizon wanted to operate the private networks they had built as they saw fit. In the suit, Verizon argued that the FCC lacked the authority to make such rules, that the rules were arbitrary, and that the agency was wrongly trying to categorize broadband providers as telecommunication common carriers, a term that had historically applied to telephone service.
The court disagreed and found that the FCC did have some authority over broadband providers and had acted reasonably. However, the judges ruled that the FCC had explicitly previously ruled that broadband providers were "information services" and not "telecommunications services," and so could not impose the new rules.
Supporters of the measure say that without the rules, only the most established companies will even be noticed by consumers because broadband providers could require payment for faster connections to their customers.
Smaller Internet companies could struggle to bring their innovations to market, as most would lack the resources to pay the providers for fast connections. The result, they claim, would be a stifling of innovation in a critical area of technology.
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