Why the Broadband Industry Is Secretly Furious With Verizon Over Net Neutrality

The company's lawsuit against the FCC stirred a hornet's nest that may ultimately result in tougher regulations for everyone.

Verizon took the the federal government to court over net neutrality and won, but the company's industry peers are privately peeved that it chose to pick the fight at all.

That's because now that the old net-neutrality regime is gone, the Federal Communications Commission is considering a new set of Internet regulations—and the new rules could well be stronger than the ones that came before.

The FCC is considering new proposals that would more tightly restrict how Verizon and other providers can handle cellular data (the old net-neutrality rules left mobile traffic mostly untouched), and the agency may even decide to treat Internet service like a heavily regulated utility.

Other Internet service providers won't publicly criticize Verizon. But privately, lobbyists grumble that they wouldn't be in this mess if Verizon had just accepted the old rules.

Four broadband-industry officials said there's widespread frustration with Verizon for making what they view as a bad strategic error. Some companies had even tried to talk Verizon out of filing its lawsuit, officials said.

"They were like a dog chasing a bus," one broadband source said. "What are you going to do when you catch the bus?"

A spokesman for Verizon declined to comment for this story.

The FCC first enacted net-neutrality regulations in 2010 that barred home broadband providers from blocking or "unreasonably" discriminating against any Internet traffic. Cell-phone providers couldn't outright block websites, but they were free to speed up or slow down certain services or exempt others from monthly data caps.

The goal of net neutrality is to prevent giant corporations from distorting the Internet to favor themselves at the expense of users.

Many Internet activists were disappointed with the 2010 rules, complaining that they imposed only vague standards and were too lenient on wireless service. Most Internet providers felt the rules were a fair compromise that they could live with.

But Verizon sued anyway, claiming that the FCC had overstepped its legal authority. In January, the D.C. Circuit Court of Appeals agreed and struck down the regulations.

It was always unlikely that the FCC would just give up and let the rules die. Protecting net neutrality was a plank on President Obama's 2008 campaign platform, and is a top priority for Democrats.

At first though, it looked like Verizon's gamble could actually pay off. In May, FCC Chairman Tom Wheeler unveiled a new net-neutrality proposal that was weaker than the old rules. His proposal would have allowed Internet providers to charge websites for faster service as long as the agreements were "commercially reasonable."

But the plan sparked a massive backlash, with Web companies and advocacy groups warning it could create a two-tiered Internet. More than 3.7 million people filed comments with the FCC (the most ever for an issue), and Wheeler is now under intense pressure to toughen up the rules.

He has already indicated that he is likely to impose stronger restrictions on wireless service. In a speech in Las Vegas last month, Wheeler said the wireless industry has changed dramatically since 2010 and that "consumers increasingly rely on mobile broadband as an important pathway to access the Internet."

Wireless-industry lobbyists are scrambling to beat back the possible regulations—but it increasingly looks like they're fighting a losing battle.

Tougher wireless net-neutrality rules would be an especially painful blow to Verizon, the nation's largest mobile carrier. The company has its home broadband and TV service FiOS, but its wireless network remains the core of its business.

The FCC is even eyeing a more dramatic move to reclassify broadband Internet as a "telecommunications service" under Title II of the Communications Act. Consumer advocates argue that the regulatory maneuver is the only way to put net-neutrality rules on firm legal ground. But broadband providers fear Title II would turn them into public utilities and would strangle their industry's growth.

The provision, which the FCC already uses to regulate landline phone companies, includes the ability to control prices and determine which customers a company has to serve. The commission could also decide to waive particular requirements under the provision.

Internet providers aren't enthusiastic about net-neutrality rules that limit how they can manage traffic, but they view Title II regulation as an apocalyptic outcome.

In a sense, Verizon is lucky that it didn't get a more decisive victory at the D.C. Circuit. Although the judges threw out the rules, they hinted that the commission could come up with new regulations using the existing legal authority. If the court had sided entirely with Verizon, the FCC may have had no choice but to invoke Title II to protect net neutrality.

At this point, Verizon and the other broadband providers will be thankful if they get rules that closely resemble the 2010 regulations.

Internet activists won't say they're happy Verizon won in court, but they feel the wind is at their backs to get stronger rules this time.

"If nothing else, this proceeding has allowed the FCC to reexamine some of the conclusions baked into the 2010 rules," said Michael Weinberg, a vice president at the consumer-advocacy group Public Knowledge. "Any opportunity to have the FCC potentially strengthen open Internet protections is an opportunity we welcome."