FCC Head and President on Opposite Sides When it Comes to Web Rules

President Barack Obama’s call for strict open-Internet rules contradicts his appointed head of the Federal Communications Commission and may complicate agency efforts to forge compromise in a polarized political atmosphere.

The result could be no rules at all, letting Internet service providers demand extra payment for speedy delivery of videos and other content. Cable shares extended their declines on concern that strong regulation may be enacted.

Obama yesterday proposed an explicit ban on the practices and urged the FCC to claim authority over Web service in the same way it regulates phone companies. The statements darkened prospects for FCC Chairman Tom Wheeler’s tentative plan to use weaker rules that could allow companies to charge extra.

“He threw Tom Wheeler under the bus,” said James Gattuso, a senior research fellow at the Heritage Foundation, a Washington-based policy group. Obama’s strong stance makes it harder for Wheeler to reach a compromise among proponents of regulation, Gattuso said.

The president is taking his most forceful stance yet on the debate over treating Web traffic equally, a concept known as net neutrality. His comments, in a video posted on the White House website, come less than a week after congressional elections that cost his party control of the Senate, giving a majority in both houses of Congress to Republicans who have long opposed open Internet rules as an unnecessary burden.

‘Obama’s Baggage’

Obama has made Wheeler’s job harder, said Darrell West, director of the Center for Technology Innovation at the Brookings Institution, a Washington-based policy group.

“It brings all of Obama’s baggage into the FCC,” West said. “There’s going to be much more scrutiny and high-profile political figures jumping into this issue.”

Obama’s intervention effectively kills Wheeler’s mixed plan, Paul de Sa, a senior analyst at Sanford C. Bernstein & Co. in New York, said in a note. It will be hard for the FCC, with a majority of Democrats appointed by Obama, to deviate significantly from his preference, and strong rules are likely, de Sa said.

Obama’s intervention “does not lead to price regulation of broadband,” in part because the FCC has no desire to do so, he said. Debate in Washington will intensify, with Congress holding “interminable hearings” and trying to prohibit the FCC from applying the strong rules, de Sa said.

Shares Slide

Telecommunications shares today continued the drop that began with Obama’s announcement. Comcast Corp. fell 63 cents or 1.2 percent, to $52.33 at 10:39 a.m. in New York trading, and are down as much as 5.1 percent this week. Time Warner Cable Inc. dropped $3.34, or 2.5 percent. AT&T Inc. fell 16 cents to $34.97 and Verizon Communications Inc. fell 15 cents to $50.57.

Senator Ted Cruz, a Texas Republican and potential 2016 presidential contender, wasted no time, deriding Obama’s proposal on Twitter with a post that read: “‘Net Neutrality’ is Obamacare for the Internet.”

Wheeler, briefed Nov. 6 by a White House aide on Obama’s stance, didn’t give ground yesterday. The approach suggested by Obama “brings with it policy issues that run the gamut” as well as legal issues, Wheeler said in an e-mailed statement.

“As an independent regulatory agency we will incorporate the president’s submission into the record of the Open Internet proceeding,” Wheeler said in an e-mailed statement. Any new rules would need to win a vote at the five-member FCC, which has three Democrats including Wheeler.

Rallying Democrats

“It becomes incredibly difficult for the commission to rally three Democrats for a position that is opposed very explicitly by the president, who appointed them,” said Michael Calabrese, director of the Wireless Future Project for the New America Foundation, a Washington-based policy group.

There’s no deadline for the FCC to act. Failure would leave the U.S. without rules aimed explicitly at Internet service. That’s been the circumstance since a January court ruling that voided an earlier attempt to implement rules.

Netflix Inc., the largest video-subscription service, is standing behind Obama, saying his stricter regulatory approach is needed to prevent cable and phone companies from restricting what people can access.

“Consumers should pick winners and losers on the Internet, not broadband gatekeepers,” Netflix said yesterday on its Facebook page.

Shares of some of those gatekeepers dropped, including Comcast, and cast a shadow on the cable provider’s proposed merger with Time Warner Cable over worries net-neutrality rules would burden the combined company.

Comcast Deal

Comcast is seeking FCC approval to buy No. 2 Time Warner Cable. Obama’s comments likely added to investors’ concerns that there will be more concessions demanded around net neutrality for the $45.2 billion acquisition to win regulatory approval, said Roy Behren, who owns shares of Time Warner Cable at Westchester Capital Funds.

Comcast, and other Internet service providers, including Verizon Communications Inc. and AT&T Inc., argue that only light regulation is needed to ensure providers don’t block or slow Web traffic. Strict rules, they say, would squelch investment.

Public policy groups want tough regulations that guarantee all websites are treated equally and can be accessed by people increasingly reliant on the Internet.

Court Challenges

AT&T and Verizon issued statements that mentioned possible legal challenges, and Comcast Executive Vice President David Cohen in a statement called Obama’s proposal “a radical reversal that would harm investment and innovation.”

“We are stunned,” Michael Powell, a former FCC chairman who is now president of the National Cable & Telecommunications Association, said in an e-mail. Members of the trade group include Comcast and Time Warner Cable Inc.

Verizon in January won an appeals court challenge that voiding an earlier version of net neutrality rules, a court decision that forced Wheeler to forge a replacement proposal. What Wheeler has pitched so far has drawn passionate reaction, with more than 3.7 million people filing comments to the agency’s website.

Congress could intervene and vote to overturn any new rule, though could veto Obama any such legislation.

Republicans who criticized Obama’s proposal included Senator Mitch McConnell of Kentucky, the likely leader of the chamber next year, and Representative Fred Upton of Michigan, chairman of the House Energy and Commerce Committee that oversees the FCC.

Democratic Support

Democrats who backed the president included Senators Jay Rockefeller of West Virginia, Al Franken of Minnesota, and Ed Markey and Elizabeth Warren, both of Massachusetts. Also voicing support were Representatives Henry Waxman and Anna Eshoo, California Democrats who have focused on telecommunications issues.

In his statement, Obama said the FCC is an independent agency, “and ultimately this decision is theirs alone.”

“I believe the FCC should create a new set of rules protecting net neutrality and ensuring that neither the cable company nor the phone company will be able to act as a gatekeeper, restricting what you can do or see online,” Obama said.

Wheeler said the FCC needs more time to write rules, and he didn’t give a deadline for action. The agency had set a goal of year-end for new rules, and now the process will continue into 2015 because many questions remain unanswered, said Kim Hart, a spokeswoman for the agency.

(With assistance from Susan Decker in Washington.)