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Verizon victory on
net-neutrality rules seen as loss for Netflix
Verizon Communications' legal victory over the Federal Communications Commission lets the carrier charge extra fees for speedier delivery of online content, potentially increasing costs for Netflix and other Internet companies.
The U.S. Court of Appeals in Washington decided in favor of Verizon Tuesday, striking down the FCC's so-called net-neutrality rules. The regulations would have required Internet service providers to treat all online traffic equally, rather than giving preference to companies willing to pay extra fees for faster service.
With the restrictions lifted, carriers like Verizon, AT&T and Time Warner Cable could be free to charge Internet companies higher rates for preferred treatment - expenses that may ultimately be passed on to consumers. Netflix, Google's YouTube and Amazon.com, meanwhile, face higher costs of doing business, changing the industry's economics. In Netflix's case, the expenses could climb into the hundreds of millions of dollars a year, according to Wedbush Securities.
"Goodbye, open Internet," said Jennifer Fritzsche, an analyst at Wells Fargo & Co. in Chicago. "There's definitely a risk that Netflix customers will have to pay more, though it will probably take at least a year for it to take effect."
Carriers have argued that the biggest bandwidth hogs should share in the costs of sending their content to customers. The idea is to charge Netflix or Google the equivalent of first-class handling, so that "House of Cards" or YouTube videos can get guaranteed quicker delivery.
Verizon wants a "two-sided market," involving payment for Internet service by subscribers and by companies that want to reach them, Helgi Walker, a lawyer for the New York-based carrier, told the appeals panel.
"I'm authorized to state from my client today that but for these rules we would be exploring those types of arrangements," said Walker, working at the time for the law firm Wiley Rein LLP.
Streaming services have contributed to Internet congestion, putting a strain on networks. Monthly traffic over phone and cable lines has more than doubled over the past year during peak hours, according to Sandvine Inc., a provider of data-management software. Netflix, the world's largest subscription video-streaming service, accounts for about 32 percent of all peak traffic in North America, Sandvine estimates.
Joris Evers, a spokesman for Los Gatos, Calif.-based Netflix, declined to comment on Wednesday's ruling.
Smaller providers of Internet content - say, a video- sharing service or a nonprofit news organization - also could suffer because they won't be able to afford extra fees to deliver their material quickly. That's raised concerns that consumers may favor content from established companies, shutting out upstarts.