Content providers could do this through direct payments to carriers, Stephenson said, but according to Fierce, he also said they could subsidize data costs through some kind of advertising revenue share. The end result, though, would be the same: content providers who pay would see their traffic exempted from customers’ mobile data caps.

Randall Stephenson

Stephenson comments come a week after reports that arch-competitor Verizon Wireless is in discussions with ESPN for just such a toll-free data deal. What seemed like a crazy suggestion from AT&T and other carriers last year, now looks like it might become reality. But is it a reality we really want?

A content provider-subsidized internet would be appealing to many consumers, especially those on AT&T and Verizon since carriers have hunted the unlimited data plan to the point of extinction. Imagine streaming Netflix movies and ESPN games to your heart’s content without ever worrying about exceeding your data cap or incurring overage fees.

But as I pointed out last week there could be some major unintended — or if carriers are being really cynical, intended — consequences to adopting these kinds of subsidy models. Legally mobile operators aren’t subject to the same net neutrality guidelines as the wireline broadband providers, but if mobile carriers created two separate classes of mobile data traffic they could upset the delicate balance that makes the mobile internet the mobile internet:

… there are enormous consequences to such a deal. The biggest and most obvious consequence is that it favors one provider’s content over another. If all access is created equal, then no content has an inherent advantage over another — which is the whole idea behind the wireline network neutrality rules the FCC established in 2010. But if consumers know they can get ESPN’s content without incurring any additional charge, they’ll naturally gravitate toward that content.

There’s an even bigger risk that ESPN’s competitors won’t just get penalized in the eyes of the consumer. Their traffic flow could be penalized as well. Embedded deep within Verizon’s network are policy servers that can distinguish an ESPN packet from any other packet. Not only could Verizon use that technology to exempt ESPN traffic form data plans, it also could use that technology to prioritize ESPN’s traffic from all others. The  [Wall Street] Journal’s story didn’t mention anything about traffic shaping, but you can bet its high on the list in any negotiation.

What’s particularly noteworthy about Stephenson’s comments, though, is the mention of using advertising as a former of subsidy currency. Stephenson could just be talking about inserting carrier-generated advertising into their app ad engines as compensation for their free ride on the network. But the other implication is that AT&T wants a true revenue share, taking a cut off the top of any revenue generated from YouTube ads or any Netflix subscription used on mobile.

This is an old idea the mobile industry first proposed way before the advent of the smartphone – in an age when the mobile internet was still a walled garden and carriers its gatekeepers. The idea was that operators would become equal partners with content providers, and that’s a scary proposition. I doubt that content providers want to give the gate keys back to the carriers.

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According to the Wall Street Journal, Disney-owned ESPN is negotiating with Verizon Wireless to let the operator’s customers partake in unlimited quantities of ESPN content without incurring any additional data charges. In essence, ESPN would pay Verizon to exempt its content from its data caps.

The Journal reported that no deal is imminent and ESPN isn’t even sure that the economics will work, but the fact that it’s entertaining the idea is significant. It turns the notion of a neutral mobile internet on its head. The hierarchy of the internet is pretty simple: customers pay for access in the form of data plans, leaving internet players free use of the mobile airwaves to deliver their content either for free or as paid services. If ESPN and Verizon strike a deal that hierarchy gets flipped, and there would be consequences.

The mobile internet has problems, but it works best when it remains neutral

Mobile operators have chipping away at the principle of net neutrality for years, banning certain apps here and restricting competing over-the-top services there. In Europe, carriers are battling with Google over carriage fees. But in this case, a carrier appears to be challenging net neutrality with the complicity of a content provider. I can understand why ESPN might be eager to take the plunge into subsidizing mobile data. In fact, I’m surprised a big name player like Netflix or Hulu hadn’t done it sooner.

One of the biggest obstacles to widespread video consumption on the mobile internet is overage fees. Who’s going to watch a 3-hour sporting event on their mobile phone or tablet if it drains your monthly data plan in the process? If ESPN wants to make consumers as comfortable using its mobile apps as they are watching its cable programming and using its web services, then it has to get around those data caps.

But there are enormous consequences to such a deal. The biggest and most obvious consequence is that it favors one provider’s content over another. If all access is created equal, then no content has an inherent advantage over another — which is the whole idea behind the wireline network neutrality rules the FCC established in 2010. But if consumers know they can get ESPN’s content without incurring any additional charge, they’ll naturally gravitate toward that content.

There’s an even bigger risk that ESPN’s competitors won’t just get penalized in the eyes of the consumer. Their traffic flow could be penalized as well. Embedded deep within Verizon’s network are policy servers that can distinguish an ESPN packet from any other packet. Not only could Verizon use that technology to exempt ESPN traffic form data plans, it also could use that technology to prioritize ESPN’s traffic from all others. The Journal’s story didn’t mention anything about traffic shaping, but you can bet its high on the list in any negotiation.

Do carriers really want to go down this road?

I suspect ESPN isn’t the only content provider interested in bargaining with the carriers. And I’m sure the carriers are thrilled at the prospects at an additional mobile data revenue stream. But there are risks for the carriers, too.

Operators have long complained about being reduced to mere dumb pipes, but these kind of subsidy deals would only make their pipes dumber. If all the big destinations on the mobile internet starting paying network fees for the consumer, then operators won’t have much left to sell. Consumers basically would be dealing with the big internet brands to get their content and their access. That leaves carriers selling smaller and smaller mobile data plans to customers who will increasingly gravitate toward those big content providers. Operators will have even fewer ways of distinguishing themselves from their competitors.

What’s more, operators are making the very dangerous assumption that they will always have the upper hand in such negotiations. Last week The New Yorker published a very insightful piece by Tim Wu about the growing threat to net neutrality. While Wu was making his case for wireline neutrality, his points apply to the mobile internet as well:

An important aspect of the Internet’s original design is that many prices were set at zero—what have been called zero-price rules. The price to join the network is zero. The price that users and sites pay to reach others is zero: a blogger doesn’t need to pay to reach Comcast’s customers. And the price that big Web sites charge broadband operators to carry their content is also zero. It’s a subtle point, but these three zeros are a large part of what makes the Internet what it is. If net neutrality goes away, so does the agreement to freeze prices at zero.

If mobile carriers and content providers start negotiating over access the delicate balance of the mobile internet suddenly goes off kilter. Right now it’s teetering toward the mobile operators but that might not always the case. ESPN, Google, Facebook and HBO are enormously powerful brands and their consumer influence is only growing. Meanwhile carriers are becoming increasingly less significant.

It’s not hard to imagine a day when ESPN asserts itself in mobile just as its done in the cable industry, turning the tables on the operators. One day carriers may have to pay ESPN for the privilege of delivering its sports content.

Featured photo courtesy of Shutterstock user Lane V. Erickson; Verizon photo courtesy of Flickr user slgckgc

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We’re into classic net neutrality territory here. As the company announced a few days ago, Telekom’s customers will be able to stream films from the carrier’s own T-Entertain service without any problem, but streaming a film from a rival would count towards the cap – effectively meaning Telekom’s caps will discriminate in favor of its own products. And all services, activists argue, should be treated equally on the open internet.

Concerned citizens have already set up a Change.org petition that has garnered around 30,000 signatures at the time of writing, but now the German government itself has weighed in. This isn’t just a regulatory thing – the government is Telekom’s biggest shareholder, too.

Der Spiegel claims to have seen a letter from Philip Rösler, the federal economics and technology minister, to Deutsche Telekom chief Rene Obermann, in which Rösler warns that the government and competition regulators will “very carefully follow ongoing developments with regard to a possible differential treatment of [Telekom's] own and rival services under the aspect of net neutrality.”

In a statement, Telekom claimed that “net neutrality is partly confused in the debate with a free internet culture” and that “T-Entertain is not a regular internet service, but a television service for which the customers pay separately.”

“Regular internet services are not subject to discrimination,” Telekom added, while noting that the alternative to introducing the caps would have been to raise the flat-rate tariffs for all customers.

Discriminatory caps

Telekom’s proposed changes work like this: customers on the slowest DSL lines (up to 16Mbps) will get capped at 75GB a month; those on up-to-50Mbps plans will face a 200GB cap; an up-to-100Mbps plan will max out at 300GB; and an up-to-200Mbps plan at 400GB. After that, speeds will be throttled to 384Kbps, although customers could also pay extra for more usage at normal speeds. The carrier claims its customers typically use 15-20GB a month.

On the face of it, these caps do appear reasonable, given the data volumes consumed by the average user, and they are supposedly aimed at stopping people from consuming extremely high data volumes at the standard rate — Telekom says only 3 percent of its customers will be affected. However, as those in the telecoms industry know all too well, data usage is only going one way: up, up, up.

Ultimately, it’s the principle of the thing that seems to be the problem here. Once you establish a precedent that certain services can be freely used while others cannot, you potentially raise the barriers to entry for new players. After all, with Telekom being Germany’s biggest ISP, would you set up a competitor to T-Entertain once the discriminatory caps are in place?

Yes, Germans are already used to data caps on mobile, and indeed Telekom itself has a cellular-centric agreement with Spotify that exempts traffic from that service from counting towards caps for customers on certain tariffs. The principle is already broken there. However, the way out of that for a Telekom mobile user who favors a rival to Spotify, is to offload as much traffic as they can onto their home Wi-Fi connection. If they’re also with Telekom for fixed-line services, as many are, now they’re going to face caps there too.

So, with traffic volumes set to keep on growing on all fronts, it’s not hard to see why many of Telekom’s critics are spoiling for a fight.

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I fall into the second camp for a variety of reasons, all of which have been brought to the fore by the revelation that Google is paying France Telecom-Orange to deliver its data to users. It’s not clear how much Google is paying Orange, or what the precise terms of the deal entail (I’ve asked both parties for clarity), but it does look like a line has been crossed. Here’s why that’s bad.

Google is rewarding greed

Telcos are very fond of complaining about the cost of building out modern mobile networks that can support the explosion in data traffic — despite the fact that mobile broadband usage is the carriers’ current cash cow. A group of European operators even tried (and failed) to get net neutrality banned globally, so that they could try getting content providers to pay for having their traffic reach the consumer in a usable state.

But this is not necessary. The carriers already make money off delivering data, and they make it from the consumer who signs up for a data tariff or pays by the megabyte. The content providers, meanwhile, already pay on their end to deliver that data – through their own internet service provider and/or through a content delivery network such as Akamai, and also through investing in private delivery networks.

If the receiving ISP wants more money on top of that, you’d think that they would provide extra value in turn. That’s not what’s happening here. So Google generates half the traffic on Orange’s network? That helps drive and develop Orange’s business, so it’s not something that should be penalized.

Google is abandoning its principles

Let me briefly pass the mic to one Eric Schmidt, who said back in 2006:

“Today the internet is an information highway where anybody — no matter how large or small, how traditional or unconventional — has equal access. But the phone and cable monopolies, who control almost all internet access, want the power to choose who gets access to high-speed lanes and whose content gets seen first and fastest. They want to build a two-tiered system and block the on-ramps for those who can’t pay.”

Those were the days. Fast forward six-and-a-half years and Google finds itself in a somewhat different position. The main agent of that shift is Android, which makes the company both a content and platform provider in a hugely competitive market.

The biggest gains to be made there lie in emerging territories such as Africa, where people are currently abandoning feature-phones for low-cost smartphones. When he revealed the hitherto secret Google deal this week, Orange CEO Stephane Richard was clear that his carrier’s strong position in Africa gave it the leverage it needed to extract cash from the U.S. firm. In other words, Google stuck by its principles until self-interest dictated otherwise, and in the process…

Google is messing things up for other content providers

As Schmidt’s words from 2006 make clear, one of the key attractions of net neutrality is the fact that both large and small players get equal access to the information highway. As he went on to say in that screed: “creativity, innovation and a free and open marketplace are all at stake in this fight”.

This is really all about barriers to entry. If Google is paying a carrier such as Orange to handle its traffic better than it might otherwise be handled, then Orange has the incentive to demand the same from other content providers. Even if it does not, we hit the problem of telecoms network capacity being a zero-sum game – if it weren’t, Orange wouldn’t have any leverage here, short of blocking Google outright.

In other words, Google has not only set a terrible precedent for up-and-coming mobile innovators, but it has also made it more likely that the quality of new services will be degraded over Orange’s networks — all so that the quality of Google’s services can be maintained.

It’s probably not a deliberate tactic on Google’s part to disadvantage potential rivals, but it could sure work out that way. And for that alone, Google should hang its head in shame.

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The update got pushed out on Wednesday, with one of its new features being a beta ad-blocker. And, according to multiple apoplectic sources, the ad-blocker is turned on by default, once the user resets their set-top box.

As the Rude Baguette blog has noted, savvy users can switch the whitelist-free ad-blocking service off through the online FreeBox management portal. Others have also pointed out that the ad-blocking doesn’t actually work very well, although it is partially effective (that’ll be why they call it a beta version then). There’s also the fact that many people already employ ad-blocking plugins on the client side.

Just to be as fair as possible to Free here, it’s not yet clear whether the ISP actually meant to have the feature turn itself on as a default – again, betas are buggy. I’ve also asked Free for comment, without success.

So, assuming that this was an intentional move… wow. The irony of the situation is just stunning. For this is the same Free that is being investigated by the French telecoms regulator over its alleged treatment of YouTube traffic.

If Free really is intentionally degrading or blocking YouTube – a matter for the regulator ARCEP to determine – then its actions are one of the clearest violations yet of the net neutrality principle. And why do ISPs violate net neutrality? Generally because they either want to throttle a competitor to their own services, or they want to use traffic degradation as leverage in their ongoing quest to get high-volume traffic sources to pay them money.

And how do high-volume traffic sources make money? Uh, advertising, which is still pretty much the lifeblood of the online content industry, at least for now. It’s too early to draw conclusions about what’s intended here, but the fallout of Free’s new beta feature should be quite entertaining to watch.

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Thankfully others, such as the European Parliament, have different ideas on the matter. With perfect timing, on Tuesday the EP passed two resolutions – one on the ‘digital single market’ and the other on a ‘digital freedom strategy in EU foreign policy’ – that both backed net neutrality. The first of those two even called for new European legislation to protect the concept.

But that’s the European Parliament, which had already voted in favour of net neutrality just over a year ago. For those unfamiliar with the EU legislative process, the EP does not propose legislation: that’s the role of the unelected European Commission.

Reality bites

So where’s the Commission at on this subject?

The last thing we heard there came after a report by a group of European telecoms regulators, BEREC, which said in May that many fixed and mobile carriers are throttling P2P services, blocking VoIP and otherwise fiddling with customers’ services in ways that would be forbidden under net neutrality.

That elicited a somewhat woolly response from digital agenda commissioner Neelie Kroes, who said she favoured transparency about the limitations put on internet services, rather than any firm new laws. Or, as she put it, “consumers… need to know if they are getting champagne or lesser sparkling wine”.

I asked Kroes’s office if there was any response to the new European Parliament resolutions, but sadly there is not. However, if we’re in the mood for reading between the lines, there may be something to pull out of Kroes’s blog post today on the WCIT conference.

Kroes used the post to reiterate the EU’s opposition to the ‘takeover’ plans, but she also seemed to suggest something further. My emphasis:

“While we do not believe that Internet governance should be under the ambit of the ITRs [the rules being revised at the conference], this does not mean the EU wants to ‘set in stone’ all current governance practices. New trends in traffic volumes and new demand for assured quality of delivery, may lead to new solutions, but I am confident that our current European and international frameworks allow more nimble and appropriate commercial reactions than any international treaty. We also want to support developing countries to build capacity and infrastructures for the Internet.”

So, she doesn’t seem to think there’s a need to change EU law on net neutrality (sorry, Parliament), but she also doesn’t want an internationally binding treaty that prohibits the practice (sorry, ETNO).

Choice of words

With a European stance like that, I think it unlikely that ETNO will succeed in getting net neutrality banned. That said, I would dearly like to see the term – not the principle – done away with.

The term acts as a kind of straw man. Very few so-called net neutrality proponents actually want strict network neutrality. By any reasonable analysis of how things work, strict net neutrality is unworkable. All bits are not equal – it makes complete sense to prioritize VoIP traffic over email, for example, in order for it to flow in near-real-time.

What ‘net neutrality’ advocates actually want is a properly free online market, where telcos can’t block rival services such as VoIP just because they take away revenue, and where startups are not suppressed by having to pay telcos to have their traffic reach their customers. Perhaps ‘service neutrality’ might be a more accurate term, although it’s certainly less snappy. Suggestions would be welcome.

I’ll leave this with the wording in those resolutions approved by the European Parliament today:

81. Calls on the Commission to propose legislation to ensure net neutrality;

82. Points out that more competition and transparency with regard to traffic management and quality of service, as well as ease of switching, are among the minimum necessary conditions to ensure net neutrality; reiterates its support for an open internet where content and individual commercial services cannot be blocked; recalls the recent findings of the Body of European Regulators for Electronic Communications (BEREC), and considers that additional measures are needed to ensure net neutrality;

83. Re-emphasises the potential challenges arising from departures from network neutrality, such as anti-competitive behaviour, blockage of innovation, restriction of freedom of expression, lack of consumer awareness and infringement of privacy, as well as the fact that lack of net neutrality hurts businesses, consumers and society as a whole.

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FaceTime has always been available to any subscriber for use over a Wi-Fi connection, but the carrier had come under fire this summer when Apple enabled it for cell networks and AT&T said only customers who subscribed to a new Mobile Share plan could use it. Several open internet groups threatened to file complaints with the FCC, saying AT&T’s action was a violation of net neutrality.

AT&T had initially argued that it wasn’t violating net neutrality; that it wasn’t blocking the use of the FaceTime app technically because any iPhone customer could still use it over Wi-Fi. It said it was simply “allowing more data access.”

A note from AT&T’s head of legislative affairs, Jim Cicconi, on the company’s policy blog explained the change of heart. He said the carrier was being “cautious” when Apple first released iOS 6 with the ability to make FaceTime calls over cellular because of an anticipated overload of activity on its cellular network:

“In this instance, with the FaceTime app already preloaded on tens of millions of AT&T customers’ iPhones, there was no way for our engineers to effectively model usage, and thus to assess network impact. It is for this reason that we took a more cautious approach toward the app. To do otherwise might have risked an adverse impact on the services our customers expect — voice quality in particular — if usage of FaceTime exceeded expectations.  And this is important for all our customers regardless of which smartphone they may use.”

The company’s reversal won it halting praise from one of the groups that had opposed AT&T’s previous policy. “AT&T simply can’t justify blocking an app that competes with its voice and texting services unless customers purchase a more expensive monthly plan that includes an unlimited amount of those very same services,” Free Press Policy Director Matt Wood said in a statement. “AT&T’s course correction is a move in the right direction, but until the company makes FaceTime available to all of its customers it is still in violation of the FCC’s rules and the broader principles of Net Neutrality.”

Also on Thursday, AT&T said that deaf and hard of hearing customers with text and data-only customers would also be able to use FaceTime.

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On copyright

Paul seems to understand the problems surrounding copyright enforcement online, right down to his reasons for opposing SOPA. It wasn’t so much what SOPA was trying to do in terms of shutting down pirate sites or forcing companies such as Google to act in some cases, as much as it was about the lack of due process in making these things happen. “There almost needs to be a trial …” he said. “It shouldn’t be just one person complaining to another website and all of a sudden the web site is shut down.”

Paul even suggested the idea of a federal court process through which copyright-holders could go to ask for fast adjudication on their claims of infringement, presumably to balance out concerns over high legal costs with the need for due process. I’ll assume, then, his defense of the YouTube model for content removal (and, by proxy, the Digital Millenium Copyright Act) is just a matter of not really understanding that law. Under the DMCA, complaints lead directly to takedowns or, in some cases, expensive trials that destroy companies and business models that end up being on the right side of the law.

In response to an audience question, Paul noted there’s room for debate over the length of copyrights and patents to balance out innovation and consumer protection with creators’ needs to monetize their inventions. The real question, however, which Paul didn’t address, is how we amend copyright and patent law to address new technologies and modes of delivering content.

On privacy

If the recently defeated Cybersecurity Act of 2012 really was problematic privacy-wise, as even Sen. Ron Wyden (D-OR) thinks it was, Paul was right to vote against it. He’s also right to stand up for consumer rights, claiming that any bill offering immunity against lawsuits to companies that share user data with the government will essentially protect those companies should they decide to breach contractual terms about data sharing. Consumers make considered choices when selecting service providers, he said, but “you don’t have a choice to make a contractual arrangement with our government.”

However, because signing up for services from companies such as Google, Facebook or any other web company requires voluntarily agreeing to its terms of service and privacy policies, Paul said they have access to whatever you grant them. I’m not for obtrusive privacy regulations that will unduly limit innovation and perhaps drive up the costs of services, but some rules and regulations laying out what companies can do with user data — and how they explain those uses in their privacy policies — probably aren’t the worst things in the world.

On the legislative process

Paul doesn’t think expansive legislation is the best way to address certain technological issues, such as cybersecurity, and I tend to agree. The process is slow, often reactionary to the known threats of the day, and potentially stifling to new approaches and technologies. “By the 24 months it may take to write the rules on cybersecurity, it’s already changed. It changes every day,” Paul said. “[O]ne of the things government is not is agile.”

Rather, on cybersecurity, at least, he suggests facilitating open exchanges between the government and companies around information exchange, and granting companies certain narrow rights to fight cybercrime (although I’m not sure his idea of offering freedom from certain antitrust laws is wise). Maybe they can create a working group dedicated to identifying and stopping the types of attacks everyone is seeing. This, Paul said, would attack problems in lightweight, narrow ways rather than always having  to “open Pandora’s box.”

Another of Paul’s ideas is just to let the courts resolve certain technology problems relatively quickly as they arise rather than trying to draft future-proof legislation and regulations. It’s not an ideal solution — courts deal in the specific facts of each case, their precedent is geographically limited and legal contracts could theoretically allow for some rather unethical practices — but it’s not entirely without merit.

On net neutrality

OK, Paul didn’t address net neutrality at the event, but Rep. Marsha Blackburn (R-TN) and Heritage Foundation Senior Research Fellow in Regulatory Policy James Gattuso, who emceed the event, did. And Paul has discussed net neutrality before, as detailed here by TechDirt’s Mike Masnick. I’d argue they’re all flat wrong in the idea that government-mandated net neutrality will somehow stifle innovation and consumer choice more than will letting large carriers decide what data gets a free ride on their networks.

The idea of net neutrality actually ties into the recent hoopla over who invented the internet, something Paul did chime in on at the Heritage Foundation event, touting the individuals who took part in it over the government’s involvement. This argument falls short because it ignores the government funding involved in creating the internet, including to those individuals’ employers. As Masnick notes in his post on Paul’s net neutrality stance, the senator also conveniently ignores the government subsidies and rights of way necessary to build the internet’s infrastructure when characterizing it as privately owned infrastructure.

Boiled down to their core, Paul’s views on technology are kind of like an iron fist in a velvet glove (although whether that’s intentional or not is up for debate). They appear to have innovation and consumer rights in mind — and in some cases they do — but giving free rein to large companies with lots of control over the world’s internet experience probably means both causes will suffer in the end.

Image courtesy of Shutterstock user Nomad_Soul.

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That’s because, underneath all the bluster, Verizon has a strong core argument that the FCC overstepped its bounds in enacting these net neutrality rules. The FCC, you see, can regulate the physical pipes over which packets travel on the network pretty stringently, but less so the actual service or content those packets are meant to deliver. Consider that the FCC can regulate roads but not the mail delivery using those roads.

Did the FCC neuter its ability to regulate the Internet?

At least that’s how the same court that will hear the Verizon case ruled back in 2010 when it handed a victory to Comcast after the FCC censured it for blocking peer-to-peer packets. At the time, the court’s ruling set off a huge debate over the FCC’s regulatory authority over the Internet and arguments over whether the FCC needed to reclassify broadband as a telecommunications service rather than an in information service.

FCC chairman Julius Genachowski’s net neutrality efforts are getting closer to their day in court.

The grist for these debates was a series of decisions beginning in 2002 in which the FCC basically said cable, DSL and wireless were information services — which the FCC doesn’t regulate as stringently — as opposed to a telecommunications service which it does. But because it really wanted to focus on the net neutrality regulations as opposed to this dull reclassification issue, the FCC dropped the idea of reclassifying broadband entirely and went ahead with what it dubbed “the third way” approach where broadband would be considered telecommunications but it wouldn’t be subject to onerous rules associated with telecommunications services outline in the 1996 Telecommunications Act.

Now the FCC’s lack of action on reclassification may haunt it in court. Verizon is prepared to beat the snot out of the agency in hopes the United States Court of Appeals for the District of Columbia will find that the FCC is overstepping its bounds set by the 1996 Act and its own rulings. The Verizon suit argues that if given the freedom to regulate broadband, the FCC might move all the way up to regulating “all sectors of the Internet, from website, application, search engine, and content providers to Internet backbone companies,” according to the filing.

Did someone say the Telecommunications Act of 1996?

Verizon also brings up the 1996 Act to argue that the FCC overstepped its bounds because the net neutrality rules force ISPs to give away access to other providers on their pipes for free. Verizon interprets this as forcing ISPs to let others use its pipes at a cost of zero and the 1996 Act says that the FCC can’t set prices in this area.

These are the twisted and arcane arguments that lawyers come up with, but what it boils down to is that Verizon and other ISPs are upset because they can’t implement the so-called “two-sided business model” where an ISP charges a customer as well as a service provider like Google or Netflix. Let’s call it the Ed Whitacre argument after SBC’s (now AT&T) former CEO who famously said that Google and others shouldn’t be able to use his pipes for free.

The net neutrality rules tell wireline ISPs they can’t charge people trying to use their pipes and say that, on the wireless side, carriers can’t charge or block other providers who want to offer voice and video services that the carrier may also offer. This is the fundamental point of network neutrality — the idea that an ISP can’t discriminate against the bits flowing over its pipes. Consumer advocates and web companies would argue that forcing the likes of Google to pay for transit does result in discrimination. Here’s what the suit has to say on this topic:

The FCC’s rules constitute classic common-carrier obligations because they compel broadband providers to carry the Internet traffic of all comers, and at a uniform, nondiscriminatory price of zero. The no blocking rule denies broadband providers discretion in deciding which traffic from so-called edge providers to carry, except for unlawful material.

And what about Freedom of Speech?

Verizon’s primary source of firepower is the argument that the FCC doesn’t have authority to enact net neutrality in the first place, and that the FCC regulations violate the spirit of the 1996 Telecommunications Act. But for good measure, the company is also claiming the regulations impinge ISPs’ freedom of speech and take their property without due process. From the filing:

Third, the rules are unconstitutional. Broadband networks are the modern-day microphone by which their owners engage in First Amendment speech. The FCC thus must identify an actual problem, and narrowly tailor its solution to solve that problem. The FCC’s “prophylactic” rules cannot pass that test. The Fifth Amendment likewise protects broadband network owners from government compulsion to turn over their private property for use by others without compensation, especially in light of their multi-billion-dollar investment-backed expectations.

That’s right. Verizon is arguing that with the network neutrality rules, the government is both preventing ISPs from sharing their opinions over their networks by somehow blocking the opinions of others and is also seizing their pipes for use without compensation. The first ignores the fact that under net neutrality mandated non-discrimination Verizon’s packets and speech are just as likely to reach the end user as Netflix’s or Google’s, and the second ignores the fact that consumers pay ISPs for the use of their pipes.

Plus, without some sort of network neutrality Verizon could very well block others’ ability to exercise their freedom of speech as it did back in 2007 when it blocked texts from NARAL. Granted, Verizon is a corporate entity and not the government, but if we accept that broadband is indeed the “modern-day microphone by which their owners engage in First Amendment speech,” then the government does seem to have an obligation to protect it, especially if in doing so it doesn’t actually put Verizon’s first amendment freedoms at risk.

So now what?

The previous three items are the big arguments Verizon (and Metro PCS) have made against network neutrality, although there are pages and pages of arguments tied to those. But the question of the FCC’s authority to regulate broadband is the biggest issue and likely the one on which the case will hinge. This same court has already rejected the FCC’s authority to regulate broadband in the 2010 Comcast case, and it may again.

The FCC’s response to the suit is due in September, so we’ll have to wait until then to see the agency’s response and until December or January 2013 for the case to be heard before the court. The hope is we’ll have a ruling in spring of 2013.

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Here’s the statement a Netflix spokesperson sent me via email:

“Increasing the data cap is a small step in the right direction, but unfortunately Comcast continues to treat its own Internet delivered video different under the cap than other Internet delivered video. We continue to stand by the principle that ISPs should treat all providers of video services equally.”

In other words: The key issue of how Comcast treats its own Xfinity.tv on demand traffic hasn’t been resolved. Comcast said earlier today in a statement that it adheres to FCC principles that bind it to treat all IP traffic equally, but also repeated its assertion that Xfinity simply isn’t part of the Internet – something that our own Stacey Higginbotham has called dodging the net neutrality issue. Read her excellent analysis of today’s Comcast announcement here.

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