Analysis: Midterm election results to limit Internet regulation

By Jasmin Melvin

WASHINGTON (BestGrowthStock) – The Republican takeover of the House of Representatives will mean fewer regulations for technology and telecommunications companies and a tough road ahead for the Federal Communications Commission.

Republicans are traditionally against onerous regulation of private industry, and many campaigned on promises to rein in government before the midterm elections, which saw the GOP pick up 60 House seats to secure the majority.

“It’s probably going to make it much less likely that there’s going to be heavy regulation,” said Rebecca Arbogast, an analyst with Stifel Nicolaus.

As a result, Verizon Communications Inc, AT&T Inc and Comcast Corp have gained the upper hand in the long-fought battle over net neutrality rules, she said.

The underlying idea of net neutrality is that high-speed and mobile Internet providers should not be allowed to give preferential treatment to content providers that pay for faster transmission.

Companies like Verizon, AT&T and Comcast have lobbied against such regulations, saying they could crimp profits and lessen investments.

At stake is how quickly handheld devices, like Research in Motion Ltd’s BlackBerry and Apple Inc (Read more about Apple stock future.)’s iPhone, can receive and download videos and other content.

The controversial issue is unlikely to be brought up during Congress’ lame duck session, the period between the elections and the start of a new Congress in January. Republicans, who also gained six seats in the Senate but did not grab control of the upper chamber, will have more power in the next Congress to push their positions on the regulation of broadband traffic.

But with a divided Congress, passing any major telecommunications bills will be a difficult.

“The altered political environment appears especially conducive to legislative stalemate,” said Jeffrey Silva, a telecommunications policy analyst with Medley Global Advisors.

BOUCHER’S LOSS

Adding to the unlikelihood of movement on telecommunications legislation is the failed re-election bid of Rick Boucher, the current Democratic chair of the House subcommittee on communications, technology and the Internet.

Boucher was a “consensus builder,” who was pivotal in bringing telecommunications matters to the forefront on the Hill with bipartisan as well as industry support, said MF Global telecommunications analyst Paul Gallant.

“Congress’ views on critical tech issues won’t be as clear to the FCC as they would have been with Boucher there,” Gallant told Reuters, noting the language of bills backed by Boucher often served as a “useful guidepost” to steer FCC action.

With gridlock likely among politicians on net neutrality, the FCC may again be looked upon to settle the debate.

The agency, led by Democrat Julius Genachowski, took up the issue over the summer but was unable to reach a consensus with phone, cable and Internet companies. It initially proposed reclassifying broadband providers under stricter phone rules to reclaim authority over broadband access.

The FCC was stripped of this oversight power by a U.S. appeals court ruling that found the agency had failed to show it had the authority to stop Comcast from blocking bandwidth-hogging online applications.

“There’s going to be a real desire to resolve this issue, and yet concern about whether taking action on net neutrality and reclassification compromises their ability to do some of the other regulatory agenda items,” Stifel’s Arbogast said.

Arbogast explained that the agency would be “soundly hammered by the Republicans” if it moved forward with reclassification, but taking no action would only prolong “the cloud that’s hanging over the agency and the industry.”

She predicts the FCC will skip the reclassification route and come out with requirements for net neutrality, using draft legislation floated by current House Energy and Commerce Chairman Henry Waxman as a starting point.

But the draft language did not address wireless carriers’ desire to prioritize Internet traffic, nor did it prohibit them from discriminating against some content. The FCC would have to take on these issues, Arbogast said.

Public interest groups are pushing for action on net neutrality at the FCC’s December meeting as the FCC’s comment period on the concept’s application to mobile networks ended at midnight. Analysts say it’s a possibility, but they believe it’s more likely the issue will be addressed in early 2011.

(Editing by Gerald E. McCormick)

Analysis: Midterm election results to limit Internet regulation