UPDATE 3-Divided U.S. FCC adopts Internet traffic rules

* Agency splits along party lines

* Republicans say rules unnecessary, legally dubious

* FCC chairman sees little immediate impact on consumers

* Would protect legal content but allow network management

* Could tip Internet TV battle toward cable
(Adds lawmaker quote, Obama statement, legal expert)

By Jasmin Melvin

WASHINGTON, Dec 21 (BestGrowthStock) – A divided U.S. Federal
Communications Commission adopted Internet traffic rules on
Tuesday, provoking warnings they would be rejected in the
courts and threats from Republican lawmakers to overturn them.

The rules highlight a huge divide between those who say the
Internet should be allowed to flourish without regulation and
those who say the power of big high-speed Internet providers
like Comcast Corp (CMCSA.O: ) to discriminate against other
players needs to be restrained.

Under the rules, the blocking of legal content would be
banned but providers like Comcast and Verizon Communications
(VZ.N: ) can “reasonably” manage their networks and charge
consumers based on levels of Internet usage.

Wireless carriers like Sprint Nextel Corp (S.N: ), and
Deutsche Telekom AG (DTEGn.DE: ) T-Mobile would get slightly more
discretion to manage their networks but could not block access
to websites, or to competing voice and video applications.

The rules are expected to go into effect early next year
but FCC Chairman Julius Genachowski said consumers should
expect few changes.

“In many respects, this is about preserving the freedom and
openness of the Internet that has worked for many years,” he
told reporters after the FCC met in an open meeting.

LEGAL CHALLENGES

Experts say legal challenges could tie the rules up for
years. “A definitive judicial resolution is still 3-5 years
down the road,” predicted Michael Botein, professor of law and
director of the media law center at New York Law School.

Approved by Genachowski and his two fellow Democrats, the
rules were quickly condemned by Republicans, and some
companies, as excessive and unnecessary.

“Litigation will supplant innovation. Instead of investing
in tomorrow’s technologies, precious capital will be diverted
to pay lawyers’ fees,” FCC Commissioner Robert McDowell
warned.

McDowell and Republican colleague Meredith Attwell Baker
voted against the rules, and predicted they would be overturned
in court.

Commissioner Michael Copps, a Democrat, said he wished the
FCC had taken stronger action, including treating the Internet
under the tougher rules applying to telephone service.

“In years to come, I hope we can look back on this day as
an important turning point in the struggle to ensure the
continued openness of the Internet against powerful gatekeeper
control,” said Copps.

The FCC’s ability to regulate the Internet has been in
doubt since an appeals court in April said the agency lacked
the authority to stop Comcast from blocking bandwidth-hogging
applications.

Several Republicans lawmakers, who will be in control of
the U.S. House of Representatives come January and more
numerous in the Senate, vowed legislation to reverse the FCC.

“We plan to look at all legislative options for reversing
the decision,” said Representative Greg Walden, the incoming
chairman of the House subcommittee on communications.

But any legislation would need to get support from Senate
Democrats and even then could face a veto from President Barack
Obama who welcomed the FCC action and said his administration
would see that “the democratic spirit of the Internet remains
intact.”

MANY COMPANIES CRITICAL

Even Verizon, which along with Google (GOOG.O: ) had proposed
Web traffic rules in August, was highly critical of the plan.

Verizon said the rules’ assertion of authority without
solid legal underpinnings would lead to continued uncertainty
for industry, innovators, and investors. “In the long run, that
is harmful to consumers and the nation.”

Cable companies Comcast and Time Warner Cable (TWC.N: ) were
among the few companies to describe the FCC rules as striking a
“balance” between competing interests.

Comcast is waiting for regulatory approval of its purchase
of a controlling stake in NBC Universal, a deal that would
create the largest U.S. media company with TV networks, a movie
studio and theme parks.

The rules could help cable companies in competition with
plans by Microsoft Corp (MSFT.O: ), Google and Amazon.com
(AMZN.O: ) to deliver competing video content over the same
Internet lines the cable companies run to customers’ homes.

Charging consumers more for data-intensive tasks like
downloading videos could tip the economics of
Internet-delivered television back toward cable. The FCC has
said it will monitor usage-based pricing for abuses.

Adoption of the measure had been expected after Copps and
Mignon Clyburn issued statements on Monday saying they would
support the proposal despite some misgivings that it did not go
far enough.

Genachowski told Tuesday’s FCC meeting that the Internet
was currently unprotected and he invoked the names of two
Republican predecessors to argue for adoption of the rules.

“The rules of the road we adopt today are rooted in ideas
first articulated by Republican Chairmen Michael Powell and
Kevin Martin, and endorsed in a unanimous FCC policy statement
in 2005,” said Genachowski.
(Reporting by Jasmin Melvin; Additional reporting by Paul
Thomasch and Jennifer Saba in New York; Editing by Tim Dobbyn)

UPDATE 3-Divided U.S. FCC adopts Internet traffic rules