NY Times:

WASHINGTON — The chairman and staff of the Federal Communications Commission are moving toward a proposal that for the first time would give the agency regulatory authority over how Internet traffic flows between content providers and the companies that provide Internet service to consumers, according to people close to the discussions.

The proposal is part of a hybrid solution that has gained favor among the F.C.C. staff over the last two months. Like other possible solutions, it seeks to reestablish the F.C.C.’s authority to enforce net neutrality, the general concept that no Internet traffic should be discriminated against unfairly.

But unlike policies previously considered, which treated the entire Internet ecosystem as a single universe, the hybrid proposal would establish a divide between “wholesale” and “retail” transactions.

It would apply utility-like regulation to the wholesale portion, the exchange of data from the content provider to the Internet service provider for passage through to the end consumer. The retail portion, the transaction that sends data through the Internet service provider to the consumer and which allows the consumer to access any legal content on the Internet, would receive a lighter regulatory touch.

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A formal proposal could come as soon as next month, although people close to the discussions say that Tom Wheeler, the chairman, has suggested privately recently that the action might be pushed to the first quarter of next year.

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However, the hybrid approach would apply Title II of the Communications Act of 1934 to the connection between Internet service providers, or I.S.P.s, and content providers. For the purpose of agreeing to transport content from a company like Netflix through its network, an I.S.P. would be treated as a “common carrier,” subject to stricter regulation.

In that instance, an I.S.P., as a common carrier, could not give an unfair advantage to one content provider over another.

Paid prioritization, where a content provider pays for a fast lane to consumers, would be restricted unless it could be proved to be just and reasonable.

Under the hybrid approach, consumer Internet service would be governed under Section 706 of the Telecommunications Act of 1996, which gives the F.C.C. broad powers to ensure that broadband capabilities are being deployed to all Americans “in a reasonable and timely fashion.”

Taken together, those approaches would allow the F.C.C. to enforce a rule against blocking of legal Internet content, to install restrictions on discrimination among Internet traffic and still provide some allowance for unique delivery arrangements for specialized services.

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The other possibilities under consideration are to use Section 706 alone to oversee net neutrality; using Title II alone; or to classify Internet service as a Title II common carrier but use Section 706 to regulate.

Those possibilities, however, have been judged by a growing consensus of F.C.C. members to either limit the agency’s flexibility or to be vulnerable to criticism and potentially unsupportable in court.

Some consumer advocates immediately came out against the F.C.C.’s newly floated hybrid approach, which was reported in The Wall Street Journal. Craig Aaron, president of Free Press, a consumer advocacy group that has called for full Title II reclassification, likened the hybrid approach to Frankenstein’s monster.

“The F.C.C. has already tried twice before to invent new classifications on the fly instead of clear rules grounded in the law,” Mr. Aaron said. “And twice their efforts have been rejected. This flimsy fabrication will be no different. And this approach will only serve to squander the political support of millions and millions of Americans who have weighed in at the agency asking for strong rules that will stand up in court.”

Public Knowledge, another consumer group, had kinder words for the policy. “Although there are many details that do not appear to have been worked out,” said Gene Kimmelman, the group’s president, “we are confident that the proposal they’re considering could use Title II and other regulatory tools in a manner that effectively addresses the most important issues in the debate.”

Mr. Kimmelman cautioned, however, that details mattered. “It is critical,” he said, “that the chairman explains how it will protect the core tenets of an open Internet that consumers expect and businesses require,” he said. “This includes, but is not limited to, explaining what sort of prioritization is allowed — and if allowed, why that level of prioritization is not harmful.”

Internet service providers are expected to be wary, at best, about the proposal, and AT&T, one of the largest, said Friday on its Twitter feed that “any use of Title II would be problematic.”

The details matter, but it sounds like they're trying to come up with something that works and that will still survive a court challenge.

Cheers,
Scott.