U.S. phone companies may be forced to open their wireless networks to rival Internet services like Skype and Google Voice under a proposal brought out by the top telecom regulator to safeguard so-called Internet neutrality.
The proposal, if adopted, would be a victory for consumer advocates and big Internet companies like Google Inc at the expense of telecom operators like AT&T Inc, Verizon Communications and Sprint Nextel Corp.
Federal Communications Commission Chairman Julius Genachowski said operators should not be able to discriminate against any Internet applications or content and would have to make management practices for Web traffic transparent.
While he appeared to address operators' network management concerns, the wireless industry criticized the proposal and analysts said it could hurt profits for mobile operators, which had not been targeted by previous Net neutrality requirements.
The risk to the wireless carriers is that they won't be able to stop customers from using free voice and text services like Skype or Google voice, said Bernstein analyst Craig Moffett. Voice and text are where they make all of their money.
The FCC has already been examining why Apple Inc rejected Google Voice for use on iPhone, sold by AT&T.
The new proposal could result in mobile customers cutting their phone bills by opting for minimum carrier voice plans and doing without text-messaging plans if they use mobile voice and text services from Skype and Google.
Piper Jaffray analyst Christopher Larsen downplayed the risk, saying that if they have to, operators would be sure to find a way to change their fees in order to maintain profits.
Advocates of Net neutrality have long argued that service providers must be barred from blocking or slowing Internet traffic based on the content being sent or downloaded.
But service providers say the increasing volume of bandwidth-hogging services -- such as video sharing -- puts pressure on them as it requires active network management, and some argue that Net neutrality could stifle innovation.
AT&T, the No. 2 U.S. mobile service, said it was concerned about an extension of Net neutrality rules to the competitive mobile industry.
The new regulations would limit consumer choices and affect content providers, application developers, device manufacturers and network builders, said an executive at Verizon, which owns the No. 1 mobile service with Vodafone Group Plc.
Wireless trade group CTIA, whose members include AT&T, Verizon Wireless and Sprint Nextel, said it was concerned the proposal would have unintended consequences. Leading Cable provider Comcast Corp said it was pleased Genachowski recognized that networks need to be managed.
For his proposal to be adopted, Genachowski, a Democrat, needs majority approval from FCC commissioners, who include two other Democrats and two Republicans. Democrats Michael Copps and Mignon Clyburn lauded the move while Republicans Robert McDowell and Meredith Attwell Baker expressed reservations.
The rule will be formally proposed at an October meeting. Colin Crowell, Genachowski's special counselor, told reporters a final rule would likely arrive next spring.
Skype applauded the proposal and Google said it could not be more pleased. Consumer groups saw the move as a victory.
This is a tremendous day for millions of us who have been clamoring to keep the Internet free from discrimination. said John Silver, executive director of advocacy group Free Press.
ANTI-DISCRIMINATION, PRO TRANSPARENCY
Genachowski proposed adding two new principles to four existing principles the FCC issued several years ago. They would prevent network operators from blocking consumer access to any lawful Internet content, applications, and services. Users would also be able to use any non-harmful devices.
In an effort to reassure businesses, Genachowski said providers will not need to disclose personal subscriber data or anything that might compromise network security.
In a speech in Troy, New York, President Barack Obama said the government should make common-sense ground rules to ensure a level playing field for all Internet participants.
West Virginia Democrat John Rockefeller, chairman of the Senate Commerce Committee, applauded the proposals.
The proposal coincides with a deadline for the FCC to file a court brief in a case against Comcast, which is challenging the agency's authority to regulate actions involving the Web.
The FCC defended its position by arguing that it has broad authority under the 1996 Telecommunications Act.
While Google shares ended 1.1 percent higher at $497 on the Nasdaq, Sprint shares were down 0.7 percent at $4.25 on the New York Stock Exchange. AT&T ended down 0.7 percent and Verizon shares dipped 0.3 percent on the NYSE.
(Additional reporting by Sinead Carew and Caren Bohan in New York; Editing by Maureen Bavdek, Dave Zimmerman and Matthew Lewis)