Exactly a month ago, a federal court ruled that the US Federal Communications Commission does not have the authority to regulate broadband Internet service providers. The ruling came in a lawsuit against the FCC brought by Comcast Corp. (NYSE: CMCSA) in response to an FCC order that Comcast disclose how it managed its network and develop a publicly available plan for new, non-discriminatory practices. Comcast’s successful challenge was based on a reading of the FCC’s mandate that excluded broadband from the commission’s purview because it was not a “telecommunications service.” Other broadband and cable providers such as Time Warner Cable Inc. (NYSE: TWC), Cablevision Systems Corp. (NYSE: CVC), AT&T Inc. (NYSE: T), and Verizon Communications Inc. (NYSE: VZ) are also covered by the court’s ruling.

The issue in the court case revolved around Comcast’s practice of either slowing down or shutting down access to peer-to-peer applications that customers use to exchange music files (think Napster) or video files (think BitTorrent). Comcast did not disclose that it was following this practice, and when confronted said it was simply throttling down bandwidth-heavy applications.

Today, the FCC chairman has issued a document that he would like to have the commission adapt and send out for formal review that would restore the parts of the FCC’s authority that would guarantee access to broadband, but would be severely limited regarding the commission’s ability to regulate the industry. The FCC does not intend to seek the inclusion of broadband services under its broad statutory “telecommunications service” authority.

Rather, the FCC has chosen what it calls a third way. The proposal includes four items. First, recognize just the transmission component of broadband access as a telecommunications service. Second, apply a “handful of provisions” from the Communications Act that the FCC says are “widely believed to be within the Commission’s purview for broadband.” Third, the FCC will not apply the many sections of the Communications Act  that are “unnecessary and inappropriate for broadband access.” Fourth, establish boundaries to prevent regulatory overreach.

In general, Internet-based companies like Google Inc. (NASDAQ: GOOG), Amazon.com Inc. (NASDAQ: AMZN), and Ebay Inc. (NASDAQ: EBAY) favor net neutrality because it allows them to push richer content over the Internet pipes. Broadband providers either want to throttle down the bandwidth hogs or be allowed to meter the bits and charge customers based on how much bandwidth a customer uses.

By seeking to guarantee access, it is almost inevitable that the FCC will not allow either throttling or metered access. Providers have indicated that if the broadband is governed by what they say are landline rules, it will force them to cut billions of dollars from capex budgets that would be spent on network expansion. After all, investors are not likely to support spending billions if the company cannot recover the investment.

Today’s proposal by the FCC is nowhere near the final word on this subject. If the third way is eventually adopted the industry will fight every comma in court.

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