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April 08, 2010

Decisions by Court of Appeals and the SEC Block Assurance of Net Neutrality
    by Robert Kropp

Court rules that the FCC lacks authority to regulate interference by Internet companies of usage by its subscribers, and the SEC disallows a number of shareowner proposals addressing net neutrality on the grounds of ordinary business. Second of a two-part series.

SocialFunds.com -- Proponents of an open Internet were dealt a blow this week, when a US Court of Appeals vacated a 2008 order by the Federal Communications Commission (FCC) which censured Comcast for delaying file transfers by subscribers using peer-to-peer software. The Court ruled that the FCC lacked the authority to regulate Comcast's interference with Internet usage by its subscribers.

In response to the Court's decision, the FCC stated, "Today’s court decision invalidated the prior Commission's approach to preserving an open Internet. But the Court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end." Following the Court's decision, the FCC extended its deadline for public comments on its proposed draft rules for the preservation of an open Internet, to allow interested parties to evaluate and consider the legal implications of the decision.

In September, FCC Chairman Julius Genachowski announced that providers of Internet access should not discriminate against lawful applications or content.

While President Obama has yet to address the Court's decision directly, Robert Gibbs, his press secretary, stated that the Administration remains committed to net neutrality, as well as providing Internet companies "with the certainty that they need."

Shareowner activists who have also taken up the complex issues associated with net neutrality reacted with disappointment to the Court's decision as well. Michael Connor, Executive Director of the Open Media and Information Companies Initiative (Open MIC), told SocialFunds.com, "It shows how contentious, how complex, and how important the issue is. If there's any good news in the court case, it's that the decision is a narrow one."

"The court didn't say that the issues are unimportant, or that the regulation of Internet Service Providers isn't an important issue, because it is," Connor continued.

"One of the things these companies say is you shouldn't regulate the Internet because customers can always go somewhere else, but there isn't really much competition in most markets," Connor said. "One hundred million Americans don't have access to broadband Internet. If Americans had choices, then there might not be a need for much regulation."

Equally frustrating to shareowner activists is the decision by the staff of the Securities and Exchange Commission (SEC) to exclude a number of proposals addressing net neutrality, on the grounds of ordinary business. The SEC stated that the proposals do not raise a significant social issue. Proposals submitted by Open MIC and
Trillium Asset Management addressing net neutrality were excluded from proxy ballots at AT&T and Verizon for the second year in a row.

In response to the SEC decision, Trillium stated, "Given that President Obama and over one hundred members of Congress, as well as hundreds of civil rights organizations, have all spoken up on the importance of a free and open Internet, we consider this conclusion deeply flawed. We will continue to press the SEC to reverse its censorship of this critically important shareholder issue."

The proposals at AT&T and Verizon requested that the companies publish reports re-examining their policies in the context of their corporate social responsibility (CSR), reputation, and impacts on customers, communities, and society.

Proposals submitted at Comcast and Sprint Nextel by the New York City Pension Funds requested that the companies prepare reports on the merits of publicly adopting a set of guiding principles for the promotion of a free and open Internet. They too were disallowed by the SEC.

"The SEC ruled that the proposals addressed ordinary business," Connor said. "We have to ask, when the President of the United States identifies it as a major policy issue and it makes front-page news and has such implications for Internet users, that the SEC identifies it as ordinary business that shareholders have no rights or voice in, it's hard to imagine."

"The SEC is not allowing shareholders to vote on an important issue," he continued.

The Internet Service Provider (ISP) CenturyLink chose not to oppose the shareowner proposal submitted by Open MIC, and it will be voted on at the company's annual meeting. Last year, the proposal won more than 30% of the vote.

Stating that "ISPs must give far-ranging thought to how their network management practices serve to promote--or inhibit-- public participation in the economy and in civil society," the proposal requests that CenturyLink issue a report "examining the effects of the company’s Internet network management practices in the context of the significant public policy concerns regarding the public’s expectations of privacy and freedom of expression on the Internet."

Asked about the status of Open MIC's engagement with CenturyLink regarding the proposal, Connor replied, "They won't take our phone calls or answer our emails."

A resolution submitted at Earthlink by the New York City Pension Funds, requesting a set of guiding principles for a free Internet, will also be voted on, at the company's May 4 annual meeting.

"One of the reasons for the importance of net neutrality is that it is a privacy issue," Connor said. "The function that Open MIC serves is to be the experts in and a resource for information about media issues, and we will continue to identify the critical issues."

Also, as reported by SocialFunds.com on April 6, a proposal was submitted by
As You Sow and Northwest & Ethical Investments, requesting that Google "adopt…a set of principles for online advertising that goes beyond current Company statements and addresses the collection of sensitive information about health, finances, ethnicity, race, sexual orientation, and political activity for the purposes of behavioral advertising."

While Google recommended that shareowners vote against the proposal on behavioral tracking, the company did not challenge the resolution at the SEC, and it will be put to a vote at its annual meeting on May 13.

Yahoo, faced with the same shareowner proposal, has chosen to engage with As You Sow and Northwest & Ethical Investments, leading to the withdrawal of the proposal. Discussions between Yahoo and the shareowners are in their early stages.

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