"I don't understand the problem we're trying to solve, these so-called barriers to innovation on the internet," said David E. Young, Verizon's vice president for federal regulatory affairs. Verizon, AT&T, Comcast,. and others have lobbied vigorously against increased broadband regulation, as well as against legislation that would stiffen governmental oversight of the industry.

The pro-business Institute for Policy Innovation issued a blistering statement saying the proposed rules will "undoubtedly jeopardize not only the future of new and currently unforeseen innovations in Internet services, but also current services that consumers have come to expect and enjoy."

"'Net neutrality' is nothing more than sweet-sounding words to obscure an attempt to involve the government in directing private sector investment and business models," said Bartlett Cleland, director of the Dallas-based group Center for Technology Freedom. "The discussion regarding where investment should take place should be left to consumers and business owners."

"The sort of aggressive regulation, as proposed today, by making rules out of guidelines even while inserting an expanded menu of regulatory guidelines, is one more step toward dismantling current and discouraging future innovation," Cleland added.

In his speech, FCC chairman Julius Genachowski argued that doing nothing to update U.S. broadband policy would carry an "unacceptable cost."

"It would deprive innovators and investors of confidence that the free and open Internet we depend upon today will still be here tomorrow," Genachowski said. "It would deny the benefits of predictable rules of the road to all players in the Internet ecosystem. And it would be a dangerous retreat from the core principle of openness -- the freedom to innovate without permission -- that has been a hallmark of the Internet since its inception, and has made it so stunningly successful as a platform for innovation, opportunity, and prosperity. This is not about protecting the Internet against imaginary dangers," Genachowski said.

Federal broadband policy may not seem like the most glamorous issue; if you follow FCC business, it can seem incomprehensible. But the issues at stake are critical: how we will use our computers and cellphones, and how businesses will compete in a marketplace undergoing periodic, seismic innovations and disruptions.

Think Netscape, Google, Wikipidia, eBay, Facebook, Twitter, and Skype -- as well as tomorrow's internet-based services and mobile devices that now only live in the minds of brilliant young entrepreneurs and engineers. In years to come, the internet will facilitate innovations in medical science and communications as well smart-grid technology and energy distribution, among many other applications. "In the 21st century, the garage, the basement, and the dorm room remain places where innovators can not only dream but bring their dreams to life," Genachowski said. "And no one should be neutral about that."

Genchowski proposes turning four broadband "principles" established in 2005 during the previous FCC commission into formal rules, as well as adding two more rules.

One addition would prohibit network discrimination. "The great majority of companies that operate our nation's broadband pipes rely upon revenue from selling phone service, cable TV subscriptions, or both," Genachowski said. Such services, he said, "increasingly compete with voice and video products provided over the Internet. The net result is that broadband providers' rational bottom-line interests may diverge from the broad interests of consumers in competition and choice."

The new rule, he said, would mean broadband providers "cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers' homes. Nor can they disfavor an Internet service just because it competes with a similar service offered by that broadband provider. The Internet must continue to allow users to decide what content and applications succeed."

The second new rule would require increased transparency by broadband providers of their network-management practices. "The Internet evolved through open standards," Genachowski said. "It was conceived as a tool whose user manual would be free and available to all. But new network management practices and technologies challenge this original understanding. Today, broadband providers have the technical ability to change how the Internet works for millions of users -- with profound consequences for those users and content, application, and service providers around the world."

In a clear win for net neutrality advocates, who argue that the new rules should apply to wireless as well as wireline communications, Genachowski said, "The principles I've been speaking about apply to the Internet however accessed, and I will ask my fellow Commissioners to join me in confirming this."

AT&T expressed cautious support for much of the FCC's plan, but balked at the extension of the rules to the wireless space: "We are concerned, however, that the FCC appears ready to extend the entire array of net neutrality requirements to what is perhaps the most competitive consumer market in America, wireless services."

Shortly after the speech, the CTIA, the wireless industry group, issued a statement saying it is "concerned about the unintended consequences Internet regulation would have on consumers considering that competition within the industry has spurred innovation, investment, and growth for the U.S. economy."

In arguing for a rule on increased network-management transparency, Genachowski cited last year's case over Comcast's web-blocking practices.

"The blocking was initially implemented with no notice to subscribers or the public," Genachowski said. "It was discovered only after an engineer and hobbyist living in Oregon realized that his attempts to share public domain recordings of old barbershop quartet songs over a home Internet connection were being frustrated," he said, referring to Robb Topolski, the engineer who first identified Comcast's traffic interference.

"It was not until he brought the problem to the attention of the media and Internet community, which then brought it to the attention of the FCC, that the improper network management practice became known and was stopped," the chairman said.

Genachowski also addressed the contentious issue of broadband competition, which is less than robust in many markets. "As American consumers make the shift from dial-up to broadband, their choice of providers has narrowed substantially," he said. "I don't intend that remark as a policy conclusion or criticism -- it is simply a fact about today's marketplace that we must acknowledge and incorporate into our policy making."

Now, the FCC will issue an order of proposed rule-making, followed by a period of public comment.

Update 6 p.m. EST: Republican Senators move swiftly to block the new FCC rules

Hours after Genachowski's speech, Senator Kay Bailey Hutchison, a Texas Republican, introduced an amendment to an unrelated Interior Dept. appropriations bill set to be considered this week that would bar the FCC from spending money "to develop and implement new regulatory mandates," according to her office. The bill was co-sponsored by Sens. John Ensign (R-Nev.), Sam Brownback (R-Kan.), David Vitter (R-La.), Jim DeMint (R-S.C.) and John Thune (R-S.D.).

"I am deeply concerned by the direction the FCC appears to be heading," Hutchison said in a statement. "Even during a severe downturn, America has experienced robust investment and innovation in network performance and online content and applications. For that innovation to continue, we must tread lightly when it comes to new regulations. Where there have been a handful of questionable actions in the past on the part of a few companies, the Commission and the marketplace have responded swiftly."

Public Knowledge, a DC-based pro-network neutrality group, immediately blasted Hutchison's move. "We were disappointed to learn that Sen. Kay Bailey Hutchison, the senior Republican on the Commerce Committee, has introduced an amendment to the Interior Appropriations bill to be taken up this week by the Senate that would stop the Federal Communications Commission from taking up Net Neutrality rules," said Gigi B. Sohn, president and co-founder of the group. "We hope the full Senate will oppose this measure.

"We also note that Sen. Hutchison represents a state served by AT&T, as do cosponsors Sen. Sam Brownback (R-KS), David Vitter (R-LA) and James DeMint (R-SC), who are on the Senate Commerce Committee," Sohn added. "Also cosponsoring the amendment are Sen. John Ensign (R-NV) and John Thune (R-SD), Commerce Committee members from states serviced by Qwest."

Update 11 a.m. EST, Sept. 22: AT&T and the GOP -- more than $400K donated to anti-net-neutrality senators

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