Gary Cameron / REUTERS U.S. FCC Chairman Tom Wheeler testifies before the House Communications and Technology panel on Capitol Hill in Washington December 12, 2013.

Open Internet advocates suffered a stinging defeat on Tuesday when a federal court struck down rules designed to prevent the nation’s largest broadband service providers from charging content companies for access to Internet “fast lanes.” The ruling, which was expected, is a blow to the Federal Communications Commission’s ability to enforce “net neutrality,” the principle that Comcast, Verizon, and AT&T shouldn’t be able to favor certain Internet services at the expense of rivals. As a practical matter, the ruling by the United States Court of Appeals for the District of Columbia means that the broadband giants are now permitted to charge Netflix, Amazon and other streaming services for access to faster broadband speeds.

The principle of net neutrality was enshrined in the FCC’s 2010 Open Internet order, which boils down to three rules. First, Internet service providers (ISPs) must be transparent about how they handle network congestion; second, the ISPs are prohibited from blocking traffic such as Skype or Netflix on wired networks; third, the ISPs can’t discriminate against such services by putting them into an Internet “slow lane” in order to benefit their own competing services. In its 81-page ruling, the court upheld the transparency rule but struck down the anti-blocking and anti-discrimination rules. The verdict is a blow for President Obama’s tech policy agenda, and presents the FCC with politically difficult choices about how to proceed.

The ruling means that the broadband giants might now be able to charge deep-pocketed content companies for privileged access to consumers. This could have a serious impact on Internet startups that might not be able to afford to pay for such access, potentially stifling innovation on the Internet, which has spawned one of the greatest periods of technological development in U.S. history. Craig Aaron, president and CEO of Free Press, a D.C.-based public interest group, said the court’s decision means that “the biggest broadband providers will race to turn the open and vibrant Web into something that looks like cable TV. They’ll establish fast lanes for the few giant companies that can afford to pay exorbitant tolls and reserve the slow lanes for everyone else.”

Harvey Anderson, senior vice president at Mozilla, the company that developed the Firefox Web browser, said the ruling should be “alarming” for Internet users. “Giving Internet service providers the legal ability to block any service they choose from reaching end users will undermine a once free and unbiased Internet,” Anderson said in a statement. “In order to promote openness, innovation, and opportunity on the Internet, Mozilla strongly encourages the FCC and Congress to act in all haste to correct this error.”

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The groundwork for Tuesday’s defeat was established in 2002, when the FCC made the fateful decision to classify broadband as an “information service” not a “telecommunications service,” which would have allowed the agency to impose “common carrier” regulations prohibiting discrimination by the broadband companies. That decision meant that when the FCC established its Open Internet Rules in 2010, the agency was on shaky legal ground, as numerous experts warned at the time. “Given that the commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the commission from nonetheless regulating them as such,” wrote U.S. Circuit Judge David Tatel.

New FCC Chairman Tom Wheeler and his colleagues now face difficult decisions. The agency could choose to appeal the court’s ruling. Or the agency could decide to reclassify broadband as a telecommunications service, something that many net neutrality advocates believe the agency should have done in the first place. That, however, would trigger a major showdown between the FCC and broadband giants like AT&T and Verizon, which are extremely powerful on Capitol Hill and oppose such reclassification. Since 1998, AT&T and Verizon have spent more than $340 million lobbying members of Congress, according to the Center for Responsive Politics.

Former FCC Commissioner Michael Copps, a longtime champion of net neutrality who serves as a special adviser to Common Cause’s Media and Democracy Initiative, blasted Tuesday’s ruling and urged the FCC to act swiftly to reclassify broadband as a telecommunications service. “The Court’s decision today is poised to end the free, open, and uncensored Internet that we have come to rely on,” Copps said in a statement. “People depend on the Open Internet to connect and communicate with each other freely. Voters need it to inform themselves before casting ballots. Without prompt corrective action by the Commission to reclassify broadband, this awful ruling will serve as a sorry memorial to the corporate abrogation of free speech.”

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For nearly a decade, net neutrality has been the subject of an intense series of battles among broadband companies, Internet giants, consumer groups, policy experts, and the FCC itself. At present, the Internet largely adheres to net neutrality, which means that all Internet users have open access to the Internet, just like all Americans have the right to travel anywhere in the 50 states without a passport. Without this open access, which most Internet users take for granted, startups like Google, Twitter and Facebook might never have flourished, according to net neutrality advocates. Skype is a text-book example of a startup that was able to build a disruptive new communications service thanks to the net neutrality principle.

Cable and telecom giants have argued that because they spent billions of dollars to build the infrastructure underlying the Internet, they should have more flexibility in deciding what content travels over those networks. Net neutrality, they’ve argued in the past, allows companies like Google, Yahoo and Facebook to make billions of dollars using the “pipes” and wireless networks that the cable and telecom giants spent billions to build. In 2005, incoming AT&T CEO Ed Whitacre famously remarked that upstarts like Google would like to “use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it.”

For its part, Verizon issued a statement reiterating what it said was its commitment to the open Internet. “One thing is for sure: today’s decision will not change consumers’ ability to access and use the Internet as they do now,” said Randal Milch, Verizon’s General Counsel. “The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want. This will not change in light of the court’s decision.”

Although the court struck down key aspects of the Open Internet rules, net neutrality advocates were heartened by another aspect of the ruling, which upheld the FCC’s authority to oversee broadband service. FCC Chairman Wheeler issued a statement saying that he is “committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”