Obama`s detailed statement on the issue of "net neutrality," a platform in his 2008 presidential campaign, was a rare intervention by the White House into the policy setting of an independent agency.
Shares of major Internet service providers Comcast Corp (CMCSA.O) and Time Warner Cable Inc (TWC.N) fell sharply after Obama said ISPs should be reclassified to face stricter regulations and banned from striking paid "fast lane" deals with content companies.
The president also said the Federal Communications Commission`s new rules should apply equally to mobile and wired ISPs, with a recognition of special challenges that come with managing wireless networks.
"Simply put: No service should be stuck in a `slow lane` because it does not pay a fee," Obama, currently in Asia, said in a statement released by the White House. "That kind of gate keeping would undermine the level playing field essential to the Internet’s growth."
Nearly 4 million comments flooded the FCC this year after Chairman Tom Wheeler proposed new Internet traffic rules in May that would prohibit the ISPs from blocking any content but allowed content companies to strike "commercially reasonable" deals to ensure their websites and applications load smoothly and swiftly.
Although Wheeler had pledged to police any such paid-prioritization deals that would harm consumers, public interest groups worried that his proposed rules would create "fast lanes" for the companies that pay up and relegate others to "slow lanes."
ISPs say they have not and will not strike paid prioritization deals but have balked at the prospect of being regulated more like public utilities.
"Reclassification ..., which for the first time would apply 1930s-era utility regulation to the Internet, would be a radical reversal of course," Verizon Communications Inc (VZ.N) said in a statement.
Verizon in January won a federal court case challenging the FCC`s previous set of net neutrality rules, which allowed "commercially reasonable" discrimination of traffic but indicated the FCC would disapprove of pay-for-priority deals.
The court supported the commission`s authority to regulate broadband access but said the agency was applying stricter rules to ISPs that did not jibe with the way the FCC classified them, which is as an information service.
Consumer advocates have for years pressed the FCC to reclassify broadband as a telecommunications service as a way to have more oversight authority, but ISPs have pledged they would fight the matter in court.
Verizon on Monday said a "gratuitous" move to reclassify would probably not stand up in court, while AT&T said it would expect to participate in a legal challenge.
`OBAMACARE FOR THE INTERNET`
Wheeler, Obama`s friend and former major fundraiser, on Monday reiterated that he, too, opposed Internet fast lanes or harmful prioritization deals but said that approaches including reclassification of ISPs to regulate them more strictly raised substantive legal questions.
"We must take the time to get the job done correctly, once and for all, in order to successfully protect consumers and innovators online," Wheeler said.
Obama and other White House officials acknowledged that the FCC, as an independent agency, would ultimately shape the regulations. But Republicans lawmakers quickly seized on Obama`s encroachment, days after their party won control of both houses of Congress in a midterm election largely viewed as a repudiation of the president`s policies.
"Net neutrality is Obamacare for the Internet," said Senator Ted Cruz of Texas. "It puts the government in charge of determining Internet pricing, terms of service, and what types of products and services can be delivered."
Though lobbyists say legislative efforts to overturn new rules would face a White House veto, cable and wireless companies were expected to turn to Republican allies in Congress for stricter oversight of the FCC.
"The president’s call ... would turn the Internet into a government-regulated utility and stifle our nation`s dynamic and robust Internet sector with rules written nearly 80 years ago for plain old telephone service," said Senator John Thune, a Republican expected to lead the Senate Commerce Committee.
Wheeler had originally pushed to reinstate net neutrality rules before the end of the year, but experts on Monday said the latest developments probably pushed the process into 2015.
Time Warner Cable shares fell as much as 7.2 percent, and closed down almost 5 percent, while Comcast dropped as much as 6.1 percent and closed own 4 percent. Comcast, whose bid to buy Time Warner Cable is under regulatory review, was by far the most actively traded stock on U.S. markets.
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