The top communications regulator sought to calm fears his agency would heavily regulate Internet services, but shares in major cable companies fell and industry insiders predicted a prolonged legal battle.

The chairman of the Federal Communications Commission issued a statement on Thursday pledging to retain a light touch with Internet regulation, after a court ruling last month threw into doubt the agency's authority over broadband.

The FCC plans to regulate broadband access as a telecommunications service -- instead of as an information service -- but said the industry should trust that it will not apply the most burdensome price controls and competition mandates that come with that framework.

We have never gone back on forbearance, the FCC's top attorney, Austin Schlick, told reporters. We have a very strong track record.

FCC Chairman Julius Genachowski called the reclassification of the agency's broadband authority an interim approach and said he would welcome congressional action to clarify the agency's powers.

Internet providers were pessimistic about the legal foundation of the FCC's latest approach and some predicted it would delay the National Broadband Plan, unveiled last month to expand access and boost Internet speeds.

The regulatory and judicial proceedings that will ensue can only bring confusion and delay, said Verizon Communications Inc executive vice president Tom Tauke in a statement.

Shares of the No. 1 U.S. cable company Comcast Corp ended Thursday down 6.2 percent while shares of No. 2 operator Time Warner Cable Inc finished down 8 percent and Cablevision Systems Corp shares declined 7.1 percent. Verizon's stock finished down 2.3 percent.

Investors fear Internet providers will be restricted in how they manage their networks, limiting their profits.

By contrast, content providers stand to benefit from the FCC's promise that its regulations will encourage a free and open Internet to carry their programs and services.

The shares of online search giant Google Inc, online auction site eBay Inc, and Internet movie provider Netflix Inc, outperformed broad stock indexes that were weighed down by Greece's debt problems and a suspected trading glitch.

BROADBAND PLAN

Extending affordable Internet access to all Americans is a key priority of the Obama administration and for Genachowski, a Democrat. The plan would upgrade Internet access for all Americans and shift spectrum from television broadcasters to wireless carriers with burgeoning smart phone products..

Republican FCC members Robert McDowell and Meredith Attwell Baker said Genachowski's decision represented a huge regulatory overreach and would likely be thrown out by the courts.

This proposal is disappointing and deeply concerns us, McDowell and Baker said in a joint statement. It is neither a light-touch approach, nor a third way.

The FCC's five commissioners will have the opportunity to vote on issuing Genachowski's policy proposal for public comment.

Analysts also questioned whether the FCC's approach will allow the agency to move forward with its broadband policy.

It is extremely unclear whether reclassification will survive judicial review, Bernstein Research analyst Craig Moffett said.

The FCC was forced to revamp its Internet authority after a U.S. appeals court ruled in April that the agency had failed to show it had the authority to stop Comcast from blocking online applications for distributing television shows and other large, bandwidth-hogging files.

Comcast, Verizon, and AT&T Inc said they continue to believe the existing framework gives the agency sufficient authority.

We feel confident that if the FCC proceeds down this path, the federal courts will ultimately reach the same conclusion, AT&T senior executive vice president Jim Cicconi said.

The FCC had acknowledged that the April ruling created a serious problem for its National Broadband Plan.

Genachowski is now seeking a middle-of-the-road approach that gives FCC clear authority over broadband, but does not make the FCC an active cop policing the Internet.

He said it would treat only the transmission component of broadband access service as a telecommunications service while not regulating Internet content.

The goal is to restore the broadly supported status quo consensus that existed prior to the court decision on the FCC's role with respect to broadband Internet service, Genachowski said in a statement.

Markham Erickson, executive director of the Open Internet Coalition, which represents online companies such as Google, Facebook, TiVo Inc and Amazon.com Inc, called the FCC decision a major step for consumers.

The FCC has taken a simple, third-way approach that will protect both consumer choice, innovation, and investment on the Net, he said.

(Reporting by Yinka Adegoke and John Poirier; Editing by Robert MacMillan and Tim Dobbyn)

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