Communications authorities on Thursday took a small but significant step toward regulating high-speed Internet in a bid to reclaim oversight, setting the stage for an eventual legal showdown with industry heavyweights.

Big broadband providers like AT&T Inc, Verizon Communications Inc and Comcast Corp oppose the move by the Federal Communications Commission, fearing the agency may heavily regulate their businesses in ways that could crimp profits and cast a cloud on investments.

The agency voted 3-2 to collect public comments on whether it should reclassify broadband regulation under existing phone rules -- typically considered a stricter regulatory regime.

AT&T questioned the policy and legal justification for the FCC move on Thursday.

We remain confident that if the FCC persists in its course -- -and we truly hope it does not -- the courts will surely overturn their action, AT&T senior executive vice president Jim Cicconi said in a statement.

FCC Chairman Julius Genachowski and his two fellow Democrats want the FCC to regulate broadband access to ensure the free flow of information and implement recommendations in its National Broadband Plan, which seeks to increase speeds and the number of users in the United States.

My desire is simply that we restore the status quo and have a workable light-touch framework for broadband access, he said.

Robert McDowell and Meredith Attwell Baker, Republican commissioners who voted against the measure, said the move would cast a regulatory cloud over the markets uncertain about investment decisions.

The FCC has tried to calm market fears, saying it will tread lightly by not enforcing rate regulation and line sharing requirements under the existing phone rules.

Despite the assurances, the formal move by the FCC on Thursday could open the floodgates to legal challenges.

FIRST STEP

The measure to collect public comments, called a Notice of Inquiry, could help build a case to give the FCC the authority it lost after a court ruling earlier this year.

The FCC is seeking public comment until July 15 and reply comments are due August 12. Analysts said the FCC could adopt an order as early as October.

But that strikes us as ambitious and the timing will depend in part on how the negotiations and mid-term election campaigns are going, said Rebecca Arbogast, an analyst at Stifel Nicolaus.

In April a U.S. appeals court ruled that the FCC had failed to show it had the authority to stop Comcast from blocking online applications that distributed television shows and other bandwidth-hogging files.

To put its authority on sounder legal footing, the FCC decided it wants to regulate broadband access as a telecommunications service instead of as an information service.

Typically, that framework comes with price controls and competition mandates.

Verizon called the FCC move a terrible idea and urged the FCC to let Congress determine the FCC's authority.

The negative consequences for online users and the Internet ecosystem would be severe and have ramifications for decades, said Tom Tauke, Verizon executive vice president for public affairs, policy and communications.

In Congress, U.S. lawmakers are considering changes to the U.S. telecommunications law to possibly give the FCC broadband authority in the short-term and better reflect technological changes.

That process could take several years to reach final legislation.

Tech and content companies applauded the move, believing it will help consumers -- not broadband providers -- determine the flow of online content.

The FCC action will make sure consumer choice over broadband Internet service is protected, said Markham Erickson, who leads the Open Internet Coalition, representing online companies such as Google Inc, Amazon.com Inc, eBay Inc, Facebook, Skype and Twitter.

(Editing by John Wallace, editing by Gerald E. McCormick)

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