(Recasts throughout with additional details of FCC proposal)
By Alina Selyukh
NEW YORK, April 24 (Reuters) - The U.S. communications regulator on Thursday sought to tame an outcry over its plan to allow "fast lanes" for some content on the Internet, insisting that the agency will monitor and punish broadband providers that treat Web traffic "unreasonably."
The Federal Communications Commission is weighing rules that would ban Internet providers from blocking access to websites or applications, but would allow content companies to pay for faster Internet speeds delivering their traffic as long as such deals are deemed "commercially reasonable."
Consumer advocates assailed the proposal from FCC Chairman Tom Wheeler, saying it would let certain content providers pay for access to fast lanes and discourage consumers from going to competitors' sites where videos or other content may load more slowly by comparison.
The five-member FCC will negotiate the rules before they vote on May 15 to formally propose them and seek public comment.
"This move is likely to favor the companies with the deepest pockets and hurt the scrappy start-ups," Delara Derakhshani, policy counsel for Consumers Union, said in a statement.
The debate is over the principle known as open Internet or net neutrality, which establishes that owners of networks that deliver online content should treat all of that content equally.
"There are reports that the FCC is gutting the Open Internet rule. They are flat-out wrong," Wheeler said in a statement late on Wednesday. In a blog post on Thursday, he said the rules, which he intends to finalize by year-end, would not change the FCC's "underlying goals of transparency" or harm consumers.
The FCC for years has struggled to set rules that would prohibit Internet providers from restricting how consumers surf the Web but would also withstand legal challenges from broadband providers who have said they, as owners of the networks, should be able to manage them or charge for their use without what they see as regulatory overreach.
In January, U.S. Court of Appeals for the District of Columbia Circuit for the second time struck down the FCC's previous anti-discrimination and anti-blocking rules after a challenge from Verizon Communications Inc. But the judges did affirm the agency's authority to regulate broadband, giving the FCC new legal opportunity to rewrite the rules.
It was the court's direction that guided Wheeler's proposal to allow commercially reasonable preferential treatment of traffic, senior FCC officials said on Thursday.
The agency will seek public comment before determining how to define "commercially unreasonable" behavior or a violation of "net neutrality," but it will focus on whether broadband companies' treatment of traffic hurts competitors or consumers, hurts free speech or is done in good faith, the officials said.
The FCC would have the authority to go after companies that violate the commercially reasonable standard on a case-by-case basis. The review would be prompted by formal or informal complaints as well as the FCC's own monitoring of how broadband providers treat online traffic, the officials said.
One of the ideas the FCC is considering would be to have a commission ombudsperson to monitor the industry with consumers and content providers in mind, one FCC official said.
In striking down the FCC's old rules, the court said the agency had improperly treated Internet service providers as regulated public utilities providing telecommunications services, like telephone companies, while they were actually classified as information service providers.
Consumer advocates have called on the FCC to reclassify Internet providers as more heavily regulated telecommunications services, an idea that has faced tremendous pushback from the broadband industry and Republican lawmakers who have urged the FCC to tread lightly.
Virtually all large Internet providers, such as Verizon, AT&T Inc and Time Warner Cable Inc, pledged after January's ruling to continue abiding by the principles of open Internet and have not weighed in since then.
The fees that content providers pay for faster access to their sites or applications recently grabbed the spotlight after video streaming service Netflix Inc struck a deal known as an interconnection agreement with cable provider Comcast Corp in February.
However, such deals are struck on the back end of the network that gets content from a server to the broadband network and so are outside of the scope of the FCC's net neutrality rules. The rules have only applied to deals related to traffic going over the "last mile" of broadband networks, where content moves directly to the user.
(Reporting by Alina Selyukh,; Editing by Doina Chiacu, Richard Chang and Tom Brown)
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