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* U.S. FCC, European authorities finalising tighter rules
* Telecom, cable groups to be allowed to prioritise sometraffic
* Exception applies to services like connected cars
* How to police these "specialised services" remains unknown
* U.S. telecom firms expected to sue FCC
By Leila Abboud and Julia Fioretti
BARCELONA/BRUSSELS, March 1 (Reuters) - New rules that aimto protect the openness of the Internet will allow telecom andcable groups to prioritise and earn potentially vast income fromsome types of data, setting up likely clashes with regulators inthe future.
Telecom companies such as AT&T and Vodafone have convinced U.S. and European regulators, finalisingso-called "net neutrality" rules, to allow them to dedicatenetwork capacity to services such as providing connectivity todriverless cars and facilitating the exchange of medical databetween patients and health professionals.
Whether this proves to be a loophole or a necessaryprotection will only be known later.
The industry will be able to develop such "specialisedservices" as long as they do not hurt the delivery of the normalInternet to homes and businesses. The firms expect such servicescould generate billions in revenue one day as everyday tasks areincreasingly connected to the web.
Telecom and cable companies argue being able to charge fordifferent services and speeds would help fund network upgradesand develop new industrial uses for the web, such as smartelectricity meters.
Silicon Valley and net neutrality activists counter thatsuch treatment would lead to a two-speed system where telecomand cable groups could prioritise their own content and squeezeout start-ups who cannot pay.
Antonios Drossos, a net neutrality advocate at consultancyRewheel Ltd in Finland, said the U.S. FCC and Europeanregulators would handle the issue of what was permitted under"specialised services" on a case-by-case basis.
"It comes down to whether you trust the network operators.Do you believe they want to do health care and connected cars,or are they just looking for a loophole around the netneutrality?"
The debate about whether all web traffic should be treatedequally has become a hot issue because of disputes betweennetwork operators and bandwidth-hungry services such as Google'sYoutube and Netflix and attempts by sometelecom and cable companies to block services like Skype and file-sharing software Bit torrent.
The issue will be one focus of discussion this week atMobile World Congress, the telecoms industry's annualconference, where U.S. Federal Communications Commission (FCC)head Tom Wheeler will speak on Tuesday.
OPPORTUNITY FOR EUROPE
Some European telecoms executives believe that the regionwill take a more accommodating stance on net neutrality in thefuture than the U.S., where the FCC on Thursday expanded itspowers to police broadband companies.
The new European Commission under President Jean-ClaudeJuncker wants to spur growth by encouraging telecoms firms toinvest in faster broadband infrastructure, so is advocating asofter regulatory line on the industry.
The FCC voted in the U.S. to regulate broadband as autility-like service, ending decades of a light-touch approachto companies like Verizon and Comcast.
A high-level European telecom executive said Europeancarriers could jump ahead in developing new businesses that usetheir networks to collect mountains of sensor data fromeverything to connected cars to factory production, while theirU.S. peers are mired in regulatory uncertainty.
U.S. Internet service providers or their trade associationsare expected to challenge the new regulations in court,potentially dragging into 2016.
"There is a real opportunity to re-launch European innovationin the so-called industrial Internet," said the executive. "Awindow will exist for Europe to take the lead in connecteddevices if policymakers set the right net neutrality rules."
A U.S. telecoms lobbyist acknowledged that development ofsuch services could be slowed if companies felt that regulatorswere looking over their shoulders.
"I think when we talk about a connected fridge, we don't yetknow -- lots of future products are unclear," the person said.
"If there are robust protections for non-Internet broadbandservices, we'll continue to innovate and remain ahead of Europe.If I don't know which bucket my service is going to fall into...that's not a great answer to have."
MORE SANGUINE IN EUROPE
The political environment on net neutrality in the U.S. andEurope is very different. While U.S. network operators are up inarms about the FCC taking new regulatory authority on broadband,their European peers are more accustomed to harsher regulation.
Europeans also have more choice of broadband providersbecause of rules forcing former state-owned telecom groups toshare their line into homes with rivals, while Americanstypically only have a choice between a local cable monopoly anda telecom carrier.
Tom Phillips, who heads regulatory affairs for telecomstrade group GSMA, said European carriers can live with thecoming net neutrality rules because a patchwork of differentnational laws would be worse.
The Netherlands and Slovenia have their own net neutralityrules. Dutch regulators in January fined carriers KPN 250,000 euros and Vodafone 200,000 euros for breaking the rules.
"The European operators are pragmatic and would prefer toget a European policy done so as not leave a vacuum for memberstates to fill," said Phillips.
A challenge for regulators globally will be policing whethertelecom and cable companies are using "specialised services" asa way around the obligation to treat traffic equally.
The European Parliament, which passed net neutrality ruleslast April now being negotiated with member states, tried tobuild in protections against this issue. But those are likely tobe watered down in the final version of the law, experts say,under pressure from industry. (Additional reporting by Alina Selyukh in WASHINGTON; Editingby Elaine Hardcastle)
