What is Net Neutrality?

How does Net Neutrality affect my business?

This article, the fourth installment in our series, Telecom Tip Tuesdays, is going to be a bit more on the legal/regulatory side than most of our other posts.  Given that the President has referred to it several times, there have been a number of articles written and now there are even attack ads on TV, it is pretty likely that you have hard of the Net Neutrality debate. We thought it was time to offer a little clarity on the topic and try to explain what all the fuss is about.  Also, FCC Chairman Tom Wheeler just released a proposal on the position being taken by the FCC on Net Neutrality rules, so we can also give a summary on what the FCC is planning to do.

The topic of Net Neutrality is basically an argument over the regulatory rules that should apply to Internet Service Providers (ISPs).  One side of the argument, from the Net Neutrality advocates Neutrality3and content providers like Google and Netflix, is that the FCC should regulate the ISPs as Common Carriers, under the so-called “Title II” rules of the Communications Act.  The other side of the argument, from the ISPs primarily, is that the FCC should leave the ISPs largely unregulated, as they are now.  The debate started when the FCC published an order instructing ISPs to treat all Internet traffic equally but it was overturned in 2014 by an Appeals court ruling on a lawsuit brought by Verizon.  The crux of the debate is that overturning that order opened the way for ISPs to charge fees to prioritize traffic from content providers willing to pay extra – a.k.a “fast lanes”.

In summary, the FCC has decided to reclassify the ISPs as Common Carriers, and it will bar them from blocking or throttling internet content, nor will ISPs be able to charge extra for “fast lanes.” For consumers, the upshot is that they will be able to stream movies and songs from all providers equally.  The doomsayers in the industry had predicted that Title II would impose new fees and burdensome regulations that would destroy the industry.  However, the FCC made it very clear that this is not the case.  The Commission stated flatly that this is not utility-style regulation, because ISPs will not be filing tarriffs, there is no rate regulation and there’s no unbundling requirement that would force ISPs to lease network access to competitors.

For readers who want to know more detail, it helps to know a little bit (and we are really summarizing here) about how the Internet works.  Content providers, like Netflix, Google, Amazon, and billions of other websites host video, audio, text files, etc. for consumption over the internet.  Very large content providers like Netflix and Google will often buy large pipes to deliver their content quickly and reliably to the Internet backbone.  Traffic along the backbone of the internet is carried through many competing carriers and transit providers such as Cogent, Nlayer, Level3, Tinet, PCCW, NTT and a host of others, where it is finally delivered to the ISPs.  The final connection to the consumer is controlled by a relative handful of ISPs – mainly Comcast, AT&T, Time Warner Cable, CenturyLink and Verizon.  For the most part, the Net Neutrality debate involves the “last mile” of the internet – the connection to the consumer.

From the ISPs’ perspective, they argue that it costs money to build the last mile of the internet, especially for the high-bandwidth uses like video.  They are simply looking for the ability to charge the heaviest users – the content providers – a fee that represents the cost to support their usage.  From the content providers’ perspective, they are already paying large interconnection fees to connect their servers to the backbone and consumers are paying for their own connections as well, so why should content providers be singled out for additional fees, and where would the lines be drawn?net_neutrality

From a competitive and entrepreneurial standpoint, the advocates of Net Neutrality argue that the imposition of fees on content providers would have a chilling effect on new startups.  Where will the next Netflix or YouTube come from if they have to pay tolls to every ISP to reach their customers?  How would they compete with the existing content providers who have the deep pockets to pay for fast lanes while their content has to travel in the slow lane?  Finally, a recent study found that 81 percent of Americans, both Republicans and Democrats, oppose “fast lanes” and support Net Neutrality.

As we indicated earlier, the FCC Chairman has released a proposal that will become the next set of rules on the regulation of ISPs.  The proposal would make the ISPs Common Carriers in order to regulate them (and to avoid being overturned in another lawsuit).  Under the new rules, and similar to the old rules, the FCC will impose three bright line rules, which would ban the practice of blocking, throttling, and paid prioritization (i.e. “fast lanes”).  However, the FCC plans to avoid the strictest portions of Title II in a process known as “forbearance”.  The Commission said that, “The Order will not impose, suggest or authorize any new taxes or fees.”  In addition, the Order will not impose the Title II provision for “unbundling”, which would require the ISPs to lease network access to competitors at wholesale prices.

To those detractors who say that the FCC may practice forbearance now, but the order opens the door to future abuses, the FCC responded that forbearance has been working fine for the wireless (voice) industry for 21 years and that industry is thriving.  “The wireless industry has invested over $400 billion under similar rules, proving that modernized Title II regulation can support investment and competition,” the Commission said.  It seems pretty clear that the new Order will support Net Neutrality without spelling doom for the industry.

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