Having twice been told by federal courts that the FCC does not have the authority to regulate the Internet in the same manner in which it regulates voice communications (that quaint POTS service that ran over phone lines), the FCC is now back with an attempt to impose net neutrality within the bounds defined by the courts.
The History of Net Neutrality
The idea of net neutrality was borne out of a couple of legitimate concerns:
- When peer-to-peer services like the old Napster and the current BitTorrent became popular, they started using up measurable amounts of Internet bandwidth. These services were of particular concern because they used up quite a bit of upstream bandwidth, and most Internet services supported much more downstream bandwidth than upstream bandwidth. Internet service providers starting limiting these services. The net neutrality movement was born out of concerns that if an ISP could limit one kind of service, they could potentially control what information people had access to.
- These concerns were amplified by the prospect that if an Internet service provider (such as Comcast) owned a content provider (such as NBC), it could choose to provide favorable bandwidth to its affiliated content provider at the expense of competing content providers such as CBS, ABC, Fox, and others.
The Net Neutrality Court Cases
There have been two cases in which major Internet service providers have brought suit against the FCC. A federal appeals court ruled in April of 2010 in Comcast vs. the FCC that regulators had limited power over web traffic under current law. The decision allows Internet service companies to block or slow specific sites, like BitTorrent, and charge video sites, like YouTube, to deliver their content to users faster. In January of 2014, a federal appeals court ruled in Verizon vs. the FCC that Internet service providers are free to make deals with services like Netflix and Amazon, allowing those companies to pay to stream their products to online viewers through a faster, express lane on the Web. The court again ruled that the FCC could not apply “common carrier” rules to the Internet, but left open a path for the FCC to regulate “unreasonable commercial arrangements between Internet service providers and affiliated entities, or other companies.” The court did not define the boundary between “reasonable” and “unreasonable.”
Where We Stand Today
As is so often the case, where we stand today is a very different place with a very different set of problems than were envisioned by the net neutrality advocates when this movement started. The reality today is that Netflix and YouTube together account for over 50% of peak Internet bandwidth consumption and that peer-to-peer file sharing is a shadow of its former self. So now, the two biggest advocates of net neutrality are two huge corporations whose commercial interests are invested in being able to use as much Internet bandwidth as they would like in order to deliver their services to their customers without paying for the bandwidth to do so. Net neutrality has also run afoul of basic economics. It turns out that it is expensive to provide high-bandwidth services to consumers. It also turns out that consumers do not want to pay for all of the bandwidth they consume, so something has to give in order for increases in bandwidth (and the network upgrades that they require) to be funded.
The thing that is going to give was enabled in the January 2014 court decision. ISPs are now allowed to strike commercial arrangements with content providers, guaranteeing a particular level of service for a fee as long as such arrangements are “reasonable.” The net neutrality advocates have howled that this is the end of the “free and open Internet.” But those advocates did not volunteer to pay for all of the bandwidth that Netflix and Google are consuming today and will consume in the future. Since it is clear that consumers are not going to pay, that means that the content providers are going to have to.
“Reasonable” Net Neutrality, Here We Come
On April 24th, the chairman of the FCC posted an official blog on the FCC’s proposed open Internet rules. The FCC is proposing a reinstatement of the open access rules previously struck down by the court by focusing upon the establishment of a “high bar” for what constitutes “reasonable commercial arrangements,” with an eye toward “protecting consumers” and ensuring that no content gets blocked. This all sounds fine and well, but for the fact that with all government regulation comes the serious likelihood of of unintended consequences. If you are unfamiliar with the “law of unintended consequences,” it basically states that people and businesses are going to behave in their own economic self-interests, and in so doing, they may cause negative effects that are worse than what the regulation or law was intended to prevent to begin with. So, what could go wrong?:
- “Reasonable” is going to be what the FCC defines it to be. That means that its definition is going to be the subject of intense political lobbying (you can be certain that Comcast, Verizon, Google, and Netflix all have expensive lobbyists on retainer in Washington). This sets the stage for a crony capitalist deal that favors one set of companies and people over some other set of companies and people.
- If the FCC sets the bar for “reasonable” too high, it may get sued (again). This will create uncertainty as to what the ultimate rules will be. If there is one certain way to impede innovation, it is for the economic ground rules regarding the commercialization of that innovation to be uncertain.
- The FCC is currently comprised of three Democrats and two Republicans. If the White House changes hands in 2016, then the balance of the FCC will flip in the other direction. What a Republican majority in the FCC would do with Mr. Wheeler’s definition of “reasonable open access” is anyone’s guess.
- The ability for ISPs and content providers to strike carriage deals (as Netflix has recently done with Comcast) is inherently in conflict with the notion that “no content shall be blocked.” If all of the bandwidth into your house is being consumed by your Netflix stream with priority access, then by definition, all other sites could be blocked from your house (or at least have slow or very slow access).
- The FCC (like almost all government agencies) seems genetically unaware of how free-market incentives will shape the Internet irrespective of what it does. The only thing we know for sure is that we cannot predict what the interplay of these rules and free-market behavior will do to the Internet.
- The US does not by any stretch of the imagination lead the world in quality of broadband access. To the extent to which more broadband bandwidth for all consumers is desirable, it will be very expensive to to deliver it. In this post, Gigaom estimates that Verizon spent $670 per home to run fiber past seventeen million homes. The post further explains how Google is cutting costs, but it is still going to be expensive. The effect of the new rules on the incentives for Google or others to make this kind of investment is unknown. For example, if the FCC rules that Google cannot “unreasonably” favor YouTube, Google may decline to build out its fiber network.
Net Neutrality and the Cloud
If you or your employees access any cloud services, chances are that that access occurs at least in part over the public Internet (certainly when you and your employees are traveling). While you can certainly think of Netflix and YouTube as cloud video services, the rest of the cloud services that you may be accessing probably do not rise to the level of bandwidth consumption that these services do. Therefore, your cloud services are just as likely to get squeezed out of the fast lane as are random web sites that you access. This may impede the development of new and innovative cloud services out of fear on the part of the innovator that the bandwidth might not be there to deliver the service.
After twice being told by the courts that it does not have the authority to regulate the Internet, the FCC is trying to implement net neutrality again, with a new set of “reasonable open access” rules. It remains to be seen whether these new rules survive legal challenge, and whether they will do more harm than good.
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