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Thursday, April 24, 2014

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  • Risk to Net Neutrality is Minimal Even Though FCC's Open Internet Has Been Overturned

    Earlier today the DC Court of Appeals threw out the FCC's Open Internet net neutrality rules. Net neutrality advocates are upset with the FCC for pursuing an illogical regulatory path from the start. They are deeply worried that now, unencumbered by net neutrality regulations, big broadband ISPs (which also happen to be the biggest pay-TV providers) will begin to discriminate against third-party online video services by shunting them to "slow lanes" and charging new delivery "tolls."

    I completely understand these concerns, but I for one don't envision any of this happening, at least not in the foreseeable future. Some of you are no doubt thinking - Will's naive, he's an idiot, he's a shill, etc. so let me explain.

    There is no question that broadband Internet access is the engine of the 21st century economy. It's impossible to imagine any of the biggest online services (e.g. Google, Facebook, YouTube, Twitter, Amazon, etc.) WITHOUT fast, always-on broadband. They simply couldn't exist or flourish as they have. All of this has happened without any discrimination by broadband ISPs.

    While these and countless other online services have benefited from broadband, broadband has also hugely benefited the biggest cable companies and telcos (particularly cable which has about 58% of all broadband subscribers in the U.S.). Following tens of billions of dollars of investments, broadband has become a massive, high margin revenue generator for these companies. Twenty years ago broadband was just in trial; now there are nearly 85 million broadband subscribers in the U.S.

    As big as broadband already is for cable and telcos, it's now poised to have an even broader impact. That's because, through TV Everywhere, broadband has the potential to completely re-invent the traditional pay-TV service, untethering it from the set-top box and living room, making it ubiquitously available from any IP-enable device.

    However, a lot of this would be derailed and investments undermined if cable companies and telcos started discriminating against unrelated content providers. They would be shooting themselves in the foot and then handing the smoking gun to the regulators. Net neutrality advocates would be howling "we told you so" and you can bet a public outcry would motivate regulators to implement net neutrality rules pronto.

    But this illustrates the central problem I've had with pre-emptive net neutrality regulation: if broadband ISPs ARE acting in accordance with net neutrality's principles (which they have, with rare exceptions), where is the evidence that warrants the new regulations in the first place? Net neutrality is the proverbial solution in search of a problem.

    Further, today many, though not all, U.S. homes have access to relatively fast broadband Internet access, often with either no monthly data usage cap or one that is high enough to accommodate all but the heaviest of video streamers. And consider this: Netflix has over twice as many subscribers now vs. when the Open Internet order was put in place. Yet ISPs have done nothing to clamp down on it, despite the fact that it consumes almost one-third of primetime bandwidth and is the poster child for cord-cutting advocates.

    Given all of this, I think it's highly unlikely today's decision is going to change broadband ISPs' behavior. More likely is that these companies will continue investigating some form of usage-based pricing (a familiar model used by wireless carriers for data) whereby the heaviest users pay more. But charging content providers tolls or creating new "slow lanes" especially for them? I don't see it happening, there's just too much at stake for broadband ISPs to play those games.

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