• Obama Proposes Regulating Broadband as a Utility

    This morning President Obama made his strongest endorsement yet for net neutrality, releasing a statement and video (see below) explicitly endorsing the reclassification of broadband services under Title II of the Communications Act, effectively regulating broadband as a utility (note, the change isn't Obama's to make, it's the FCC's, which is an independent agency).

    If the FCC did make the change it would be the most significant update to broadband regulatory policy since 2002 when broadband was classified under Title I as a lightly regulated "information service." The change to Title II would mean broadband ISPs would have to adhere to regulations dating back to 1934. In one bit of good news for ISPs, Obama specifically said rates should be excluded from Title II regulation (which means usage-based pricing could still be implemented). Any proposed change is guaranteed to be challenged in the courts by ISPs.

    A key part of Obama's statement (and the net neutrality debate in general) is around "paid prioritization," the idea that certain content providers could pay the ISP special fees to be put in "fast lanes" to the detriment of those who don't pay and are therefore relegated to "slow lanes."  While paid prioritization applies to all kinds of content, online video is the most meaningful, because net neutrality proponents are most concerned that big broadband ISPs - which are also the biggest pay-TV providers - could/would take preferential paid prioritization actions to protect their pay-TV businesses.

    From a tangible standpoint, the most noteworthy example of paid prioritization has been Netflix signing interconnection agreements with several large ISPs. But this example is imperfect because of Netflix's own content distribution model, which causes heavier ISP loads than conventional CDN delivery. Netflix is also an outlier because it accounts for so much of primetime broadband traffic. All other content providers appear to have worked out their content delivery so that their users are satisfied and no extra fees are paid to broadband ISPs.

    In the past I've written that I'm extremely wary of heavily regulating broadband because of the unintended consequences that could result. No question, there are legitimate criticisms of broadband ISPs -  in particular, data showing that the U.S. lags other countries in terms of average speeds and is more expensive. But U.S. broadband infrastructure has been completely privately financed by ISPs in response to market conditions, with nearly 80% of American homes now subscribing. All this occurred under a light regulatory environment. Broadband is a massive market success story.

    Today broadband is the foundation of all online services, most notably online video, which is flourishing by any definition. Online video's impact is now being felt in TV ratings and advertising. It is also starting to have an impact on pay-TV subscriptions. In short, it is influencing the market by creating more choice and opportunity.

    Nobody can disagree that it's in all of our interests to have a fair and open Internet, it's like motherhood and apple pie. But new regulations always bring new risks, which is why I've maintained that vigilance, rather than preemptive heavy regulation is the better path for now. The ball is now in FCC chairman Tom Wheeler's court, we'll see how he decides to act.