Net Neutrality on the Ropes Again

net neutrality
Net neutrality is on the ropes again and, this time, it may get counted out. The once-free, formerly egalitarian Internet has become an increasingly expensive, overly commercialized, advertising-choked, parasite infected jungle or, in other words, exactly what the former Federal Communications Commission (FCC) Chairman Newton Minnow once called television in 1961: a vast wasteland. Now, a new proposal from the current FCC Chairman – Obama appointee Thomas Wheeler – may be paving the way for a new two-tiered structure for the Internet that will offer faster speeds and increased convenience for some companies, and lower rates but slower service for others. on the basis of whether or not they are willing to pay for those privileges

What is at stake here is the foundational principle of net neutrality, the concept that everyone should have equal access to the internet. Some media analysts believe that Wheeler’s proposed regulations will enshrine a multi-tiered service delivery system. Wheeler, himself, has cautioned critics to look before they leap, claiming that the proposed regulations now under discussion will do the exact opposite by reinstating the basic principle of internet equality. The evidence, however, is mounting up against him.

History Lesson: Net-Neutrality Up for Grabs

In 2006, Texas Republican John Barton introduced a bill in the House of Representatives that would have created a federal licensing system for Internet Service Providers (ISPs) that would have circumvented municipal, county and statewide licensing systems for broadband operators. Under Barton’s plan, the FCC would be required to issue new federal licenses for ISPs that would not be subjected to the same restrictive regulations imposed on state and local licensees, creating a two-tiered system of Internet services.

The net effect of the legislation would have been to enable ISPs to create a “high speed lane on the information superhighway” for those who were willing to pay a premium price for the higher speed services, giving those companies a significant competitive advantage over companies that were not able to absorb the cost of that option. Since the cost of the more expensive premium service would be passed on to the consumer, Barton’s proposal would have created a class system for Internet end users in which some users would receive more or better service than others

net neutrality

The differences in Internet speeds could be very significant for users. Millions of people use the Internet to buy and sell stocks on a daily basis, often making hundreds of trades per day. If two traders are operating at very different networking speeds, the trader with the faster Internet connection will have an unfair advantage over trader with the slower connection. This point was made recently when it was discovered that brokerage firms were using ultra-high speed data connections and preferential treatment by the exchanges to bet against their own clients and make significant profits on the basis of their ability to trade faster

The Barton Bill was defeated by a Democratic Senate. During the debate on the issue, Sen. Ron Wyden (D-Oregon), who led the floor fight against Barton’s bill, used the term “net neutrality” to define the concept of Internet openness. As coined by Columbia University media law professor Tim Wu in 2003, the term is used to describe an internet infrastructure in which ISPs are treated like common carriers such as telephone companies and railroads. According to the Interstate Commerce Commission, common carriers are required by law to charge the same rates for the same services regardless of the identities of the customers. Wu believes the same principle should apply to the Internet.

Rules for common carriers date back to the 19th century , when they were enacted to prevent the railroads from offering cheaper cartage rates to their largest shippers while charging higher rates for smaller volume shippers in exchange for precisely the same services. In the 19th and 20th centuries, preferential or discount pricing was thought to be anti-competitive because it gave the large operators an unfair advantage over the smaller operators that would have a depressive effect on the overall economy.

In 2010, spooked by the narrowly defeated Barton Bill, the FCC redrafted its regulations with respect to the operation of ISPs, attempting to enshrine the concept of net neutrality into its regulatory structure. On January 14, 2014, a three judge panel of the United States Court of Appeals for the District of Columbia struck down the part of the FCC regulation that required ISPs to provide equal access for all of the data passing through their system, leaving the way open for ISPs to take advantage of the situation.

Netflix: Net Neutrality Victim Number 1

The first casualty in the erosion of the Net Neutrality umbrella has been Netflix, the largest online video subscription service in the U.S. The Federal Appeals Court ruling cleared the way for Comcast to drag Netflix to the bargaining table earlier this year by throttling back on Netflix streaming video transmissions. Netflix customers, dissatisfied with slower transfer rates and poor image quality, back to walk away, going elsewhere for their entertainment services.

Net NeutralityComcast and Netflix had been circling each other for months, like two over-aged, overweight but well-trained prize fighters, trading accusations instead of punches. Netflix charged Comcast was intentionally throttling back Netflix transmissions and Comcast alleged that the Netflix charges were a cover-up for their own technical difficulties. Netflix lost that bout, kowtowing to Comcast’s demand for an undisclosed “interconnection” fee to link Netflix servers directly to the Comcast hubs.

The results have been mixed. The new architecture has improved transfer rates and image quality for Netflix, but it has also resulted in a price hike for new Netflix customers. On April 21, Netflix announced a $1-$2 increase in subscription fees for new customers, warning that the increases would eventually be felt by existing customers as well. Forbes Magazine estimates that Netflix, which reported profits of $53 million on revenues of $1.27 billion in the first quarter of 2014, could earn an additional $600 million to $1.2 billion from the rate hikes, which Netflix has carefully not attributed to the cost of the interconnection fees going to Comcast. How much of that increase will be absorbed by the interconnection fees is not known.

Just like a prizefighter challenging a bad split decision. Netflix has come out swinging in retaliation by opposing Comcast’s proposed acquisition of Time Warner Cable, claiming the takeover would give Comcast a stranglehold over 60 percent of the Internet-connected homes in America.

In a March 20 blog post, Netflix backed what it called “strong net neutrality” with rules to prevent Internet-service providers from charging to deliver services and data requested by residential subscribers. Christopher Libertelli, Netflix VP of government affair issued a statement Thursday in which he claimed Netflix was not interested in a fast lane but only wanted protect the continued existence of an open, uncensored Internet for their members. Nevertheless, the company took the trade-off of faster transmission speeds…and is paying the freight charges for it.

The Netflix episode is the first case, but it illustrates the amount of power the ISPs have over the Internet. If Comcast can throttle back the bandwidth for Netflix, they can also throttle back the bandwidth and transmission speeds for anyone else….including Google and Facebook, both now getting into the streaming video business themselves.

Reading the handwriting on the wall, Google has been pulling its own fiber optic cable in selected American cities for several years now in or metered services. Concerns about throttling have encouraged both Google and Facebook to invest heavily in solar-powered drone technology to develop an airborne WiFi system  enabling their users to connect directly with them without having to go through ISPs like Comcast. The drones are on the way, but Google has also launched the Project Loon helium balloon-based system. which is already up and running in New Zealand and is being set up now in the United States.

And the Winner Is…

With the growing evidence that the suspension of the FCC rules about net neutrality is already having an adverse effect on both ends of the Internet pipeline, there are growing concerns that the FCC is moving in the wrong direction. Wheeler’s proposal would permit Internet service providers such as Comcast to negotiate special deals with content providers like Netflix and Amazon that would give the companies that are willing to pay additional fees higher connection speeds. These “preferential service plans” would create a two-tiered Internet in which some companies would be able to deliver faster connections to their customers, giving more established company’s a significant advantage over newer, less well-established competitors.

Net NeutralityUnder Wheeler’s proposal, ISPs would be allowed to negotiate deals with content providers on a case by case basis for preferential connections to consumer’s set tops and home routers rather than issuing clear guidelines with standardized, unambiguous rules. Billed as a return to net neutrality, Wheeler’s plan sounds suspiciously like the very same plan John Barton proposed in 2006.

Wheeler is already facing criticism from lawmakers who say the plan favors large companies and from consumer groups concerned the days of an open Internet may be over. The notion that the FCC might create a fast lane for deep-pocketed companies is deeply disappointing and very troubling to Minnesota Senator Al Franken( D-Minn)., said in an e-mailed statement in which he urged Wheeler reconsider his plan. House Minority Leader Nancy Pelosi ( D-Calif.), urged Internet entrepreneurs and users to “make their voices heard,” adding that the proposal “raise serious concerns that the Internet might soon lose the core of what it is — an open space for innovation, entrepreneurship, connection and communication.”

The fast lane metaphor is an apt one. High Occupancy Vehicle (HOV) lane allow commuters with two or more passengers in their cars to use the high-speed lane during rush hour drive times….at the expense of cramming more vehicles into the remaining lands. The drivers in the HOV lanes get where they are going faster, but only at the expense of the other drivers who get left behind, stuck in traffic.

In a blog comment posted yesterday, Wheeler responded to criticisms of his proposals by pointing that his plan does not abandon the FCC’s Internet Fairness Doctrine because it reinforces rules preventing ISPs from unfairly blocking or slowing Web traffic. Critics insist that Wheeler’s position is a matter of semantics, pointing out that there is a very large but still finite limit to the traffic that Internet can handle. The bandwidth necessary to provide premium acceleration speeds for some sites inevitably means there will be less bandwidth to divide among the other users of the ISP’s services. Allowing some content providers to purchase faster services inevitably means that the bandwidth available for everyone else will substantially less that everyone would get if the available bandwidth were divided equally.

In order to enact his proposal, Wheeler must get the approval of a majority of the five-member Commission, which traditionally has two members from each party and a Commissioner, all nominated by the president and approved by the Senate. At this point, it is unclear whether or not he has the votes. Wheeler must win over two other commissioners to his cause and, at this point, he may not have the support of the two Democratic commissioners, who may hold out for new rules with even sharper teeth to prevent the ISPs from unfairly exploiting their position as a subscriber’s link to the Internet.

His position with the two Republican Commissioners is even more tenuous. They do not want to replace the regulations struck down by the Court, preferring their version of laissez-faire capitalism.

Wheeler has said he will push for a preliminary vote at the FCC next month, and wants to have a rule in place by year-end. Right now, however, no one is giving odds that Wheeler will get any new net neutrality regulations passed as long as the Democrats do not want this plan, and the Republicans do not want any.

By Alan M. Milner
Look for me on Twitter:@alanmilner

Sources:
Chicago Tribune
New York Times
US Court of Appeals
New York Times
CNBC

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