The Two Sides of Internet Neutrality
In January, net neutrality was dealt a painful blow by the FCC’s defeat in the D.C. Circuit case Verizon v. FCC. At issue was the FCC’s 2010 Open Internet Order, which sought to enforce the principles of net neutrality on broadband internet providers. Supporters of net neutrality bemoan this decision as a huge loss, and fear that companies like Verizon will quickly take advantage of it; after all, why would Verizon oppose the Open Internet Order if it didn’t have something different in mind than the FCC regulations allow? Fortunately, many signs indicate that this setback is likely temporary.
Let’s start with the basics. Net neutrality is the idea that broadband providers should not be able to block or discriminate against any companies (“edge providers”) who wish to transmit information to end users; essentially all data must be treated equally. The FCC labels this the “Open Internet” principle. Net neutrality supporters fear that without a level playing field, broadband providers could throttle connection speeds to certain websites in order to extract payments in exchange for faster service. They could also wish to block competitor applications; for example, Verizon could hypothetically attempt to block Skype in order to provide more business for a rival web-calling program of its own creation. More nefariously, some fear broadband providers could try to violate free speech principles by blocking access to news websites they don’t agree with, like MSNBC or Fox News.
Supporters of net neutrality point out that the Internet’s greatest strength is the interconnectedness of the global network as a whole: users can connect to virtually anything, anywhere, and anytime. The low barrier to entry means that innovative start-ups can get off the ground and eventually become the successful companies we enjoy today like Google or Facebook. If broadband providers could discriminate, it would essentially entrench today’s successful companies; the next Google or Facebook would never get off the ground because it couldn’t pay to play in the big leagues with those two giants. An open internet by comparison would keep the internet alive as an equal opportunity pipeline for services, education, communication, and everything else we have come to rely on it for.
Critics of net neutrality counter that the internet has remained largely unregulated in the last decade, and so far no attempts at odious price discrimination have come to fruition (though there have been minor dustups). They argue that any attempts at price discrimination would drive outraged consumers into the arms of a rival. Indeed, the disastrous 2012 SOPA bill, which would have granted the government the heavy-handed power to shut down websites suspected of copyright violations, was absolutely eviscerated by a spontaneous uprising of millions of angry internet users who besieged Congress. This seems to lend credence to the idea that discerning internet users would use their diffuse market power to defeat price discrimination. A recent survey indicates that 71% of internet users would switch to a net neutral company if their internet service provider started discriminating, and 10% of users would “quit” the internet altogether if net neutrality was eliminated (if you can believe that second figure).
The ugly truth however is that most end users don’t have a lot of choice regarding their broadband provider – a majority of Americans only have one or two options to choose from. When such monopoly problems exist, the advantages of competition aren’t present. Since laying the infrastructure to reach the end users is very costly, it is almost impossible for more competitors to break into the market. Getting permission from the local governments across the entire nation to lay more cables into people’s homes is next to impossible, meaning most people can only choose between their telephone company and cable company for internet. If both companies enact discriminatory regimes without colluding in the matter, internet users would be left with no alternatives. Indeed, cable and phone companies already “bundle” internet service in a cheaper package with their phone or cable service, so that if you opted out in order to seek out a third party internet provider, the costs of service you are already buying from them would go up and erase any potential gains from using the third party.
The Zombie Lives – Internet Neutrality Will Come Back From the Grave
This brings us back to the D.C. Circuit case. It is important to note that for jurisdictional reasons, the D.C. Circuit ruled that the FCC did not have the authority to promulgate the Open Internet Order because it lacked the authority to do so under the 1996 Telecommunications Act. The FCC had designated the broadband providers as an information service, and not a common carrier; if broadband providers are designated instead as common carriers, the court would almost certainly grant them the authority to ensure net neutrality. The court expressly avoided any ruling on the merits of net neutrality as a concept, and would likely grant deference to the FCC under the Chevron doctrine if it reclassified broadband providers as common carriers. Internet neutrality is not dead.
Given the FCC’s and the public’s desires to maintain internet neutrality, the Verizon v. FCC case will likely represent only a roadblock towards the goal of open internet. Despite public suspicions, the broadband companies have not yet moved to exploit the case by enacting discriminatory pricing regimes. Recently, Comcast and Netflix reached an agreement on cost sharing for the video-streaming company on Comcast’s network. This was not the first sign of the death of internet neutrality however; this was a different beast. “Backbone networks” are long haul networks that transport data from companies providing web content to the broadband providers who actually deliver it to the customers. There are portals at the gateway between the backbone networks and the broadband providers; normally if traffic is very heavy in one direction, one of the parties will open up additional portals to accommodate it (these are commonly called peering agreements). The parties essentially self-policed each other, and worked on the mutual premise that either party would open up more portals to accommodate traffic in one direction or another.
Netflix’s interests do not fit this paradigm of self-policing. Netflix requires massive data transfers downstream to the user, but almost goes back upstream. Thus, Comcast had to keep opening up portals, while the backbone providers never had to reciprocate. Comcast eventually got tired of essentially propping up Netflix’s business model, and decided to allow traffic to back up at the portals until Netflix agreed to pay extra to establish a direct connection with Comcast. The custom that had built up around the portals broke down because Netflix was not at all like previous websites. Thus, the agreement did not kill net neutrality, but rather answered the question of whether Netflix’s customers or Comcast’s customers will pay for the voracious appetite for movies and shows that Netflix customers have displayed; the rational decision prevailed, and these two private actors agreed that it should largely be Netflix’s customers. This was not discriminating data based on its content, but rather based on its volume.
Agreements of this nature would not impact start-ups, because they would not impose massive one-sided costs on broadband providers until their businesses were sufficiently built up that they could pay the broadband providers on whom they impose substantial costs. Simply put, this sort of deal does not signal the end of net neutrality. In fact, some people think it might be a good thing, as the extra payments from Netflix and other companies would encourage broadband providers to invest in improved infrastructure to increase internet speeds, which would essentially serve as a rising tide that would lift all boats.
Potential for Compromise
It is hard to trust broadband providers when they have a near monopoly on internet access for most Americans, but critics of net neutrality do have one strong argument against the FCC’s plan: the damage that a heavy-handed regulatory regime could do. To a certain extent, the supporters and critics of net neutrality fall on either side of the line depending on who they fear less: a handful of corporations, or the federal bureaucracy of the United States government. The correct balance should rely exclusively on neither.
If the FCC were to heavily regulate internet traffic with pricing schemes and burdensome paperwork requirements, they could potentially do far more harm than good. Perhaps the best solution would be to reclassify the broadband networks as common carriers and create principles for open internet that would utilize the FCC as a backstop only when necessary. It doesn’t make sense for the FCC to go poking around at Verizon and Comcast when so far neither has moved to significantly jeopardize net neutrality. If either did, it would likely be apparent when edge providers and users began complaining about it and filed complaints with the FCC. In the absence of any allegations of wrongdoing however, the FCC should keep their hands off. For almost all of its existence, the internet has been both unregulated and open; we should only change the former if there is a change in the latter.
*Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the NYU Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."