Last Thursday, the FCC voted down current Net Neutrality regulations. Net Neutrality, otherwise referred to as the Open Internet Order of 2015, is a regulation put in place by the FCC during the Obama administration that, among other things, treats internet service providers (ISPs) as public utilities and places restrictions on how and what kind of service these utilities can provide. This order is based on 'Title II', a subset of a failed legacy regulation known as the Communications Act of 1934.
The key stipulations of the existing 'Net Neutrality' Bill are:
· No Blocking
· No Throttling
· No Paid Prioritization
On the face of it, these three core guidelines all sound great - but is this really the case? The issue is being painted as consumers vs. the ISPs but as an entrepreneur, you need to understand the implications for your current and future endeavors. As a consumer, you've probably heard a lot about why destroying Net Neutrality is a bad thing but it's important to put your business owner hat on and understand both sides of the argument so we can dispel bias and inherit motivators.
I've decided to investigate and my summary of findings will surprise you:
1. The Bill itself reads as an apology to free markets and is peppered with reasons as to why this bill will have negligible influence on free markets. The negligible influence bit rings very true. In fact, the market has gone largely unchanged since the 2015 introduction of this bill. Businesses and consumers haven't really gained anything, neither did providers truly lose. The established status quo was there long before and remained in place even after congress passing Net Neutrality.
2. The protections offered by Net Neutrality do not serve to protect anything, but rather the bottom lines of massive corporations that use exorbitant amounts of bandwidth. In actuality it is the small businesses, consumers and the ISPs that end up footing the bill for these services. For example, Netflix continuously pays less and less for additional gigabytes of bandwidth it consumes rather than paying more and more; as should be the case for a seemingly a finite resource (new fiber is not being laid in the ground everyday). If you look at their revenue, there is an inverse correlation to distribution costs. This is inconsistent with a service that consumes so much bandwidth.
3. Direct stifling of investment and innovation. On the ISP side we can expect a decrease in incentives to upgrade networks due to lack of additional compensation similar to a landlord that doesn't renovate an apartment because the market rate will not waiver. Without investment, innovation is hard to come by. As Ben Thompson of Stratechery points out, we don't want to regulate out innovation. We can always revisit the topic if we see the need for regulation.
4. Startups stand to hurt the most - web and mobile startups now must "share" in the cost of distribution since ISPs will now blend the additional costs they incur from the likes of Netflix and smooth out the cost among all their subscribers. This means the internet titans have gained a competitive advantage over any startup - they buy bandwidth in bulk and pay less for the same bits.
5. ISPs cannot block, throttle, nor prioritize but they can still meter. Most major U.S. ISPs have a published bandwidth cap (Comcast caps at 1 terabyte/month) which has not been enforced. This could backfire against consumers should carriers choose to lower or enforce these caps to maintain competitiveness and profit.
6. The entire regulation does not touch on any of the key issues facing the internet provider market in the United States. These key issues are at the "local loop" level where many monopolies and duopolies exist. Instead it focuses on artificially supporting what has already become the status quo solving for what-if scenarios that never existed thanks to free markets. Also, it is largely unclear and unaddressed why the FCC in continuously trying to replace free markets with regulation while obscuring the main issues.
7. This regulation hurts consumers outside of metropolitan areas making it absolutely less profitable for both the carriers and their would-be competitors (small startup ISPs) to connect the 20 percent of households in remote areas to broadband internet.
8. The current rules make no distinction between different types of data traveling across the pipe. For example, should a Voice over IP 911 call be treated the same as a YouTube bloopers video? Many, including Google's Eric Schmidt, agree that there are scenarios where prioritizing certain types of traffic makes a lot of sense and serves the greater good. While you wouldn't want discrimination across similar data types in some cases, discrimination against different data types may be favorable.
For those of you who just want the net outcome of the above, repealing Net Neutrality is not going to break the internet or civilization. If anything it will help it evolve and will help your business pay less for better internet. This may seem counterintuitive but to say otherwise would be to ignore the key issues affecting internet infrastructure and markets in the United States.
Complicated issues rarely have simple solutions and Net Neutrality is no exception. It is too blunt an instrument used by the former FCC chairman to solve a problem that never existed. It fails to achieve its ultimate goals and only introduces unnecessary regulations that further inhibit healthy competition, and in the long term will only serve to hurt consumers and businesses, specifically startups, alike. As always, I love to take your questions and comments on Twitter.