FCC Chairman Ajit Pai yesterday took pot shots at Twitter as a way of arguing that net neutrality wasn't supposedly really about a "free and open Internet" because big companies use the regulations to control online business.

But conflating issues isn't a valid argument. Net neutrality has been in potential trouble before, with bad implications for entrepreneurs and consumers. And while part of this may be a political slap at tech companies, in the end it is results and not motives that matter.

If the rule is scuttled, small businesses, entrepreneurs, and consumers will pay a literal price in higher costs and reduced innovation and competition.

Net neutrality requires internet service providers, or ISPs -- a group that includes such large companies as Verizon, AT&T, Comcast, and Time Warner -- to treat all data traffic equally. That means an ISP couldn't take money from Netflix, for example, to make it the only video streaming service offered to customers, or to slow the traffic of the likes of Hulu, Amazon, and Google to be less competitive.

The argument on the side looking to overturn the rules -- even made by the likes of Mark Cuban -- is that regulation inhibits innovation, rules have an impact on business opportunities, and there hasn't been serious competitive harm from ISP actions before.

The only problem with the argument is that it's factually incorrect. For example, in 2014 came news that Netflix had paid Comcast for better data access to the former's customers after viewing quality had serious degraded. After the agreement, suddenly viewing quality was up again.

Zero rating, in which consumers can choose from select music, video, or other services without having them counted against data limits, is another example. T-Mobile used the strategy but did so in a way that the FCC found was legal in January of this year because it "did not compel edge providers or consumers to participate in Binge On, and did not charge them anything if they opt to do so." However, AT&T, which also used zero rating, was criticized.

Unlike T-Mobile, however, which charges all edge providers the same zero rate for participating in Binge On, AT&T imposes hefty per-gigabyte charges on unaffiliated third parties for use of Sponsored Data. All indications are that AT&T's charges far exceed the costs AT&T incurs in providing the sponsored data service. Thus, it would appear that AT&T's practices inflict significant unreasonable disadvantages on edge providers and unreasonably interfere with their ability to compete against AT&T's affiliate, in violation of the General Conduct Rule.

This is one example of an effect of insufficient net neutrality protection. While some claim the issue never became widespread, if there were no rules, then something similar could go into broad effect. That's the nature of business because companies don't want their competitors to have economic advantages like additional revenue streams.

For entrepreneurs, this would be a disaster. It can already be difficult, especially in the tech industry, to introduce new products when a much larger company like Google or Microsoft or Amazon or Apple can offer something similar. But when the products, as so many do these days, depend on the Internet for full functions and capabilities, net neutrality is critical to maintain innovation. Otherwise, one of the larger companies could pay to have their versions of services given large performance advantages that would attract customers. Startups don't have the cash to enter these types of bidding wars. And, again, if they have occurred before, the repeal of the rules would ensure they would happen again.

Consumers also get hurt in the product. Prices go up because costs go up. There is also the problem of less competition and choice. New services and capabilities need the chance for entrepreneurs to get to market. If they can't, they won't work on those ideas and will find others.

It is true that the Internet grew under what one might call benign regulatory neglect for decades. But the past isn't the present or future. The stakes have become enormous as we're no longer talking about an industry of startups. There are giants as well, and telecom companies that hunger for a sampling of the large sacks of money the gargantuan firms hold. Once, keeping hands off may have made sense. Now it's necessary to protect younger companies so that innovation can continue to flourish, entrepreneurs can continue to help build the economy, and consumers can have choice.

Published on: Nov 29, 2017