The End of Net Neutrality and its Negative Consequences

The internet plays a pivotal role in democracy.  It is a forum for free speech, venue for social activism, and origin of many grassroots movements.  Prior to Thursday, December 14th, it did not matter whether you were a major service and content provider like Netflix, or a sole proprietor with a great competing website idea.  Internet service Providers (“ISPs”, e.g., Comcast) were prohibited from giving Netflix access to a fast lane on the internet (for a fee), while slowing down speeds for the sole proprietor.  Everyone received the same access, and ISPs were prohibited from favoring some content over others (e.g., Netflix v. Hulu).  This is the essence of “net neutrality”, a regulatory approach requiring ISPs to act neutrally when it comes to content.  Although a few weeks have already passed since the Federal Communications Commission’s (“FCC”) decision to end net neutrality, it is important that we are mindful of the negative consequences this decision will have for internet users across America.

By way of background, net neutrality is a relatively new regulatory regime.  The Obama administration’s February 2015 decision to enforce it was somewhat of a departure from the past.  Previously, the Federal Trade Commission (“FTC”) was the primary regulator tasked with policing anticompetitive behavior on the internet.  Net neutrality’s implementation shifted that authority to the FCC, which focused on behavior “before the fact”, as opposed to “after the fact.”  This approach did not necessitate an examination of behavior after it occurred, but instead policed it before it even happened by prohibiting ISPs from creating fast and slow lanes.  Before net neutrality, evidence of market abuse by ISPs appeared time and again, as detailed here.  The neutrality mandate alleviated many of these chief anticompetitive concerns.  Agreements on internet speed or access were simply prohibited.

The return to the pre-net neutrality approach shifted regulatory authority from the FCC back to the FTC.  There are a number of negative consequences that will likely result from this change, including the following:

  1. Inability to Keep Pace.  Although the FTC has broad authority to police antitrust violations and actions that harm consumers (via enforcement of laws around unfair and deceptive practices), it is ill-equipped to act as the primary internet regulator.  Unlike the FCC, which utilizes its vast rulemaking authority, the FTC is largely a reactive agency.  It would be primarily reliant on using enforcement powers.  The trouble here is that innovation will always outpace reactive enforcement.  While blatant violations may be apparent (e.g., breaching agreements on delivering content), more technical issues may be permitted to exacerbate for years without enforcement.  For example, the tools and techniques used by companies to collect, track, store, and monetize consumer data are often unapparent until the toothpaste is out of the tube.  This risk is precisely why the rules of the road should be set from the start.  The FTC is not in the ideal position to keep pace with technology and police fast and slow lanes on the internet.
  2. Change to Consumer’s Online Experience.  To be fair, this will not happen overnight, but without the assurance and enforcement of net neutrality, large internet companies (Verizon, Comcast, Time Warner, etc.) could favor their own business interests over its consumers’ preferences.  This could detrimentally affect everything from internet speeds to overall access.  For example, if an ISP like Verizon has an agreement with one content provider to offer its highest speed of access, consumers may experience slower speeds on websites owned by competing content providers.  Consequently, content providers refusing to pay up could be “unwatchable” (because of unbearable buffering times) or blocked completely.
  3. Pricing Schemes.  Since its inception, the internet has operated on a more or less egalitarian platform.  Without the assurances of net neutrality, ISPs could start offering different pricing structures, where consumers will inevitably bear the costs.  For instance, ISPs could offer a wireless plan with “free access” to your favorite video service (but you may be assessed a fee to watch the competition service).  In addition, a cap could be placed on your home broadband usage where you will discover its limits when your videos slow to a crawl after too much 4K streaming.  Consumers with the spending power to absorb price hikes will enjoy higher speeds, while lower income users will experience significantly slower and less enjoyable browsing (or no access to certain content at all).
  4. Detrimental Impact on Smaller Startups.  Without net neutrality protections, telecom giants may create barriers to entry that smaller startups are unable to overcome. If fees are exorbitant for the fast lanes, only the biggest players (i.e., Google, Facebook, Netflix, etc.) will be able to afford them.  Beyond the impact to consumers as described above, there is a serious risk that a fee-based internet will stifle content and software innovation.  Survival will be harder for smaller companies who cannot afford the higher fees to access high speed internet.  Goodbye startup app developers.
  5. Increased Antitrust Risk.  Consider this scenario: an ISP owns a subsidiary that provides content to its consumers (e.g., Comcast, an ISP, owns NBC Universal, a content provider).  That subsidiary competes with other content providers.  Will this ISP act fairly when charging fees and providing access to high-speed internet lanes to both its subsidiary and other competing content providers?  What type of regulatory scrutiny will the FTC employ in these types of scenarios?  The indisputable fact is that regulators will now have to actively police these types of arrangements.  These concerns were effectively moot in a world with net neutrality where all content was treated equally.  Without net neutrality, these types of antitrust concerns are only the beginning.  ISPs, who act as the internet’s gatekeepers, may be incentivized to wield their power in other anticompetitive ways, including price fixing, group boycotts (agreeing to slow speeds or ban content from one particular provider), and tying arrangements (conditioning the purchase of internet access on the purchase of a product/service).  Not to mention, the FTC, (the regulator now charged with policing all of this) is currently short-staffed, with a number of commissioner seats still waiting to be filled by the Trump administration.

FCC Chairman Ajit Pai, a former Verizon lawyer, argues (unsurprisingly, given his previous employment) that ending net neutrality will lead to more investment and competition among ISPs (like Verizon).  Pai contends this will increase the number of Americans with internet access, and is likely to incentivize enhancements in broadband technology.  While this regulatory shift may improve the bottom line for ISPs and perhaps even spur greater competition, the risks of anticompetitive conduct, collusion, and market manipulation are too significant to overlook.  With an already limited number of options in the market, ISPs possess almost monopolistic power even in a net neutrality world.  Permitting them now to create fast and slow lanes and further monetize internet access will only exacerbate their powerful role as internet gatekeepers.

There is little doubt why technology giants, consumer advocacy groups, and most internet users lobbied against removing net neutrality protections.  Nevertheless, the FCC and Chairman Pai forged ahead, even when the WSJ reported that thousands of fake comments were submitted to the FCC in favor of eliminating net neutrality (days before the FCC vote).  Many of these fake comments used the identities of real people, who in some cases had been deceased for years.  This essential part of the rulemaking process was clearly compromised, but an FCC spokesman did not view it as substantive, with little impact on the rulemaking.

John Oliver, host of Last Week Tonight on HBO, created a website where you can still voice your concerns to the FCC, even after the rulemaking: (it brings you to an FCC page for submitting comments).  Oliver also has a fantastic segment on net neutrality and the implications of eliminating it.

In the wake of net neutrality’s end, all hope is not lost.  While it may be near impossible to convince the Trump administration to change course, Silicon Valley is in search of alternative solutions.  Services like goTenna “hops text and GPS communications from device to device, so you can create your own network anywhere.”  These services operate as mesh networks, which bypass cell tours and routers owned and operated by ISPs.  Mesh networks like goTenna connect devices directly to each other instead of routing through a central point.  For more information on mesh networks and their growing prevalence around the world, read this article by Inverse Innovation.

While there is hope that innovation will alleviate complete consumer reliance on monopolistic ISPs, in the meantime, PolisPandit encourages everyone to voice their concerns to their congressional representative and the FCC.  Only together can American consumers check economic power in the hands of a few corporations, and work to ensure the internet remains the open, democratic platform it was designed to be.

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