Telecommunications

The Costs of Internet 'Fast Lanes'


Federal Communications Commission Chairman Tom Wheeler

Photograph by Andrew Harrer/Bloomberg

Federal Communications Commission Chairman Tom Wheeler

Expect to hear a lot of I-told-you-sos from those who worried about having a former cable lobbyist chair the Federal Communications Commission. The FCC is set to introduce a new set of rules governing how Internet service providers (ISPs) can treat different services in different ways, and it looks like they will hew closely to the cable industry’s line.

Late Wednesday the Wall Street Journal reported that the FCC would release new rules developed by its chairman, Tom Wheeler. This was bound to happen after a federal court struck down the FCC’s Open Internet Order in January. Wheeler’s approach to the issue of net neutrality has been the subject of much hand-wringing, with his public statements always leaving some question about his position on the issue. The new rules will likely embrace the idea that Internet service providers can create so-called fast lanes, where they charge companies to send content to customers faster. If that principle becomes law, here are a few things to expect:

1. This could be the end of net neutrality. Wheeler told the New York Times that critics saying the agency was gutting the open Internet order were “flat out wrong.” In a statement, he said the same rules will apply to all Internet content. “As with the original Open Internet rules, and consistent with the court’s decision, behavior that harms consumers or competition will not be permitted,” he said.

But if the rules go through as described, the FCC would be rejecting the core principle of net neutrality: that ISPs don’t offer special treatment for a price. While Wheeler’s statements hint at a prohibition against undermining services as a way to weaken direct competitors,  he isn’t opposing letting ISPs charge the highest bidders for better service.

The standard would be commercial reasonableness. In other words, anything that doesn’t pass the FCC’s smell test would be in trouble. This is small comfort to net neutrality supporters; it’s just another way of saying the FCC will keep an eye on the industry it regulates. “The very essence of a ‘commercial reasonableness’ standard is discrimination,” says Michael Weinberg, vice president of open-Internet advocate Public Knowledge. “The core of net neutrality is nondiscrimination. This is not net neutrality.”

2. Then again, net neutrality isn’t a silver bullet. There are a number of things wrong with using net neutrality as the sole guiding principle for maintaining a healthy Internet. The name, for one, is awful. It also applies only to a certain portion of the Web, leaving open other means for ISPs to achieve the same ends. The controversial deal in which Netflix (NFLX) paid Comcast for a more direct connection to its network applied to a part of the Internet not subject to the rules. But one could argue thatComcast (CMCSA) was using its position as a gatekeeper to its customers to extract payment. Netflix did just that, saying the FCC should expand the idea of net neutrality to so-called peering agreements like the one in question. The FCC disagreed.

The FCC rules shot down in January also didn’t address smartphone-based Internet services. Mobile carriers argue that such tight rules ignore the tendency of wireless networks to get congested and say their industry remains new enough that excessive regulation could have a larger impact than it would on a mature industry such as broadband. AT&T’s announcement in January that it would begin a “sponsored data” program for wireless would have been a net neutrality violation for broadband. Now, it seems, the company will be free to pursue such a program if it chooses.

3. The real issue is anti-competitive behavior. The FCC’s new approach would put more power in the hands of ISPs, who will inevitably push companies that offer Internet services toward their fast lanes. It will be up to the FCC to police the providers’ strategies for doing so, and watch to see when the ISPs’ use of persuasion and punishment crosses the line. It’s unclear where the FCC will draw such a line, but it certainly seems to be erasing the absolute one that net neutrality advocates support.

It just so happens that the federal government is weighing a merger that could have major competitive implications in this very industry. A commonly raised concern about the proposed union of Comcast and Time Warner Cable (TWX) is how much power the combined company will wield over the broadband industry. Its scale would make it pretty persuasive when approaching Internet companies looking to ensure that customers have reliable access to their services.

Comcast also owns a major media company, NBCUniversal, making it very tempting to subtly punish media competitors. As part of its acquisition of NBC, Comcast agreed to obey the now-obsolete 2010 Open Internet rules. It has argued that one way to expand net neutrality would be to approve the merger: That would mean Time Warner Cable, which never agreed to the rules, would then also be covered by them.

The companies on the other side of the negotiating table aren’t convinced. Earlier this week, Netflix became the most prominent opponent of the Comcast-TWC deal. “The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their consumers,” said Netflix Chief Executive Officer Reed Hastings in a letter to shareholders.

4. It’s better to be big. The biggest beneficiaries of the FCC’s new approach will be the biggest companies. IfESPN (DIS), Netflix, and Amazon.com (AMZN) start paying ISPs for access to their services, they will likely pass those costs along to customers. Younger companies who can’t afford to pay may never get the chance to do so.

Brustein is a writer for Businessweek.com in New York.

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  • CMCSA
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