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Net Neutrality Is Down, but Not Out

On 14 January 2014, the U.S. Court of Appeals for the District of Columbia issued an 81-page ruling declaring that net neutrality rules set out by the U.S. Federal Communications Commission are invalid. Those rules had been designed to prohibit network operators and ISPs from either favoring or discriminating against particular forms of Internet traffic. Basically, all lawful Internet communication had to be treated with equal priority, even if the ISPs didn’t like that traffic, and even if that traffic supported competitors. Without net neutrality requirements, ISPs like Comcast, AT&T, Sprint, Time Warner, and Verizon (which initiated this lawsuit) could decide to block or inhibit services they don’t like, or grant special treatment to services they do like or for which they’re paid extra.

Internet and consumer advocacy groups responded with calls to action and warnings that Internet access in the United States could soon change for the worse. Conversely, many ISPs and network operators contend that eliminating regulation gives them new ways to make money and build new, innovative services that benefit consumers — and they pledge to uphold the basic spirit of the net neutrality rules anyway.

The reality is more complex. Our Internet service won’t change overnight, but unless the FCC finds new ways to mandate net neutrality requirements, ISPs may well start leveraging their positions as Internet gatekeepers to extract more money from Internet and media companies — and, ultimately, from us.

How Did We Get Here? -- In 2005, the FCC adopted a four-part Internet “policy statement” on net neutrality that (in very brief terms) said consumers were entitled to access any lawful Internet content and services that they liked, and to connect any legal device to the Internet connection so long as it didn’t harm the network. These policy points were in a legal grey area: they weren’t enforceable rules, but they formed a basis for FCC rules and policies going forward. (I wrote about the topic for TidBITS back then; see “The War Over Neutrality,” 15 May 2006.)

The policy statement was tested in 2007, when the Associated Press confirmed Comcast was interfering with the popular peer-to-peer file-sharing service BitTorrent. The FCC sanctioned Comcast, but Comcast appealed to the courts, claiming its actions were just reasonable traffic management, and, besides, a mere policy statement didn’t give the FCC the legal authority to tell Comcast what to do.

Comcast won that case, leaving the FCC scrambling. For a few years the agency abandoned rule-making and tried to reach side agreements with network operators. That didn’t work out: even in closed-door meetings, mobile and broadband companies wouldn’t agree to net neutrality principles, and in 2009 rivals Google and Verizon made a controversial separate proposal. That idea muddied the water so much the FCC gave up and went back to rule-making: in 2010, it issued the Open Internet Order, enshrining its earlier net neutrality principles in a framework the agency believed was legally enforceable.

The Open Internet Order came with two twists. First, it required operators to disclose their network management practices (like blocking services) so consumers could make informed decisions. Second, the net neutrality provisions applied only to wireline Internet access. Mobile Internet — 2G, 3G, 4G, LTE, and all that — was mostly exempted, under the theory that the industry was too new and fast-changing to be meaningfully regulated by the much slower FCC. Mobile providers couldn’t block lawful applications, but they could otherwise manage their networks however they liked.

Verizon and other companies immediately launched a legal challenge to the Open Internet Order, while at the same time pledging to support net neutrality principles. And on 14 January 2014 that challenge paid off: the Court of Appeals for the District of Columbia said wireline broadband providers are basically free to do what they like with their networks, just like wireless providers.

Common Carriers -- The heart of the matter comes down to the concept of “common carriers.” Basically, common carriers get special privileges like local service monopolies, the ability to assign phone numbers, collect taxes, charge interconnection fees, etc. In exchange, common carriers are more tightly regulated: they can’t discriminate and must accept any (legal) goods or content for transport at uniform rates. That’s how telephones have been treated in the United States since 1934, because phone service is considered an essential lifeline. Similar principles regulate public utilities and some transport services like shipping and pipelines.

Today, many people would consider the Internet as important (or more so!) than old-school phones, but broadband companies have successfully resisted being classified as common carriers. (Instead, they’re “information services.”) However, the court found that the FCC’s Open Internet Order amounted to regulating Internet providers as if they were common carriers. The court felt the FCC couldn’t have it both ways, so it struck down the net neutrality provisions.

What’s left? The court did preserve the Open Internet Order’s transparency requirements. Technically, broadband providers are free to discriminate against (or favor) particular customers or content, but they must disclose how they do so.

What Will ISPs Do? -- For years, big broadband operators like Verizon have looked at companies like Google and Netflix as freeloaders. After all, broadband operators spend millions (and billions!) of dollars on networks, only to have Internet companies make mega-bucks off those facilities without so much as a by-your-leave. Network operators look at those companies’ balance sheets and think, “You know, some of that money should have been ours.”

With net neutrality requirements once again gutted, ISPs can try to take away Internet companies’ “free lunch.” They probably won’t block Netflix, Hulu, Steam, Playstation Network, or Xbox Live; transparency requirements are still in place, so outright blocks would be a public relations disaster. As such, virtually all major players have pledged they won’t block their customers’ access to any lawful content, applications, or services on the Internet.

However, merely providing access to services is not the same as providing non-discriminatory access. AT&T has already announced Sponsored Data, a plan to collect fees from content providers (such as Netflix, Hulu, Amazon, and perhaps rivals like Comcast) in exchange for exempting those services from customers’ mobile data caps. Mobile networks were never subject to neutrality requirements, but since wireline broadband is now exempt it’s a good bet that most ISPs are drawing up similar pay-to-play schemes. (Comcast had already been splitting hairs with a bandwidth-cap-dodging arrangement for its Xfinity app for Xbox.) ISPs could bill it the other way too, charging consumers directly for preferential access to services (say, guaranteeing support for multiple HD video streams), or offering a low-latency “fast lane” that could appeal to gamers.

If these plans don’t generate the kind of revenue the ISPs want, they probably won’t degrade service performance — again, transparency rules still apply — but they could simply choose not to build out or upgrade systems that mainly carry those non-paying “freeloaders.” Maybe companies like Google, Microsoft, Apple, Amazon, and Netflix can afford preferential access, but high-bandwidth startups (like Aereo, Fanhattan, Imgur, and Cameo) may not have pockets deep enough to compete.

Where Do We Go from Here? -- The FCC has a few options for bringing back net neutrality requirements. The commission could ask Congress for authority to regulate broadband operators more fully, or the FCC could — all by itself — rule that broadband operators are common carriers and, therefore, subject to tighter regulation.

Right now, neither of those paths look likely. The U.S. Congress has essentially been deadlocked for years, and net neutrality splits Democrats and Republicans neatly on party lines. Further, companies like Verizon, AT&T, Comcast, and Time Warner are major political players; according to the Center for Responsive Politics they each spend millions every year on lobbying and backing candidates that support their views. The FCC also seems unwilling to declare broadband operators common carriers: new FCC Chairman Tom Wheeler appears to prefer a wait-and-see approach, acting only if discriminatory practices appear, although he recently suggested the FCC might seek another legal basis for net neutrality that avoids classifying broadband providers as common carriers. Of course, if that happens, network operators would probably challenge it. Again.

The bottom line for most Americans is that the landscape of Internet access will become more complicated over the next few years, as broadband providers work to wring revenue from both content providers and subscribers. On one hand, consumers might benefit as ISPs compete to offer the most compelling deals; on the other hand, there are plenty of places in America with poor broadband service and little or no competition, and the Internet’s next generation of killer apps may never get off the ground if they can’t afford pay-to-play deals.


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Comments about Net Neutrality Is Down, but Not Out
(Comments are closed.)

Stephen B  2014-01-22 06:53
" big broadband operators like Verizon have looked at companies like Google and Netflix as freeloaders. After all, broadband operators spend millions (and billions!) of dollars on networks, only to have Internet companies make mega-bucks off those facilities without so much as a by-your-leave. "

I do not understand this argument, which I have read many times. I pay to receive Netflix data - at approx 10Mbps - all-I-can-eat as long as I do not exceed an unknowable, but probably 500 GB per month. Doesn't Netflix pay to send data at about 8Mbps * no of customers - and with a huge data cap?
How is it that the those who installed the pipe think that they are not being paid?
Carlos  2014-01-20 18:06
They're being paid by the very customers who subscribe to their respective ISPs.
You write that so far the ISPs have successfully resisted being classed as "common carriers." Is there any reasonable hope that that could change in the future? They clearly match the description. Until there is more than one cable company allowed access to my home, these ISPs essentially have a monopoly and should be legally treated as such.
Geoff Duncan  An apple icon for a Friend of TidBITS 2014-01-28 12:54
ISPs' current classification as "information services" has a long political history: basically, network operators argued that if they were classified as common carriers they wouldn't be able to monetize broadband networks and capacity very efficiently, therefore they wouldn't be able to attract investors, therefore broadband networks and capacity wouldn't get built very far or very quickly in the first place. So, if the United States wanted Teh Cool Internetz, it needed to make sure they didn't stifle the companies that would be building out those networks with regulation, red tape, and requirements that would hinder free market innovation. They're still making that argument, and since the U.S. continues to lag behind the broadband capacity and deployment of other industrialized nations, the argument carries some weight (accompanied with lobbying dollars, of course).

This topic is really enough to support a separate article, but there is some momentum building toward classifying ISPs as common carriers. One voice in that mix is former FCC chair Michael Copps.

Other options include things like municipal ISPs ("munis"): efforts like Santa Clara and (maybe one day) Seattle to build out city-owned broadband networks, which would be operated like common carriers. It's also possible some ISPs will see a competitive advantage in operating in a manner akin to a common carrier, even if they don't have a regulatory requirement to do so: T-Mobile seems to be leaning that direction lately.
You have to admire the chutzpah of companies arguing that freedom from regulation will allow them to better serve customer needs, then failing to deliver on those needs (at least compared to other industrialized countries) and saying, "See? How much worse would it have been if you'd regulated us?"