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The FCC Appears to be Letting ‘Net Neutrality’ Die. Here’s Why That Matters.

·Contributing Editor

A new rule from the Federal Communications Commission


lets Internet providers charge other sites


for faster delivery of their content


to their subscribers.

[And Yahoo executives wish they’d paid extra for express routing of this story.]

This illustrates the worst-case scenario of the proposal the FCC began sketching out last week: In rewriting net neutrality rules that were punctured by a court ruling in January, it would allow “commercially reasonable” paid prioritization deals. In other words, rich companies could fork over money to Internet providers to ensure that their high-bandwidth traffic like video would arrive at high speed. Others? Maybe not.

Early reaction has been none too kind. Think headlines like “The FCC doesn’t want to destroy net neutrality, but it’s going to anyway” — which ran atop one of the less pessimistic stories, a nuanced explanation by Stacey Higginbotham on GigaOM.

Under this new regime, the warning goes, while big-name companies would pay for elite status to lock in their privileged positions, smaller competitors would be left apologizing for their lagging performance, while startups would starve for funding as investors get spooked.

And executives at Big Telecom will mutter “Excellent!” as they spend their bonuses, secure in the knowledge that they face little effective competition.

It’s a real risk. And I was reminded of it in very real terms when Netflix paused and rebuffered repeatedly over the weekend, even though my Verizon FiOS connection delivers more than enough bandwidth for an HD stream. Then on Monday, Netflix announced that it had agreed to a form of paid prioritization with Verizon.

What we don’t know
But this worst-case interpretation deserves closer inspection, because there are some facts that we don’t yet know.

The biggest unknown in the doomsday forecasts is the experience that would befall sites and services that don’t pay for an upgrade. If the FCC leaves that up to Internet providers, then we really are on the way to stratified Internet.

But as Higginbotham’s post notes, the commission is considering requiring a minimum level of service in addition to banning providers from blocking sites. If that floor is high enough — at an optimistic extreme, to ensure reliable streaming HD video — then paid prioritization might come into play only for extravagances like Netflix’s venture into 4K “Ultra High Definition.” Or maybe faster lanes wouldn’t be economically viable.

A lower or vaguer baseline, however, would give startups and their potential funders the heebie-jeebies over what they might have to pay to unavoidable, under-accountable Internet providers.

“This is a very bad idea,“ wrote John Backus, managing partner of New Atlantic Ventures. “It is a huge boondoggle for anyone that owns pipes because they can basically auction off delivery times/speeds.”

A second unknown is the FCC making Internet providers disclose the principles governing their plumbing. If these transparency requirements expose details like peering and interconnection deals, it would be more obvious who’s to blame for these holdups.

“Aside from outright blocking, it’s extremely difficult to establish when a broadband provider is engaging in any sort of throttling or prioritization of traffic,” wrote Jackdaw Research analyst Jan Dawson. He noted that’s especially tricky in wireless networks — which have been under exceptionally permissive net-neutrality rules since 2010.

As FCC chair Tom Wheeler related at the State of the Net conference in Washington this January, Netflix didn’t work reliably in his own home, and his wife wanted answers: “You’re chairman of the FCC, why is this happening?”

The third unknown is what else the FCC could do to boost competition among broadband providers, which could lower any one company’s ability to demand a paid-prioritization tax from a content site. Without that, there’s little that customers will be able to do except complain.

The FCC can’t make cable operators invade one another’s territory for competitive purposes. But it could challenge state bans on municipal broadband, contest local regulations that impede building telecom infrastructure, and free up unlicensed spectrum for broadband use.

It could also kick Comcast’s proposal to buy Time Warner Cable to the curb. Or (cue the cries of “Socialism!”) it could accept the deal on the condition that the combined company agree to resell capacity to other firms, much as wireless carriers already do.

And it’s worth noting that while players in the more competitive wireless market have more liberty to discriminate for or against sites, they haven’t rushed to cash in on that privilege.

AT&T backed down on its attempt to reserve FaceTime video calling to customers on more expensive plans; its more recent “sponsored data” venture, a rough equivalent of letting advertisers pay for toll-free calls, is far more modest.

Why we should be wary
A move toward letting Internet providers charge for data coming and going represents a fundamental change in how the market of data transmission works today. It also feels like a victory for blowhards like former AT&T CEO Ed Whitacre — in 2005, he told BusinessWeek that dot-coms would like to “use my pipes free, but I ain’t going to let them do that” — even if it falls short of that greedy dream.

Over the past dozen years, the FCC has often appeared to be losing a negotiation with itself. In 2002 it let cable Internet out of “common carrier” requirements that mandated net neutrality and instead labeled it an “information service” along the lines of an e-mail service; then in 2005 it gave phone-based broadband the same help; then its attempt to reconstitute net-neutrality rules got nuked in court; then this January a second try got shot down again.

The FCC now seems to feel that the philosophically simpler fix of undoing those changes and reclassifying broadband as a common-carrier service — one that moves bits from Point A to Point B without discriminating by content or source (which I suspect is how most of you see your ISP) — would take too long to get through court challenges. So it’s left with this workaround, hacked together to erect some protections for customers on the limited legal framework left by January’s court ruling.

And the guy leading this charge, Wheeler, happens to have led both the cable and wireless trade associations at earlier points in his career. He can’t possibly be surprised at the skeptical hearing he’s getting. And he’d best get to the specifics of his plan soon so we can debate them intelligently.

Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.