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27
Jan
2014

FCC Net Neutrality Rules Derailed By Federal Court of Appeals

by Bill

network cableSince the earliest days of internet connectivity, ISPs and broadband providers have been providing transfer speeds in a completely neutral manner. Whether a site is owned by a client or a competitor, the FCC rules on ‘Net Neutrality’ have preserved this overarching method of content distribution, even in the face of very powerful market forces. Carriers have long chafed at the idea that they could not charge premium fees for faster service or throttle distribution of some services that they argue are profiting from their inability to price their bandwidth pipes effectively.

One notable example is Netflix, a site that now accounts for a significant percentage of all internet traffic, which has benefited tremendously from the fact that it can provide clear video streaming services to customers without paying any kind of additional fee for the massive amount of infrastructure it utilizes each day. Other services owned by Google like YouTube, Gmail and Hangouts also rely heavily on their ability to serve content instantaneously to clients across point to point infrastructure that rarely belongs to them. Shouldn’t Comcast, Verizon and others be able to monetize their products to the full extent the market will bear, without government intervention preventing their full profitability, they argued – and the court agreed.

In a decision this month, the United States Court of Appeals for the District of Columbia Circuit ended net neutrality when it decided case No. 11-1355 in favor of Verizon and against the Federal Communications Commission (FCC) after Verizon appealed a lower court ruling that had gone in the FCC’s favor. While some may argue that the case is headed for the Supreme Court in some form or another, or that other methods exist for the FCC to create the same kind of regulations in a more legally justifiable way – rumors persist that the FCC does not intend to do so and that the Supreme Court is likely to side with the carriers as well.

Some pundits are already panicking and calling the ruling ‘the end of the internet as we know it’, while others are taking a more serious business-minded approach. One thing to keep in mind is that the carriers do not derive revenue by putting site owners out of business, and the FTC is unlikely to allow predatory pricing practices to get out of hand. That makes the notion that carriers are about to choke-off your ability to distribute content extremely unlikely. What may be much more likely is the birth of a tiered traffic system that follows the freemium pricing model now being used by many other sectors of the market.

Imagine paying Netflix $9.00 per month for basic service and watching standard definition video, or having access to three videos per day, with a $15.00 per month premium package allowing you to watch as much as you like, and see it all in HD. You may not need to imagine it for long, because it is one of the most likely real word outcomes to be spurred by this ruling.

From Netflix perspective it will be a major marketing obstacle. The premium service pricing will likely be seen by many as a money grab (the same sort of viewpoint that almost sank their brand entirely when they tried to change pricing models last time). However, in reality, most if not all of that premium fee will be forwarded along to the carriers as a way to pay the increased costs which will now be allowed without net neutrality in place.

From the carrier perspective, it represents an enormous amount of additional revenue with little or zero additional expense. And their spin-agents will be hard at work trying to convince the world that this is not a case of them getting extra money now, it’s a case of them having not gotten their fair due over the past two decades until now. A very hard pitch to make successfully, whether you find truth in it or not.

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