Upcoming FCC Decision Expected To Kill Net Neutrality

The FCC has confirmed that it will hold a May 15 vote on a new set of policies governing net neutrality and ISP behavior -- but according to the Wall Street Journal, the commission's proposed regulation will effectively kill the idea of a level playing field. The Wall Street Journal reports that the proposed rules would prevent ISPs from blocking specific websites, but would allow them to charge services like Netflix an additional fee for better access to end users. The paper claims that all "commercially reasonable" agreements would be permitted, with deals investigated on a case-by-case basis to ascertain whether the terms are reasonable.

This is the opposite of what the FCC attempted to do in 2010, when it specifically prohibited wired broadband providers from engaging in any kind of discriminatory or preferential behavior. Verizon sued over those restrictions, claiming that the FCC's previous decision not to regulate ISPs as common carriers (conventional telcos) made it illegal for the commission to impose that kind of restriction. The court agreed last year, though it left open the option for the FCC to re-declare ISPs to be common carriers and regulate them appropriately. That's precisely what many public advocates and consumer groups had argued the FCC should do, but its new head, former industry lobbyist Tom Wheeler, has other plans in mind.

The Free Market Myth: 

Wheeler has previously declared himself "a firm believer in the market" and declared himself a supporter of a future in which companies like Netflix say "‘well, I’ll pay in order to make sure that you might receive, my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve." This argument relies intrinsically on the idea that a market exists in which consumers are free to choose the goods and services that give them the features they want at prices they're willing to pay.

FCC Chair Tom Wheeler

That's simply not the case. According to Susan Crawford, a visiting professor at Harvard Law School, 77% of Americans have just one choice for high-capacity, high-speed Internet service -- the "local cable monopoly," as she puts it. The FCC's broadband availability surveys count 4G LTE and wireless service as equivalent to broadband, but these plans are ruinously expensive for anyone with significant data needs. Satellite providers, like Hughes.net, enforce monthly caps, have very high latencies, and limited performance.

Ask the FCC to show you which US markets have access to fiber-to-the-home, and this is the depressing result.

Executives from Time Warner Cable and Comcast have claimed that they should be allowed to merge because the two companies don't currently compete in any markets. Not only is that contrary to Comcast's testimony from several years past, research suggests that the merger would give the combined company a dominant position in 19 of the top 20 US markets. Again, that suggests a de facto monopoly / duopoly position already exists today. The only way for two companies with no current competitive markets to then hold a dominant position across the nation via merger is if they've purposefully avoided competing to date.

Perverse Incentive Structures:

Given the complete lack of customer choice, this kind of pay-to-play structure rewards ISPs who engage in what's called rent-seeking behavior -- meaning they seek to maximize their own share of wealth rather than creating or fostering innovation. In a highly competitive ISP market, for example, two companies might compete by aggressively rolling out fiber to customers. In the absence of competition, ISPs will pad their pockets by charging Netflix a higher fee to deliver a decent signal to customers and charging customers a fee to receive decent service from Netflix.

If these leaked details are accurate and the Comcast/TWC merger is approved, it means the cable industry will have neatly solved the problem of what to do about so-called cable cutters -- people who have switched away from paying for cable subscriptions and instead watch TV via IP services. If Comcast can squeeze Netflix, Hulu, HBO Go, and even companies like Amazon Web Services for additional income-per-customer, they'll be well on their way to replacing the revenue lost to cable cutters while providing fewer features in the process.

Speaking of Netflix, the company may have agreed to pay Comcast a carriage fee to improve its end-user experience, but it's still formally come out against the TWC/Comcast merger. In a letter to its shareholders, Netflix claimed that the combined company would control broadband access to a full 60% of US homes. Comcast promptly shot back, claiming that it continues to abide by the now voided net neutrality rules the FCC originally proposed, and claiming that cellular data plans and expensive Google Fiber (non-available in the vast majority of the country) serves as an adequate foil to the titan's market power.