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Summary:

The judges hearing the lawsuit filed by Verizon against the FCC’s network neutrality rules seem inclined to let ISPs charge providers for delivering premium content– effectively creating a fast lane for the web and gutting network neutrality.

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The FCC’s open internet rules that prevent ISPs from blocking content or otherwise discriminating against the packets that are flowing across their broadband networks are on trial today. This morning, a three-panel judge heard arguments from Verizon and the FCC, and one analyst thinks the questions and comments from the judges indicates that the court may allow ISPs to charge web providers for premium services.

Stifel Nicolas, an investment bank in Washington D.C., issued a note this afternoon that said the court might be ready to let broadband providers charge internet edge providers for improved connections to broadband customers. The firm however, thought that the court wouldn’t strip the FCC of its authority to regulate broadband.

From the note:

Such an outcome could give telcos and cable new flexibility to strike paid-prioritization deals for offering better service to Internet edge providers (e.g., GOOG, AMZN, NFLX), which could also include media companies (e.g., DIS, FOXA, CBS, VIAB, TWX). Whether it would be good or bad for edge/media providers would depend on their business plans and financial wherewithal, but it could create faster “toll” lanes that give big edge players advantages over upstarts.

The note cautions that the judges haven’t ruled yet, so any outcome is uncertain. However, if the court does indeed let the telcos and pay TV providers implement a fast lane for content it may not strip the FCC of authority, but it would do its part to kill the idea of network neutrality.

That being said, larger firms such as Google or Skype that deliver over-the-top services and have been defenders (in part) of network neutrality might not mind the results if it ensures their content can be delivered to end-users without glitches. Already Google and the backbone providers for services such as Netflix, pay fees to some ISPs for more ports to ensure enough capacity to deliver quality service to the ISPs’ end users.

This legal decision would just formalize that process. Big firms that have an established business might be inclined to pay up as a cost of doing business rather than fight to solve the legal problems though Congressional lobbying. In that case, consumers may see higher fees in the case of services they pay for and perhaps fewer startups emerge who don’t have the cash to pay such fees.

So, keep your eye on this case, it could determine the fate of innovation on the internet, while transferring some of the wealth earned by the likes of Google and Netflix over to the ISPs.

  1. I’d hate to see a loss of network neutrality. One of the key reasons we’ve had so much innovation around the Internet (most of it in Silicon Valley) is the ability for the smallest startup to create something amazing without having to pay overhead that favors bigger companies. It’s what makes the Internet so much better for the economy than the original Bell Telephone and the railroads.

    Ugh.

    1. Chris, I hate to say it but get used to it. The net neutral Web as we know it is going away and the surveillance state is going to kill the perpetual upward growth that the wide open Internet has always enjoyed. Silicon Valley is going to see its Detroit era much sooner than they would like!

  2. By the share of internet traffic, one would think they need to pay?

    http://statspotting.com/netflix-is-30-percent-of-all-internet-traffic/

    1. Customers are already paying the ISPs, this is just judically sanctioned extortion.

    2. But each Netflix customer is already paying for their broadband. Now we would have to pay more to Netflix so they could pay to deliver content we are already paying to have delivered?

      Kinda like the USPS charging people to receive mail in their box after the mailer already bought a stamp.

  3. By their share of internet traffic, one would think they need to pay?

    http://statspotting.com/netflix-is-30-percent-of-all-internet-traffic/

  4. With internet already turning into a walled garden, thanks to the likes of Facebook and Google, this could just be a final shot in the arm of small startups, who cannot afford to deal and pay ISPs, in order to ensure that their services are as easily and speedily available to customers.

    Shame on ISPs, trying to charge not only the customer accessing websites, but also the website owner, for access to their customer!

    Heck ISPs ought to be paying websites, in order to use their bandwidth to display content to their subscribers, rather than other way around!

  5. This is will be a disaster for the Internet. You know those blackouts you get when Comcast and CBS fight over fees? Well they will happen on the Internet.

    Plus you know that Comcast/Verizon/etc will set their fees based on the ability of Netflix/Google/etc to pay, not on any real world cost metric. This is basically licensed extortion of the Internet companies.

    Obviously Google’s response will be to roll out Google fiber as soon as possible where ever it can. I wouldn’t be surprised if Netflix, Amazon, etc partner with them on this.

    Do you really want to put Google in the position of having to decide if Verizon’s extortion demands are worth it? And if Google says no, you get forced to use Bing because they paid Verizon’s demands?

    1. Why is it a disaster? And not a standard business distribution dispute?

      http://techliberation.com/2013/08/13/cable-blackouts-inconvenience-or-crime-against-humanity/#more-45492

      And, as you rightly note, Google will respond if others attempt to overprice will be more competition. This is the natural market response. Trying to regulate away the natural market response will create more problems than it solves.

      http://techliberation.com/2013/07/19/ppi-net-neutrality-problems-simply-do-not-exist/

      Funny that those that laud the liberty and freedom to do business in one area of the technology world decry it in others.

  6. Nikhil @ MobileJury.com Tuesday, September 10, 2013

    netflix is one of the major internet traffic sources.

  7. NN isn’t about ‘watch out google/netflix’. They can afford to pay and will come to agreements to pay. It is about the future businesses we never heard of with ideas we’re not smart enough to think up.

  8. “Big firms that have an established business might be inclined to pay up”

    Startups better be rich or die.

    And competition can finally go the way of the dodo. Well, not really. As with all other opportunity in this country, this will allow it to be better confined to the ones who deserve it, the already rich.

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