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Summary:

Given the options facing the FCC in the wake of a court vacating most of the net neutrality rules the agency put in place, it’s likely we’ll see a double-sided market for broadband emerge.

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photo: Gigaom

In discarding out a huge chunk of the network neutrality rules that the Federal Communications Commission put into place in December, 2010, the U.S. Court of Appeals in Washington has thrown the way the internet works into turmoil: Instead of treating all traffic flowing over their broadband pipes equally, internet service providers can now start making deals that could prioritize some content over other traffic. And based on the options facing the FCC and the FCC Chairman Tom Wheeler’s previous statements, I think there is a credible threat that a double-sided market for bandwidth will emerge.

As my colleague Jeff Roberts explained in his post discussing the legal ruling from the court earlier today, this is not a complete loss for the FCC because the courts actually give it a chance to change the way it had implemented the Open Internet Order that until now governed network neutrality. But for the consumer, it’s an almost certain loss given the statements that Wheeler has made about network neutrality — namely that he wants to look at it on a case by case basis.

Two paths to fixing the hole the courts found in the Open Internet Order

The court determined that the FCC does have the authority to implement network neutrality rules, which was a big question surrounding the Open Internet Order. However, the court also ruled that the FCC applied a standard to ISPs that the agency wasn’t legally able to impose.

Importantly, the court also gave the agency a chance to fix that through its ruling as opposed to having to go back to Congress and get a change in the laws (although Congress could act if it found the political will to do so). The primary question, however, is whether the FCC will try to apply some kind of official common carrier status, and whether it will act now or after a violation has occurred.

“The court gave the FCC an opportunity to try again,” said Blair Levin, a former FCC chief of staff and currently the chair of Gig.U. “So now the question facing the FCC is whether it tries in the context of a new proceeding … or whether they want to wait for someone to start blocking and then take the case, and use that to establish a precedent.”

Fiber Optic Cables

Levin believes Wheeler has signaled that he plans to see what happens if the carriers implement a two-sided market for broadband pricing. Based on Wheeler’s comments in Silicon Valley last week, that belief isn’t unfounded.

At that event the chairman said:

Second, I support common law-like approaches to discerning the difference between appropriate and inappropriate broadband network conduct. In other words, the very general principles found in the Open Internet Order should be reduced to justiciable practices on the basis of facts arising from specific circumstances.

And if his willingness to let AT&T test out its sponsored data plan on the wireless side is any indication, plus his earlier comments on the possibility of a two-sided market for broadband where a content provider and the consumer pay, then he’s probably willing to see what happens if the network neutrality rules do go away.

One might argue that given the providers’ ongoing obligation to tell the consumer what it is doing with their traffic — the court left these disclosure rules in place — this isn’t a huge loss for consumers. But believe me: it will be.

Meanwhile, Wheeler has put out a statement that also mentions the hope of an FCC appeal, saying:

“The D.C. Circuit has correctly held that ‘Section 706 . . . vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure’ and therefore may ‘promulgate rules governing broadband providers’ treatment of Internet traffic.’ I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.”

That doesn’t really indicate what the Chairman plans to do, which isn’t surprising since the agency will have to consider all of its options. However, with this ruling, it’s possible, and even likely, that absent a strong signal from the FCC that it’s opposed to experimenting on wireline networks, we’ll see an ISP attempt some type of plan that will let a content provider pay for prioritization or perhaps an exemption for a data cap. My hunch is such a plan would come from Verizon or AT&T.

And it’s equally possible that if the ISPs disclose how this market will operate and make it available to all comers, the FCC might find it acceptable. So what we’d end up with is probably closer to the network neutrality rules that were implemented on wireless networks, where outright blocking of select applications was forbidden, but carriers were free manage their networks as they see fit. I hope I’m wrong.

  1. Salinger's Ghost Tuesday, January 14, 2014

    Old media fights back – and wins. The internet is now cable television… Will YouTube lovers will be willing to pay a subscription fee… how much would you pay for PewDiePie?
    http://mankabros.com/blogs/chairman/2013/10/25/old-media-fights-back/

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  2. Internet is a telecommunications service. ISP’s are utilities just like telephone companies. Actually, Internet traffic is almost exactly like telephone traffic. The user dials a number (or an IP address) to communicate with a specific person or business. Telephone numbers look like, 510.555.1234. IP addresses look like 192.168.123.123.

    Imagine if calling my grandma was more expensive because it went over a network that did not treat every call neutrally. It’s wrong and so is this hack of a court. The ISP’s are so wrong on this and just like everything else in this world, it’s all about greed. “potentially innovative services” Sounds like the ISP’s are full of themselves. The ISP’s didn’t create the internet. The only “innovation” the ISP’s are interested in is innovating better ways to profit.

    The FCC needs to classify ISP’s as utilities and be done with it.

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  3. Marty Hahnfeld Tuesday, January 14, 2014

    Despite the fact we’ve been dealing with this bullshit in one form or another since the 90’s — now is the time for Google, Facebook & others to make their move: build a proper, open access infrastructure and be done with it!

    All it takes is cash (which they have,) motivation (they have that too) and tolerance of entering a business which doesn’t have the same level of operating margins (likely the largest hurdle.) Get a headstart, buy TMO & Spring…

    Leadership team of the first company to truly put AT&T and VZ in their place should never have to buy a drink of their own again.

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  4. Not to venture too far into this debate, but why is this bad? I already pay by the bit for data that is sent to my device. What’s wrong with ESPN paying for some of those bits?

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  5. kid, you have read up on win-lose vs win-win. You think you pay by the bit now, wait until you want to get premium YouTube or so-so YouTube (depending on who your ISP is). Costs trickle to the end user; Corporations will find ways to keep their margins.

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  6. kid, how dare you question the sanctity that is “Net Neutrality” (when you read that please imagine it being sung by angels).

    The people here at Gigaom don’t want your internet to be cheaper, or for ISPs to invest more heavily in their networks. See, what you need to understand is that “Net Neutrality” is the only thing standing between us and the horrible darkness that is threatening to overtake the United States. We can’t explain why its going to be bad, but you better believe us, it is going to be horrible. And once it is here, there will be no way to solve it (you know, like make new “Net Neutrality” rules in response to all the horrible things that happen after they actually happen (if they happen)).

    Seriously though, the fear mongering here is getting ridiculous… I, like you, would be happy for ESPN to pay for my internet if it means that I can still access everything I do now, and have Sports videos with super high quality. Stacey, on the other hand, would be upset because start-up Badminton 24/7 Network won’t be able to afford paying for super high quality to compete with ESPN, and will instead have to resort to the quality we have now (paid for by you, like you do now). I know, sounds horrible.

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  7. IDontTweetGenerally Wednesday, January 15, 2014

    There’s a lot to be lost with this court decision, really. Check out this short mockumentary for info about the basic issues of Net Neutrality: http://www.theinternetmustgo.com

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  8. Frankly, I’ more interested if pornhub.com and thepiratebay.se will be blocked or access reduced to a trickle. They contribute to a lot of current filesharing. On the other hand, users have discovered the joys of internet tv thanks to the daily show and hulu. And users have discovered the joys of continuous episodic tv viewing thanks to netflix and amazon so filesharing has increased anyway. It was time for a revamp of the rules.

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