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Summary:

The courts invalidated much of the FCC’s net neutrality rules. While consumers will lose, the winners may surprise you.

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The network neutrality rules that the Federal Communications Commission had implemented in 2011 were deemed invalid Tuesday, leaving Washington D.C., tech firms, content providers, ISPs and consumers unsure of what might happen to the current version of the internet, where all lawful internet traffic is delivered to consumers without discrimination.

This could be a new landscape if the FCC decides to wait and see how the ISPs try to shift their business models for a world without network neutrality — something that current FCC Chairman Tom Wheeler seems willing to do.

So, as always in these cases, let’s look at who wins and loses.

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Winners

ISPs: For the most part this is going to be a big win for ISPs with the exception of Comcast, which can’t actually implement any sort of paid prioritization schemes that other ISPs might be willing to try because of the agreement it made with the FTC when it purchased NBC-Universal. That agreement holds until 2017.

The NCTA, the organization that represents the cable television industry, has already put out a statement that it doesn’t plan to block any content: something Comcast actually did back in 2008 with BitTorrent files. It doesn’t get into the prospect of implementing any paid prioritization schemes and doesn’t hint at any plans to let certain content come into people’s homes without affecting their data caps. Here’s part of the statement:

“The cable industry has always embraced the principles of an open Internet and the Court decision will not change that. Consumers have always been entitled to enjoy the legal web content of their choosing and they will continue to do so. An open Internet is good for our customers, and good for our business. …Today’s historic Court decision means that the FCC has been granted jurisdiction over the Internet. While we fully expect some to rush to judgment about the fate of the open Internet, we should remember neither the adoption of the Open Internet Order, nor its partial repeal, has led or will lead to significant changes in how ISPs manage their networks. The cable industry has always made it clear that it does not – and will not – block our customer’s ability to access lawful Internet content, applications or services.”

AT&T and Verizon’s actions will be more interesting: Verizon because it brought this suit before the courts, and AT&T because it has already made plans to implement a double-sided market on its wireless network with the implementation of its sponsored data plan, where companies can pay for the data that a consumer uses when downloading certain content on the AT&T mobile network.

Traditional content companies: In many ways this will be a win for the large content companies such as Disney or Viacom. Yes, they might have to pay for prioritization on the broadband networks, but they have deep pockets and such a move would help them ensure their content continues to reach consumer eyeballs as the television industry fragments online. It’s possible we could see the emergence of a pay TV bundle of content that is either exempt from caps or just delivered with pristine quality while YouTube videos sputter.

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Big Tech (including Google, Microsoft (Skype) and Netflix): Speaking of YouTube, its parent company Google is a likely winner here too. While a former defender of network neutrality, it’s an open question if Google’s realpolitik has led it to just accept that it might have to pay up to deliver its content as part of the cost of doing business. Microsoft, which owns Skype, and Netflix also fall into this category since they also have the dollars to pay. So far Netflix has been a staunch defender of network neutrality, but it also has to play in the real world, so if the FCC condones some sort of double-sided market it may have to play ball.

Losers

You: Consumers will lose, even if at first it feels like winning. We might be able to stream more movies without going over our broadband caps and paying overage fees. Maybe we can finally stream the Olympics or get 4K content that doesn’t stutter. But the cost of that entertainment is that the ISPs will have succeeded in creating a system where only companies that can pay up will be able to deliver high quality content to consumers on demand.

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And because in most of the country broadband is a provided by only two players (in some markets high-speed broadband is only provided by cable companies), such a system could also slow down investment in broadband networks as ISPs will lack an incentive to invest in network capacity to serve traffic that would be delivered as a best effort, instead of as a priority. While serving their content customers might become a priority, the last-mile consumers who don’t have much of an alternative won’t have the market power to incent providers to upgrade just so they can check out the latest indie talk show on a no-name startup.

One sop to consumer interest is that the court kept the disclosure rules in place. That means that whatever schemes an ISP puts in place, it will have to tell users. But given the inability for many consumers to switch providers this notice may not do anything more than spark some FCC complaints or introduce a feeling of despair.

Startups and innovation:The history of the internet is littered with stories of ISPs blocking small companies that infringed on their business models of providing voice calls and video content. Or alternative text services on wireless networks. Or cheap long distance. The transition to IP networks opened up a world of hurt for telcos, who were worried that innovative startups were stealing their revenue. This is their chance to claw it back, but in the process it may also close the door to next generation’s Skype or Netflix.

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The open questions for startups on the web: how much will telcos charge for prioritization? Could a startup even have a chance to do those deals? How much room on the network will telcos leave for best effort traffic if the startup can’t pay? Finally, could a startup that grows into a threat to the ISP find itself subsequently blocked or discriminated against so that it never has a chance to thrive?

Just hours after the courts invalidated most of the FCC’s rules, we could be facing the start of a new era of the internet, one that we at Gigaom had hoped we’d never see. And while the FCC clearly recognizes the potential for harm by ISPs if network neutrality were to just disappear, and has yet to signal it’s next step, we’ll have to wait and see how it will act and whether its defense will be wholesale and vigorous or piecemeal and allow some sort of double-sided market to emerge.

Toll image courtesy Flickr user TheTruthAbout.

  1. Shankar Saikia Tuesday, January 14, 2014

    GREAT ANALYSIS OF NET NEUTRALITY RULING

    Great write-up by Stacey (as always). Anyone who wants a good understanding of the issues with broadband, net neutrality etc should read all of Stacey’s posts and also the book “Captive Audience” by Susan Crawford.

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  2. Actually there are no winners and there is one big loser if you look beyond what’s just in front of you,
    The loser is the US , if net neutrality dies in the US , it doesn’t mean it dies elsewhere and it is just another sector where the US gets left behind.
    So if this stands it is insanity and the costs will be huge (long term).

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  3. Cable and telecommunication companies’ insatiable greed to control not only all the broadcast content into your home, but also control our internet service, our VoIP service and now even our physical security services for our homes through their infamous “bundling” packages is Orwellian. Today’s ruling gives them near free reign to control nearly all connectivity, content and services we rely upon to and within our homes and businesses. This could well be worse than anything we could envision from the NSA.

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  4. Those startups that are negatively impacted by this ruling should just change their business model to adapt to the changing marketplace. Or they could sell t-shirts with their logo on ‘em.

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  5. So I, the consumer, will lose even though things will get better for me? Even if I am able to stream better quality video for less money, I am losing?

    You demonstrate your lack of economic understanding when you say that ISPs have less incentive to invest. The exact opposite is true. If they have more ability to make money off their investments, they have more incentive to invest! If I remove (made up) legal restrictions as to how you can pay someone for their writing, do you have more or less incentive to develop your writing skills?

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  6. Wow, isn’t it the government who is supposed to protect us from monopolies? Cable companies have been legally engaging in price fixing and anti-competitive practices for years, and now they have been given even MORE power over consumers. I’m as free market as they come, but the internet has become almost as important as roads and bridges, and therefore should be treated as a public utility. Nobody, be it private industry or government should be able to meddle with it, except to stop illegal activities or activities that damage the infrastructure (line camping, denial of service attacks etc.).

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  7. This was a nice attempt, but I’d like to see more detailed assessments of what really is going to happen to the garden-variety Internet user. Let’s say YouTube (google) doesn’t get on Comcast’s “fast lane” but ESPN does. What do people really expect the difference in experience is going to be? The ESPN user experience will be the same as today (how could again, a garden-variety user tell the difference of “faster”?). The real question I have is will Comcast really – really ? – throttle YouTube so that the user experience is absolute shite ? That it takes 20 seconds, 60 seconds, more….????…for a YouTube of a dog on a skateboard to load? What gain would Comcast get from making a user’s experience awful?

    Imperceptible,

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  8. Richard Testani Friday, January 17, 2014

    I do question if the ISPs are so cavalier as to hold the Internet ransom and turn down the quality of data access to subpar levels if only to sell better qualities to content providers. Would consumers stand for this? Would they have a choice? Even with no choice would they stop relying on the Internet and cancel their accounts? It’s a fine line for sure and the ISPs have put themselves in a position to make or break this for everyone. Realistically, what has to happen is the content providers like Netflix, Google, Apple, Facebook, Twitter, anyone with a website needs to form a consortium to put laws in place, the same way Verizon is keeping laws that help them in place.

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  9. Just becuase America is in Debt doesnt mean its right to block Open Internet to Pay off this country’s Debt through scheeme way of using the internet!

    “The cable industry has always made it clear that it does not – and will not – block our customer’s ability to access lawful Internet content, applications or services.”

    How about any content not just lawfull content like it has always been? This country is going nowhere today!!!!

    I wish People can open up their eyes!

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