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Who Wins & Loses Under FCC’s Net Neutrality Rules

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After the Federal Communication Commission released the complete version of its first set of so-called network neutrality rules last Thursday afternoon, I read the full order to understand what the FCC has created. In short, the rules:

  • Protect the current state of the Internet;
  • Are ambiguous, and hence less protective of the mobile future for the web;
  • Show that the FCC punted on pretty much every challenging issue that lay before it, from requiring open network provisions on wireless networks to allowing managed services provided by ISPs.

For those wondering how we got here, check out our timeline and links to the original FCC proposal from 2009 and a later proposal from Google and Verizon (s vz) that became the framework for the Congressional bill that subsequently became the framework for the compromise order. The new FCC order enshrines three principles as the framework for implementing network neutrality:

  • Transparency for fixed and mobile broadband providers.
  • No blocking for fixed broadband providers in general, while mobile broadband providers can’t block competitive services, although blocking apps is fine.
  • No unreasonable discrimination by fixed broadband providers while mobile broadband providers have to justify their discrimination.

The full order contains pages of exceptions and justifications that explain what the FCC is trying to do and why, but the primary things the FCC has done with this order are clearly separate the act of providing access to the Internet from the Internet itself, and rejected the idea of a one-size fits all concept of network neutrality. These are both huge, the first primarily for legal and policy reasons, and the second because it creates different versions of the web for end users.

As it determined that ISPs don’t provide the Internet, merely access to the Internet, the FCC also separated out the act of consuming the Internet and contributing services on or devices to access it. So AT&T (s T) isn’t an Internet provider; it merely provides a mechanism to access the Internet (an access service). Likewise Google (s goog) doesn’t provide the Internet; it provides a service using the Internet (called an edge service).

This framework helps the FCC assert its authority to rule on network neutrality, since it has jurisdiction over access services provided by wire and radio, but it also helps create a distinction so the FCC can say it’s not regulating the Internet, merely the means that people get access to the Internet. The FCC lays out several pages justifying the need for it to act on network neutrality that basically can be summed up as: The last mile access providers have several incentives to muck around with traffic in order to profit, while end consumers and edge service providers have few alternatives to keep them honest because the market isn’t competitive.

Unfortunately, as it tried to please everyone from consumers to carriers, the FCC has enshrined rules that create different policies which could fragment what people think of as the Internet. Let’s look at those rules.


A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

The FCC doesn’t go as far as to establish a so-called Schumer Box for broadband which would disclose speeds or details in some type of consumer-friendly standardized language, but it does say an ISP must disclose on their websites and at the point of sale how it manages congestion on its network, the speeds it offers and what types of applications would work over those speed packages. It also needs to explain how a user might trigger security restrictions, how the ISP inspects its traffic generally and how an aggrieved end user might address issues with the ISP. An ISP must also show how its own VoIP or IPTV services affect how it delivers broader Internet traffic.

The FCC also outsources the tracking of violations of these rules to consumers and engineers. It provides the enforcement, but isn’t going to hunt down the problems, it seems. Since transparency is the foundation of this whole order, the lack of a standard framework that’s easily understood by end users is bad for consumers, but outside applications and watchdog groups can fill in the gap and may find the task easier with these rules.

On the whole, this compromise is good for carriers, because it’s minimally invasive in terms of how they market their services, yet poor for consumers, because it won’t help the average user much, and good for tech-savvy edge service providers who will have the information needed to build apps for certain networks.

No Blocking

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or nonharmful devices, subject to reasonable network management.

The rules lay out a bunch of specifics here, starting with the idea that ISPs can’t block lawful content, but won’t be put in a position to judge what is lawful or not. ISPs also are not allowed to degrade content to the point where it can’t go through. For example, Comcast (s cmcsa) always maintained it didn’t block P2P files; it merely slowed the transmission of those files. However, that had the same effect as blocking P2P files, a distinction the FCC won’t tolerate. The rules also seek to prohibit the blocking of devices from wired networks by creating ungainly and expensive certification procedures such as Comcast was recently accused to be doing with Zoom Telephonics.

This is good for consumers on fixed broadband networks, good for service providers in general, and bad for ISPs interested in overtly blocking competitive content.

No Unreasonable Discrimination

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.

Here’s where transparency comes into play. Thanks to ISPs telling end users how they manage their networks, consumers can ensure that discrimination isn’t unreasonable. End users can also discriminate, for example, blocking porn from their homes. This is also where the FCC condones usage-based pricing, although it assures us it will keep a watchful eye out for anti-consumer packages. In general, the FCC will scrutinize discrimination that harms end users, harms a competitive service to one an ISP provides or stifles free expression, such as slowing traffic from a website the ISP doesn’t agree with. It also calls out paid prioritization, by which a content provider pays an ISP more money in order to deliver its content faster as problematic.

In general, this section lays out specifically how carriers can manage their networks, which is good for them and good for the FCC, because it sets its framework for how it will rule on future disputes. It’s not great for consumers or web service and device providers, because they will have to go to the FCC and prove the ISP is being unreasonable when problems occur. Not every consumer or company has the resources for such a fight.

More Details That Matter

As part of the definition of a broadband access provider, the FCC has carved out an exception for application-specific devices such as e-readers, medical devices and home energy monitoring tools that connect to or use the Internet, primarily because they only connect to some places on the Internet as opposed to a variety of services and end points. It has also carved out an exception for content delivery networks and private or customized Internet services provided to businesses or other services that aren’t targeting the mass market.

Airplanes, coffee shops and other businesses providing broadband access as a service can block web sites or content the provider deems objectionable or too bandwidth-intensive. Many may find these rules hard to swallow given the prevalence of Wi-Fi access points at coffee shops and food establishments as a means for people to content to the web and work.

Mobile app stores can be as closed as they want to be under these rules. While the Internet as accessed through the mobile browser is subject to most of these rules, app stores can be as walled as they want to be, which will effectively keep certain apps from being able to take full advantage of the hardware provided on some mobile devices. For example, Apple (s aapl) remains in control of how much functionality a Skype application for its iOS platform can have.

The rest of the order lays out the FCC’s legal authority to implement such rules — which will most assuredly be tested in the coming months — and lays out the way the FCC plans to tackle complaints. With this order, the FCC has managed to preserve the web of today, leaving the web of tomorrow relatively regulation-free while assuring itself job security as it will have to sit in judgement on the complaints to follow as consumers, content providers and ISPs test the boundaries of these rules. Whether or not this is a good thing depends on where you sit in the food chain.

As a consumer, it’s depressing, and as a lover of technology and innovation, it leaves the mobile field open for the creation of walled gardens and incentivizes the creation of application-specific devices. Sure, these new devices and walled gardens may be lucrative, innovative and life-changing, but they encourage innovation around pricing and business models as opposed to innovation of new technologies to deliver better networks or new services that combine the full power of the web with mobile devices. We might be witnessing the birth of what Jeff Jarvis has called the Schminternet.

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18 Responses to “Who Wins & Loses Under FCC’s Net Neutrality Rules”

  1. Kevin Walsh

    As much as I disagree with the premise underlying the FCC’s Order (i.e., that absent a regulatory cop on the beat businesses will inevitably adopt nefarious habits), I think the Commission is to be commended for regulatory restraint. They explicitly refrained from applying this Order to coffee shops.

  2. Brett Glass

    As usual, Stacey Higginbotham pens an anti-ISP screed that falls right in line with the Google corporate party line.

    The fact is that these regulations will not “preserve” anything about the Internet. They are intended to change it – in ways that benefit Google. And they are by no means “minimally invasive;” they will outlaw many ISPs’ most popular and consumer-friendly service plans. Thus, the rules are anti-consumer, but because they are too strict – not because they’re not strict enough.

    I and others have gven up on GigaOm ever having accurate coverage of tech issues due to articles like this one. If they’ll let Stacey spew this drivel, they’re clearly beholden to Google and will publish whatever bogus material is necessary to keep it placing ads on their site.

  3. I don’t want you all to waste your time… there needs to be no futher discussion on this topic because this order will be overturned next year via the Congressional Review Act.

    • It’s highly unlikely that the divided Congress can summon the will to do that, and even if they did, the President would veto it. The R’s had their chance to direct the FCC by passing the Waxman Bill before the election, and they demurred. That was a green light for the FCC to act, and there’s no taking it back now.

  4. One sentence caught my eye in Stacey’s article and I wonder if the FCC is simply spreading FUD (fear, uncertainty, and doubt) without any real legal authority: “It also calls out paid prioritization, by which a content provider pays an ISP more money in order to deliver its content faster as problematic.” – Interesting that it “calls out” this issue when there is really nothing the FCC can do about. Paid prioritization is alive and well on the Internet today via CDNs and paid peering agreements like the Level 3-Comcast agreement. Without Title II reclassification or some other meaningful visibility and regulation of peering and transit agreements, the FCC really can’t have an impact on “paid prioritization.” It will be interesting to see if they take Comcast on to test the viability of their net neutrality rules. Or, they may just let the sleeping dogs lie so they really don’t test their own authority while placating net neutrality proponents.

    • Good point, Jeff, the FCC’s order doesn’t seem to acknowledge that the foot bone’s connected to the leg bone. Paid prioritization is a type of paid peering, enforced at the Internet edge of ISP networks as opposed to the consumer edge.

      The FCC insists that it has no interest in regulating peering and transit, but this rule does exactly that: It regulates the kinds of peering agreements that network operators who provide retail, consumer and small business-oriented Internet services can offer, while excusing those who serve larger organizations from the rule.

      Networks like Global Crossing and Level 3 can sell paid peering, even though they serve consumers of Internet services like HP and the state of California, but Comcast, AT&T, Verizon, and Time Warner Cable can’t. But the retail ISPs also provide transit to large business customers, so there’s going to be confusion about what they can sell when they’re head-to-head against the pure backbones in trying to win a big business or public sector account. Where’s the line between small business and big business?

      The idea that the FCC is only regulating access and not the Internet itself is untenable: The Internet isn’t a network, it’s a web of agreements to interconnect. If you regulate part of it, you regulate all of it.

      • Yes — It simply creates a new “barbell” broadband economy. Just like the current recession/depression has gutted the middle class market, the FCC rules will do the same for broadband… High margin content distributors and low margin wholesale ISPs will win at the end of the day if these rules are kept in place. “Middle class” suppliers like small and medium tier ISPs will lose along with upstart web sites who simply won’t have the margins. In effect, we’ll see less competition amongst broadband providers because they’ll be prevented from increasing their margins in that end of the business.

      • I’m curious about something that I think you’ll know the answer to. It’s no secret that the backbones are in trouble, shrinking route miles, laying people off, earnings squeezed, and consolidating. Level 3 wants to be a CDN now because they’re never going to retire their heavy debt load.

        Is this order going to accelerate their demise and/or consolidation? I think it creates an opportunity for them to offer paid peering for large business customers, but I’m not sure how useful it’s going to be. It seems to me that it will hurt Netflix and Skype as well, even though they’re getting what they asked for. Gee.

      • I believe that pure backbone providers, like L3, will continue selling transit to large enterprise business customers. Assuming the FCC rules take effect, and the FCC lets the “paid peering” sleeping dogs lie, power will shift toward the combination of backbone and “eyeball” broadband network providers. Unless you have both a decent wholesale business along with a broadband network with many subscribers, you simply will no longer have the negotiating power in those peering and transit agreements. In effect we’ll see a new Tier 1 club which will be almost entirely composed of access/backbone combination network providers.

      • I tend to agree. Economies of scale matter in networking, and the power of national regulators to alter that fact is essentially nil; they may as well be trying to regulate the sunrise.

        There’s a Rasmussen survey out today to the effect that NN is only supported by the “political class,” some 21% of likely voters, so this remains a losing issue for partisans. I wonder how long it will be until the advocates realize that NN isn’t the magic wand they want it to be; probably a long time, as they’ll quibble with the rules rather than the concept.

  5. In all fairness here, you left out one important milestone… The election of Barack Hussein Obama. Since he campaigned on this garbage and you all bought it and voted for it, you should only have yourselves to blame for the initiation. If you voted for Obama, you can’t cry ignorance now. It puts you out of touch with reality. Stacey, don’t waste your time reading this bogus executive order. It will change drastically as the FCC bureaucracy gets into the details and since no elected body proffered this takeover of liberty & no elected officials (less Obama) will have any jurisdiction over it. And Obama will separate himself from this prior to the 2012 election, so try to keep that in mind next time you flail for righteousness inside the voting booth. These are all items Obama campaigned on. This was the ‘change’ he was referring to. Half the country heard him loud and clear GigOM, so why didn’t you guys in the ‘New Media’ hear it? And what do you have to say about Obamacare? That’s okay, right? But net neutrality is not? Obamacare makes this FCC rule look like an emancipation. If you think the FCC makes a mess of your life, you’ve seen nothing yet.

    Oh, and stop using political keywords like “carving”. It makes it sound all too progressive and it looks obvious you are regurgitating political punditry. In fact, they are not carving, they are chopping… your liberties. Happy New Year, Liz!