Predicting Wheeler: Where will the new FCC chairman fall on net neutrality?

Tom Wheeler, pictured standing to the right of the president.

On some Tuesday or Friday in the coming months the D.C. Circuit Court of Appeals will issue an opinion on network neutrality — the idea that ISPs can’t discriminate on packets traversing their networks. Already many analysts are anticipating a whole or partial setback for the FCC-issued Open Internet Order that codifies the idea of net neutrality. So now, analysts have moved on to ask “What will Wheeler do?”

Tom Wheeler, is the man of the hour when it comes to the question of net neutrality. As a former lobbyist for both the cable and cellular industry he has had close ties to companies that would like to see the Open Internet Order overturned. His statements on the topic have been vague when it comes to the need for an open internet, and so far he has given some truly worrisome answers about congestion or pricing models for the internet. From an interview in Variety (hat tip to Slate):

“I am a firm believer in the market. I think we’re also going to see a two-sided market where Netflix might say, ‘Well, I’ll pay to make sure that my subscriber receives the best possible transmission of this movie.’ I think we want to let those kinds of things evolve, and we want to observe what happens from that and we want to make decisions accordingly. I go back to the fact that the marketplace is where these decisions ought to be made, and the functionality of a competitive marketplace dictates the degree of regulation.”

This scenario is exactly what network neutrality is supposed to prevent, although Wheeler’s quote is actually a response to a question about the need for usage-based broadband pricing. Wheeler later clarified his stance on open networks claiming that he supports the FCC’s order. A few weeks back during an introductory briefing, I asked Wheeler how he might respond if the court determined the FCC didn’t have the authority to implement network neutrality rules and he gave the same generic response that he has so far given — namely that he’s in favor of competitive networks that keep the users and network providers in mind. I bet he also likes puppies.

But now, as the courts are presumably nearing an opinion the question is what will Wheeler do. Part of this will depend on what the court decides, but the options are pretty much appeal or ask lawmakers for some legislative as opposed to regulatory solution. While some legislators are angling to reopen legislation on the telecommunications industry, that’s a long process. As for an appeal, we’re back to that WWWD question.

As for what’s at stake, here’s a Stifel Nicolaus analysis:

Although the court could still surprise, the above scenario would be a victory for Verizon, whose counsel said the company would be pursuing paid prioritization deals but for the Open Internet rules, which discourage discriminatory fixed broadband treatment of legal Internet services, applications, content, and non-harmful devices, subject to reasonable network management. We believe Verizon and other telco and cable providers could gain new latitude to seek new premium deals with Internet edge/content companies. We note Comcast (CMCSA) will remain bound by the rules and related provisions under NBCU merger conditions until 2018 even if the FCC loses.

We believe the impact on Internet edge/content companies (e.g., NFLX, GOOG, AMZN, DIS, CBS, FOXA) would be particularly complex, given individual business plans and broader market ripple effects. We believe some might actually view the ruling as an opportunity to strike broadband deals that improve their service or customers’ experience, if so, and they’re successful, others might feel pressure to do likewise, giving the telco/cable broadband providers leverage, including potentially in broadcast retransmission-consent negotiations.

That would be a brave new world for the internet, although one we might be heading toward anyhow, as more businesses and services rely on these pipes. Silicon Valley should be paying more attention to this issue, given that what’s at stake here could be a slow and sustained chipping away at their business model (and underlying ethos) by a very patient and legislatively savvy communications industry.

Those applications and services built by Silicon Valley companies are not divorced from the underlying infrastructure, much like all the corporate campuses aren’t divorced from the people and infrastructure surrounding them. And the people who control the infrastructure are the ones who will ultimately win.

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