The D.C. Circuit Court of Appeals struck down most of the FCC's 2010 Open Internet Order on Tuesday, rejecting the FCC's power to impose and enforce network neutrality rules on Internet Service Providers (ISPs).
Network neutrality is a principle that requires ISPs to treat all (legal) Internet traffic the same way. It requires that ISPs do not block the delivery of data packets for any reason, and that they do not give certain data packets priority delivery status over others. This ensures that consumers have unfettered access to all sites.
Unless you own stock in AT&T or Comcast, the D.C. court's decision is sobering news. The abandonment of these core net neutrality principles could radically change the Internet. Here's how and why.
The decision could bring about a less innovative Internet.
The Internet can be seen as a big marketplace, where companies big and small can come and sell their services. No one is barred from exhibiting, and Internet companies big and small are charged the same amount to set up their kiosk.
Because it's been an even playing field, the Internet has been a hotbed of innovation. Young startup companies could develop an innovative new product and take it directly to potential customers for no more money than it cost their huge competitors to do so. That's how household names like Google, Yahoo, and Ebay were born.
That even playing field changes with Tuesday's court decision. The decision clears the way for a small set of big telecommunications companies to become the landlords of this marketplace, controlling who can set up shop there and the amount of rent each tenant pays. Inevitably, the little guy gets squeezed out.
Big ISPs may now be able to sell Internet express lanes.
Big Internet service providers like AT&T and Comcast have long wanted to set up a tiered system for carriage costs. Large companies that could afford it would pay ISPs for express delivery of their data packets to end users. Tuesday's court decision makes that scenario much more likely.
In this new system, big ISPs will be able to charge the end user for access, and to charge big Web companies like Google, Facebook, and Netflix for premium carriage.
While larger companies might have to pay more, they'll have a profound advantage over smaller would-be rivals: They can absorb premium carriage costs that smaller companies very likely cannot. That's a barrier to entry that makes it very hard for smaller firms to stay in business.
Pay-per-view sites and services could become the norm.
The end result may be an Internet where only a handful of large Web companies deliver the services we've come to depend on. And young, innovative companies with entirely new and better ways of delivering that service may never make it out of the garage.
Tuesday's court decision could close the door forever on the Internet that gave birth to innovative companies like Google and Yahoo. The next generation of Web entrepreneurs will grow up in a post-neutrality world where true market disruption just isn't possible.
But consumers could suffer in more immediate ways. The abandonment of network neutrality principles could hurt users--you and me--right in the pocketbook.
With only a few large Web companies providing specific services, nothing would stop them from simply passing their new premium carriage costs on to Web users. We may be headed toward what Free Press calls a "pay-per-view Internet" where Web sites routinely charge usage fees. We may be asked to pay a "network tax" to run voice-over-the-Internet phones, use an advanced search engine, or chat via Instant Messenger, Free Press contends.
Worse yet, in a market with just three or four large Web companies providing a certain service (whether it's search, travel booking, personal finance, or entertainment), the danger of active or passive price collusion becomes more real.
In "mature" markets, a handful of dominant competitors agree to share the market and set prices at about the same level. For years this was the situation in the wireless service market. A wireless service contract from one of the four major carriers cost about the same (high) price--until T-Mobile, suffering from sinking market share and a failed merger with AT&T, decided to lower its prices.
We could return to the bad old days of site blocking.
And what's the fate of Internet companies that happen to offer services that compete directly with those offered by the ISP itself? If the ISPs are allowed to charge Web companies variable rates for access to the Internet, what's to stop them from simply blocking the traffic of companies they see as competitors? Put another way, what's to stop Verizon and AT&T from simply blocking Vonage's Voice over IP service from running over their networks, since it competes with their own offerings?
In reality, AT&T and Verizon would never do that. They may not have to. They need only set their carriage prices so high that Vonage could no longer afford to pay the toll. If Vonage decided to pay the high carriage rates, it would certainly have to pass those costs on to users. Either way, you and I lose.
Conglomerates might dominate news and entertainment on the Web.
The stakes around net neutrality grow even higher as music and video streaming become preferred ways of receiving content. An independent news blogger can still offer a comparable alternative to CNN if all she's doing is publishing text. The public, low-speed Internet is fast enough for that. But if she begins streaming video blogs to thousands of her followers, she likely won't be able to pay an ISP for the service level needed to offer video that loads as fast and looks as good as what CNN can afford. Will she too have to begin charging her readers a fee to access her videos?
As ISPs begin setting up their Internet toll roads, it will become very clear why these companies should always have been classified by the courts as "common carrier" entities. Despite FCC chairman Tom Wheeler's comforting words about the future of net neutrality Tuesday, his deep telecom industry ties (he once led the wireless industry's trade group) make it hard to believe he will work very hard to reverse the huge victory the ISPs have won.
The Internet has become an essential service--every bit as much as roads and water--and it should be regulated as something like a public utility. With the circuit court's decision Tuesday, this "essential service" runs the risk of becoming increasingly subject to the caprice and profit motives of a few telecommunications companies. Nothing short of Congressional action will be able to reverse this course.