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Net Neutrality Ruling a Potential Nightmare for NFLX, Consumers

FCC loses net neutrality ruling, opening up prospect of tiered Internet service

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Verizon (VZ) had been fighting the Federal Communications Commission (FCC) in the U.S. Court of Appeals over a rule requiring broadband Internet providers to treat all Internet traffic equally — net neutrality, as it’s commonly known.net-neutrality-nflx

The Court ruled against the FCC. Freed of their “common carrier” shackles, this opens the door for broadband providers like Verizon, Comcast (CMCSA) and AT&T (T) to begin tiered Internet service. Unless overturned, the ruling has the potential to shake up the Internet as we’ve come to know it, impacting consumers and posing a serious threat to companies like Netflix (NFLX) that have built their business around cheap and readily available bandwidth for all.

In Plain English, What Does This Mean?

Under net neutrality, the company providing your Internet connection is supposed to provide a consistent connection, no matter what you do with that connection. If you choose to use your bandwidth to play games, post videos to YouTube, surf the web or watch Netflix, it doesn’t matter — you get the same speed and pay the same price.

(Note: There have already been rulings in the U.S. that have taken steps in this direction, including Comcast’s Xfinity streaming not counting against bandwidth caps when viewed via Xbox, but these used loopholes intended for private IP networks. The ruling will open these sort of arrangements for all Internet access.)

The ruling against the FCC means Internet providers could begin to shape traffic and develop tiered access plans, ending net neutrality. That means they could slow the connection speed for specific services, for example, charge based on what you use the Internet for, or block some services altogether.

The classic example — primarily because it accounts for nearly one third of all U.S. Internet traffic during peak hours and its content has been a thorn in the side of cable TV — is Netflix. The potential is now there for a cable provider to make its own online video service a smooth viewing experience, while slowing down Netflix to make it unwatchable. Maybe for an extra monthly fee, that Netflix speed would be boosted.

What Could Happen? Ask Canada

As a Canadian, I can give you some idea of what can happen from a consumer point of view when net neutrality enforcement slides. (The concept exists in Canada, but enforcement of infractions can take years).

Rogers Communications (RCI) is Canada’s largest cable television provider and second-largest broadband Internet provider. The company has been in the news repeatedly for practices involving traffic throttling. For years Rogers has been throttling (slowing the speed of) peer-to-peer traffic, justifying the practice as an attempt to cut down on bandwidth being used by illegal BitTorrent downloads.

These tactics don’t just make BitTorrent frustratingly slow, it’s made life miserable for other services. Throttling has made online gaming a subpar experience for many Canadians, with many users complaining about sluggish performance of titles played over Microsoft (MSFT) XBox Live and slow responses in Blizzard’s (ATVI) World of Warcraft.

In addition, while BitTorrent may be a piracy hotbed, it’s also used by legitimate companies including Facebook (FB) and Twitter (TWTR) for efficient file distribution.

Rogers is currently prepping a Netflix competitor for its Canadian customers and there are allegations it plans to exempt its own video streaming service from bandwidth caps, giving it a significant advantage over Netflix. Bell Mobility (BCE) is already under fire for doing the same thing, offering customers 5GB of free video monthly from its own Bell Mobile TV service, while charging them $40 in bandwidth usage fees if they viewed the equivalent using Netflix, Hulu or Apple’s (AAPL) iTunes.

So, who wins and who loses?

Article printed from InvestorPlace Media, http://investorplace.com/2014/01/net-neutrality-nflx/.

©2017 InvestorPlace Media, LLC