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Net Neutrality: Why the Internet Must be Classified as a Utility

With the Federal Communications Commission (FCC) poised to propose new rules allowing broadband providers to slow down some content, while creating fast lanes for providers that pay extra (known as paid prioritization), it’s time to revisit a rancorous debate that has generated a lot of heat. Over the past decade, the FCC has made multiple attempts to force cable and broadband providers not to slow down or block online content, but the rules have failed court challenges.

Two recent court decisions are the focus of today’s net neutrality debate: Comcast v FCC in 2010 and Verizon v Federal Communications Commission this year. In both cases, judges ruled that the agency charged with regulating interstate communications via radio, TV, wire, satellite and cable did not have the legal authority to regulate high-speed Internet providers.

The reason: When the Internet was still in diapers back in 2002, the FCC classified it as an “information service”, not a “telecommunications service.” Title II of the Communications Act of 1934, which gives the FCC the power to regulate telecommunications services as a utility, doesn’t extend to broadband Internet services — and that technicality explains why the FCC’s attempts to police these providers have been bounced by federal courts.

The Internet Is a Utility

Right now, much of the net neutrality debate seems to be hung up on definitions. A good starting point would be for the FCC to simply call broadband Internet what it truly is in the 21st Century — an essential public utility like telephone or electric service.

While this seems to be a logical move that recognizes the impact of technological change on consumers’ lives, the FCC is likely to go in another direction. FCC Chairman Tom Wheeler is looking at proposed “net neutrality” rules that practically speaking would create a divide between the haves-and have-nots of the Internet content universe. The Information Superhighway that gave birth to YouTube, Netflix, Skype and the like would turn into a toll road — the wealthiest content providers can pay the toll to deliver fast services to consumers; next-generation innovators and start-ups might never get out of gridlock.

For 125 years, U.S. antitrust law has battled all forms of restraint of trade, monopoly power and anticompetitive practices that had the potential to harm consumers by restricting choice or leaving them vulnerable to predatory pricing. Specifically, “common carriers” like the public-switched telephone network are regulated by the FCC as utilities that can’t give preferential treatment to the traffic that runs over their networks. That approach worked pretty well in the pre-Internet days — after all, antitrust law broke AT&T into pieces in the 1980s to protect consumers from monopolistic practices and to unleash innovation.

And it has worked: The same Internet you’re using to read this article is as essential to your life today as electricity — and arguably more so than an FCC-regulated landline telephone — if you haven’t already ditched that dinosaur device entirely in favor of wireless or Voice over Internet Protocol (VoIP) services.

Net Neutrality: What’s at Stake

By allowing fast lanes and paid prioritization, broadband providers like Comcast (CMCSA) and Verizon (VZ) would be able to pick and choose the speed and consumer experience based on whether — or how much — the content provider pays to the broadband service provider. Translation: start-up content providers or others that can’t or won’t pay the premium could be locked out, and consumers would have little choice but to pay more or move on.

Most consumers have experienced the aggravation of lower bit-rate video over a cable or other broadband connection. If the FCC okays fast lanes as part of the new net neutrality rules, expect more of the same — particularly because CMCSA already owns major content provider NBC Universal and has bid more than $45 billion to acquire rival Time Warner Cable (TWC).

One of the clearest explanations of what’s at stake with the FCC’s new approach to net neutrality was in last week’s New Yorker blog by Columbia Law School Professor and Open Internet expert Tim Wu:

“The problem is that Wheeler’s new version of the net-neutrality rule is notably weaker than previous versions. His lawyers wrote a cautious rule that permits ‘commercially reasonable’ but discriminatory deals by carriers (the language is imported from a standard the F.C.C. uses for wireless roaming agreements). When that proposal leaked, the chairman and his staff soon found that they’d stepped barefoot onto the third rail of online politics. The Internet has been sizzling ever since.”

Regardless of what Wheeler and the FCC decide to do with this week’s proposed net neutrality rule, the Internet will keep on sizzling because technological innovation is forcing existing law to stretch beyond the strict letter of court decisions and to embrace the changes that make sense today — not 80 years ago when the Communciations Act was drafted.

Bottom Line

Net neutrality is a high-stakes battle of powerful competing interests over the future of everything from free speech to innovation — and hundreds of billions of dollars hang in the balance. It will determine whether the next Amazon (AMZN) or Google (GOOG) ever get off the ground or what consumers can watch, listen to or read — and how much they pay for that access.

While laws and regulations can (and often do) overreach, it’s difficult to argue that basic consumer protections and a level playing field for content providers are somehow unreasonable.

The FCC has an opportunity now to boldly apply reason to these technological and political challenges. If it chooses a path of compromise, the proposed net neutrality rules will be the next salvo in a battle that will take several years, hundreds of lawyers and lobbyists and perhaps billions of dollars to resolve.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2014/05/net-neutrality-fast-lanes/.

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