What You Need To Know About Net Neutrality

By Bruce Kelly AAA

The so-called net neutrality fight has become a truly amusing spectacle. At its core, it’s yet another skirmish in cable television’s war to remain relevant to the American consumer.

First, the fun side of the dispute.

On more than one occasion, HBO’s John Oliver has rightly goosed the Federal Communications Commission Chairman Tom Wheeler over the issue. Wheeler is a former lobbyist for the cable television industry, which some believe will benefit greatly if new rules are created that would allow Internet service providers to treat data differently.

Net Inequality?

The end of net neutrality will spawn the beginning of net inequality, naysayers like Oliver cry.

Wheeler was asked in a meeting whether he had seen Oliver’s 13-minute net neutrality rant from June 1. In that segment, Oliver made the comparison of Wheeler to a dingo, which Oliver called “Australia’s favorite baby-eating animal.”

Wheeler last week in a meeting said he had seen Oliver’s rant and that it showed a “high level of interest in the topic” of net neutrality. He also added that he “would like to state for the record” that he was not a dingo. 

That a federal official was denying that he was a feral, free-ranging dog commonly found in Australia and made memorable in a Meryl Streep movie tickled Oliver to no end. “We never said you were a dingo,” Oliver said on Sunday. “We said you were like a dingo. But now you’re denying it so strenuously that I’m beginning to wonder if you are a dingo after all.”

The Legal Fight

Oliver’s initial rant and now his skirmish with Wheeler indeed have drawn the public’s attention to a difficult-to-understand legal fight. The public has filed more than 120,000 comments on the issue of “Protecting and Promoting the Open Internet,” a staggering number and almost ten times the next most-commented issue.

Many of the comments express outrage that FCC would oversee a new era of tiered Internet service. Without net neutrality, consumers and businesses are fearful that the Internet would became a segregated landscape. Some content will be delivered at full speed while other websites will work more slowly because their owners didn’t pay up for the bandwidth.

The net neutrality fight is a sticky legal problem and began months before Oliver began poking at Wheeler.

The End of Neutrality?

In January, a U.S. appeals court tossed out federal rules that required broadband providers to treat all Internet traffic the same. The Obama administration has long advocated net neutrality and, prior to the appellate court ruling, the FCC had rules in place since 2010 that required companies like Verizon Communications Inc. (VZ) and Comcast Corp. (CMCSA) to handle all similar content on their networks in an equal fashion, regardless of whether it was a video on a personal blog, on YouTube or on a government web site.

The FCC in April proposed new rules for Internet traffic, and the public and the industry has until September to comment. The new rules would allow broadband providers to charge companies like Netflix Inc. (NFLX) and Google Inc. (GOOG) a higher rate to deliver content via the speediest lanes.

The decision also could allow Internet service providers to consider new pricing arrangements. ISPs could charge companies who specialize in data-heavy content higher fees to deliver Internet traffic at faster speeds. The court’s decision that struck down those rules raised the specter that websites starving for bandwidth, including the bandwidth-hungry Netflix, would have to pay extra to ensure the quality delivery of the product. 

Consumers Lose

In other words, if the FCC’s proposed rules remain in their current form, old media wins and new media loses – and consumers will be left with the bill. By 2015, the average cable bill will be $123 per month, up from $86 in 2011. In 2020, that sum should approach $200 a month for basic and premium channels. And consumers’ wallets could be hit again if Netflix has to charge more to pay for bandwidth. That probably won't stop would-be cord cutters, though. (For related reading, see: Is Amazon Prime Still The Best Deal In Tech?)

Fighting To Stay Relevant

What hasn't really been commented on is that this fight is occurring against the long-term backdrop of a dying cable television industry. Young people will simply not pay through the nose for cable anymore. Many would drop the programming portion of their cable contracts entirely if not for the fact that it’s usually bundled with internet service. Some users are even going fully mobile.

But what the cable industry doesn’t realize is that it has already lost to the content providers. Comcast and Time Warner Cable Inc. (TWC) are waiting for regulators to sign off on their pending $45 billion all-stock merger, which will be a boon to shareholders. But combining the two largest cable operators can’t hide the fact that the number of people watching cable is declining dramatically. (For related reading, see: This Company Is As Unavoidable As It Is Unloved)

2013 was one of the worst years ever for the television industry, with audience ratings collapsing. Media stock analysts Craig Moffett and Michael Nathanson reported last year that “The pay-TV industry has reported its worst 12-month stretch ever.” Five million consumers cut their broadband and cable subscriptions from the start of 2010 to the end of last year, and new customers are increasingly hard to come by.

As John Oliver said, the Internet is not broken, so why does the FCC want to fix it by endorsing new rules that would create a two –tiered system? This country needs the innovation of new media companies like Google and Netflix. It doesn’t need the FCC and chairman Wheeler gaming the system for old media giants that would inhibit the growth of the potential Facebook Inc.’s (FB) of tomorrow. Internet start-ups struggle and may not be able to pay Comcast their new sets of tolls on the information superhighway.

The Bottom Line

Old media isn’t going to die right away, but giving cable companies more control over how the American public uses the Internet is bad for business and bad public policy. I’m with Oliver. Long live net neutrality.

 

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