Net neutrality is one of the most polarizing issues surrounding global internet regulations. The Federal Communications Commission, or FCC, voted 3-2 to repeal Obama era net neutrality rules on December 14. But what is net neutrality, and why should you care?

To begin, it is important to define net neutrality so everyone understands what the term means. Net neutrality is the idea that no internet provider shall throttle (slow down) or block any specific traffic or give preferential treatment to any specific traffic.

On February 26, 2015 the leadership of the FCC voted that the internet is a public utility and will be held to the standards of net neutrality. But what does that mean for each of us, and the companies that bring the internet to our homes and offices?

How Internet Networks Operate

If you click on any link on the internet, your internet provider and the networks they use should try to give that content to you equally fast. For typical website viewing, checking email, reading blogs, and visiting quality sites like Investopedia, there is no serious debate about blocking traffic in the United States.

Where the problem comes in is when internet users want to watch bandwidth heavy content, such as Google’s YouTube (GOOG), Netflix (NFLX), or other streaming video. Contrary to popular conception, the internet is not a magical cloud, it is built up of physical servers, wires, switches, and infrastructure spread around the world. There are underground fiber optic cables connecting every major city and running under the ocean between city pairs like New York and London, Washington DC and Paris, and Los Angeles and Tokyo (with a hop in Honolulu along the way).

These fiber optic cables cost billions of dollars to build out, and they have a fixed capacity. When the networks were built during the Dot Com Bubble at the turn of the century, few people had any idea that we would be changing from downloading 3MB MP3 songs to 3GB high definition video files. Over the last decade or so, the fiber optic cables have filled up.

Peering and Network Providers

The companies who own the cables are your ISPs, companies like Comcast (CMCSA), CenturyLink (CTL), AT&T (T), and Verizon (VZ), and Tier 1 and Tier 2 network providers, including Level 3 Communications (LVLT) and Cogent (CCOI). Some ISPs, such as AT&T, are also Tier 1 network providers. You pay your ISP to connect you to the big backbone networks like Level 3, who carry internet traffic long distances. Your ISP is called a “last mile” provider and brings the internet traffic from the big network to your home.

Here is where the conflict lies. Companies like Google and Netflix are paying Level 3 and Cogent to carry traffic to your city, and you are paying the last mile provider to get the data into your home. When people were just reading and sending emails, a concept called peering was used. Peering agreements state that because traffic sent between the two networks was about the same both directions, neither network had to pay the other. This is how the telephone network operates.

What Net Neutrality Means

Now, thanks to the consumer demand for video, peering agreements have become out of balance. And, because those fiber optic cables and routers are so expensive, these companies are spending billions of dollars upgrading their networks.

The ISPs say that companies like Netflix, or the transit network they are using like Level 3, should have to pay money to Comcast to help offset their upgrade costs. The content companies and Tier 1 and Tier 2 network providers say that they are only sending the content because the ISP customer clicked on it, and that the ISPs should have to pay their own upgrade costs.

Net neutrality does not tell the businesses who has to pay for what, but it does say that ISPs can’t give preferential treatment to any specific traffic. Before the FCC implemented net neutrality, Comcast could have said that they are slowing down Netflix and giving priority to a Comcast owned streaming service. Now they have to give Netflix, and every other video, audio, and webpage on the internet, the exact same treatment.

The Bottom Line

As an internet end user, net neutrality is clearly in your best interest. You pay your ISP a lot of money each month, and when you click on a link, you want it to work. You do not want your ISP to slow down your traffic, that'd be really lame. But that is about to change as the FCC does away with the current net neutrality rules.

Who does that help? As an ISP, net neutrality is a very expensive proposition. It means networks will have to be upgraded to keep those videos coming fast and buffer free, and somebody has to pay for it. Upgrading the internet infrastructure is expensive either way, but now it is clear that each network has to pay its own way and cannot charge tolls to content providers and the networks that bring their traffic.

With the repeal of the net neutrality rules internet companies will now have more power to design differential pricing structures as well as prioritize different traffic types of traffic. This move by the FCC is likely to face legal hurdles.

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