From Net Neutrality to Net Reality: FCC Decrees All Users Are Equal

As expected, at a meeting on February 26, 2015, the FCC approved its “net neutrality” rules by a 3-2 vote. FCC Chairman Wheeler called it “a red-letter day,” while opponents cried foul and reacted like it was “net-neutered day.” Nonetheless, this FCC action marks the beginning of a new Internet age.

In my June 16, 2014 blog post, “Net Neutrality: In Waging a War on Broadband, Guess Who Loses?” which was published a month after the FCC issued its rulemaking seeking public comment on how best to protect and promote an open Internet, I had posited:

The more vertically integrated a “converged services” provider is, i.e., the more control it has over its supply chain and therefore its end user. Thus, the less likely it would be to favor net neutrality – because this somewhat independent broadband value chain becomes a drag on the control of its supply chain and its converged marketing mix (which includes control of product definition, promotion and pricing).

So it should come as no surprise that the most vertically integrated providers, i.e., the cable and telecommunication giants, such as, AT&T, Comcast, Verizon, etc. are not too happy with the FCC’s ruling on net neutrality.

In any case, in my follow-up article, dated November 3, 2014, “Net Neutrality: Who’s Zoomin’ Who?” I had sort of favored Chairman Wheeler’s then rumored compromise resolution to this fairly complex issue relating to the broadband Internet by stating:

This hybrid solution seems to be a fair compromise between the interests of both sides, as it balances demand and supply issues in a practical way…

But this hybrid proposal never saw light of day and the FCC instead delivered the whole Title II enchilada on February 26, reclassifying broadband Internet as a utility. In fairness to Chairman Wheeler, an overwhelming majority of public comments, in response to the FCC’s proposed rulemaking, supported common-carrier style rules for broadband Internet. So it appears that the FCC decided that it was probably best to heed this majority advice. More pertinently, why wouldn’t it – if broadband Internet looks like a utility, works like a utility and quacks (uses the same pipes) like a utility; it must be a utility!

Even before the lawsuits start to fly, what does the immediate fallout from this reclassification look like? In a February 26, 2015 Fortune magazine article, “Why big tech isn't celebrating its big victory on net neutrality,” Tory Newmyer quotes Columbia Law School Professor Tim Wu as follows:

The logic of networks suggests that the bigger Google gets, the less it has to gain from net neutrality,” says Columbia Law School professor Tim Wu, who first coined the term in 2003.

But then Professor Wu, in his own February 26, 2015 New Yorker article, “Why Everyone Was Wrong About Net Neutrality,” reveals a few surprising market reactions:

Yet the moment that Tom Wheeler announced his plans for strong net-neutrality rules, on February 4th, broadband stocks jumped, and they have stayed buoyant. This has confused experts.

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For one thing, given the jump in stock prices, filing a lawsuit will technically be suing to invalidate rules that seem to have created billions of dollars of shareholder value for the broadband providers.

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And, more significantly, Professor Wu concludes his piece with this eye-opener:

That creates a chance to test one bit of received wisdom, namely, the oft-repeated axiom that strong net-neutrality rules will deter investment in broadband infrastructure. On this we have some early data: with full knowledge that the rules were coming, bidders in late January spent a record $44.9 billion on broadcast spectrum—exactly the kind of infrastructure investment that the laws would supposedly deter.

Professor Wu’s conclusion is supported in a February 26, 2015 New York Times article, “Dutch Offer Preview of Net Neutrality,” in which Mark Scott discloses the following facts:

But two years later, the Internet business in the Netherlands is still humming along. Consumers have not cried foul en masse over the costs.

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Telecommunications companies in the Netherlands have also continued to invest in their infrastructure, bolstering network speeds around the country…

And, Mark Scott concludes his analysis with this confession from a Dutch consultant:

“As a way to protect consumers, net neutrality has worked,” said Bart W. Schermer, a partner at Considerati, a Dutch technology consultancy. “More than anything else, it’s created a level playing field.

If these were not sufficient grounds for people to feel good about the FCC’s net neutrality ruling, Grant Gross concluded his February 26, 2015 PC World article, “Net neutrality passes FCC, will apply to mobile too” with this key affirmation:

Dozens of digital rights and consumer groups applauded the FCC’s decision. The vote “preserves the ethos of permissionless innovation that’s always been at the heart of the Internet,” Tim Berners-Lee, inventor of the World Wide Web, said in a video shown during the FCC meeting.

But alas, there is always at least one “Debbie Downer” at any party. And predictably, a Feb 27, 2014 Wall Street Journal editorial, “Welcome to the Obamanet” lamented thus:

The FCC is grabbing political control over a vibrant market that until now has been driven by inventors and consumers. Welcome to the Obamanet.

This opposition to net neutrality is baffling because conservatives claim to favor innovation, which usually, and especially with regards to the Internet, emanates out of home basements and college dorm rooms of the little guy. They also believe in “paid prioritization,” which would allow for the equivalent of high-speed toll lanes for those companies willing to pay for them. Google and Facebook, who seemed to have gone radio silent on net neutrality as the FCC decision neared, might do well to remember whither they came from?

Nonetheless, it shouldn’t be surprising that big business-friendly conservatives and their supporting media outlets believe in that Orwellian principle, “All animals are equal, but some animals are more equal than others,” when it comes to the Internet. Fortunately, the FCC recognized that net neutrality is, in fact, a net reality and decreed accordingly!