Tom Nolle
Tom Nolle is the president and founder of CIMI Corporation and the principal consultant/analyst. Tom started his career as a...
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Tom Nolle | September 11, 2014 |


Net Neutrality: Which of Many?

Net Neutrality: Which of Many? The real question isn’t what should happen with net neutrality, but rather what could happen.

The real question isn’t what should happen with net neutrality, but rather what could happen.

There's no question that the Internet has changed lives, economies, maybe civilization and culture. There's also no question that some of the impetus behind Internet growth has been the usual business framework behind it. In a world where providers have traditionally charged for the interconnection of their networks and for pan-provider delivery, the Internet has been a bill-and-keep model with (in many cases) zero incremental cost of bandwidth.

The current Internet model came about naturally, whether it's a natural model or not, but "naturally" means that market forces set things on their current paths. Market forces change, of course, and underneath it all, the current debate on net neutrality is a debate on continuation. Do we "continue" to allow market forces to frame Internet services, or do we solidify current behaviors into regulation? Needless to say, the ISPs and content providers and so forth all have their own (self-serving) views, and it's tempting to offer yet another set of views here. Tempting, but probably not useful. The real question isn't what should happen with net neutrality, but rather what could happen.

The focus of all these discussions is the Federal Communications Commission (FCC), which many see as a kind of all-powerful regulatory body that can make rules for the Internet. That's only true in a narrow sense, though. Like all federal commissions, the FCC isn't a law-making body but a court (what's called a "quasi-judicial agency"). Congress makes laws, and the FCC makes rules within the framework of these laws. When the FCC is taken to court, as it was on its Neutrality Order, it's being accused of not following the law, so let's start with what the law is.

The Telecom Act of 1996 represents the legal framework for regulating communications services. It amends the old Communications Act of 1934, which was also amended by other legislation (Cable Television Acts of 1984 and 1992, for example). The sum of all these Acts is to create a regulatory framework that roughly divides communications activity into "regulated" and "unregulated" areas.

In the former are "common carrier" activities like voice and data communications services. The Internet, as an information service, falls into the unregulated area. But the Internet as information is delivered over communications services, right? What are those? That's been the debate up to now, and the FCC took the position that the Internet was an information service with a communication component, not subject to common carrier regulation. When the Neutrality Act imposed specific communications-oriented rules on ISPs, the courts said the FCC had exceeded its authority, and must either abandon the sort of rules it wanted or reverse itself and declare Internet access a common-carrier service. That's where we are now.

Three possibilities present themselves at this point:

• The FCC could forget the whole thing and let the market decide. That's happening today, and it's why companies like Netflix are paying some ISPs for handling of their traffic. Clearly this approach will gradually increase costs for content providers, which could be passed along to consumers. It will also result in increased revenue for ISPs, which could mean less pressure to raise prices, or could result in better services down the line.

• The FCC could declare ISPs common carriers, and impose specific rules that could limit or eliminate charging content providers for carriage. That would open the door to a host of things, including requirements that cable companies share their infrastructure as telcos have had to do.

• Congress could (again) amend telecom regulations to give the FCC latitude to regulate Internet services at the network-and-connection level, without imposing common-carrier regulations.

Broadly speaking, what this is about is settlement, the way that money paid for Internet connectivity is collected and divided. The model that evolved for the Internet is called "bill-and-keep," meaning every ISP charges its own customers and keeps all the money, even though many (most) online services cross at least two ISPs. Carriers and network equipment vendors (privately in many cases) fear that if over the top (OTT) providers pump content to customers without sharing the revenue that their content generates, either customer broadband costs will rise or return on investment in infrastructure will fall, degrading the Internet for all.

The alternative is to divide revenue across those who incur costs. On the face, this seems fair and logical, but it's clearly not how the Internet developed. Neutrality supporters say that settlement like this favors big OTTs who can afford to pay, perhaps stalling Internet innovation by killing venture funding interest, because startups' costs would increase significantly. There's also a fear that ISPs, many of whom are in the TV and voice business, might impose charges on competitors to make their own services more attractive.

Some past history seem to favor both sides at once, depending on how you look at it. The telephone system, when it got started, was such a tenuous business that Congress set it up as a regulated monopoly. Starting in 1996 with the Telecom Act, public policy has moved toward privatizing telecommunications in general. You could argue that the Internet needs protection now, as the Bell system did at its own inception. You could argue that deregulation of telecommunications means free market forces should decide network issues. Both perspectives have merit in a debating sense, and both have advocates.

The big question, though, is whether truth, advocacy, or even good public policy matter. Congress seems unable to do anything--the current one is rated the worst in history by voters and there are already signs the next one might be worse. The FCC seems to be waffling on what its policy will be, and in any event, it seems likely that the Commission couldn't do what either side wants without having the courts overturn the new ruling as they did the old. Internet policy and neutrality may depend more on what can be done, not what should be, which is why exploring the possible next steps is a worthwhile topic for my next blog.


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