The Next Chapter in the #NetNeutrality Saga

On April 23, the Wall Street Journal broke news that the Federal Communications Commission would, the very next day, propose new network neutrality rules to ensure that Internet service providers treat all Internet traffic equally. The idea is that consumers should be able to access whatever content they choose, not the content chosen by the broadband provider. But the WSJ highlighted that the FCC’s proposal would allow broadband providers to charge companies a premium for access to their fastest lanes. So, obviously, all hell broke loose.

The WSJ’s Gautham Nagesh wrote that FCC Chairman Tom Wheeler developed a new proposal to prevent broadband Internet providers from blocking or slowing down individual websites served up to the consumer in the wake of a court decision earlier this year that vacated the FCC’s Open Internet rules. The proposal, Nagesh reported, would allow providers to give preferential treatment to traffic from some content providers, as long as such arrangements are available on "commercially reasonable" terms for all interested content companies. Whether the terms are commercially reasonable would be decided by the FCC on a case-by-case basis. Chairman Wheeler would circulate the proposal on April 24 in hopes of voting on the rules at the FCC’s May 15 meeting.

As with all things Washington, attention immediately turned to “who wins/who loses.” Nagesh wrote, “winners would be the major broadband providers that would be able to charge both consumers and content providers for access to their networks.” One top cable executive said, "I have to say, I'm pleased." The executive noted that big Internet companies like Google already pay middlemen carriers to deliver their content efficiently to the doorstep of cable operators' networks; only the last mile connecting to customers' homes has been treated differently by regulators. The executive said new business models coming out of such rules could help cable operators better invest in their broadband networks. "Somebody has to pay for this, and if they weren't going to let companies pay for enhanced transport and delivery…it just seemed like this was going to come back to the consumer." A spokesman for Verizon, which successfully challenged the commission's original Open Internet rules, said, "Given the tremendous innovation and investment taking place in broadband Internet markets, the FCC should be very cautious about adopting proscriptive rules that could be unnecessary and harmful.”

Nagesh speculated that the plan would probably not affect users' Internet experience immediately but over the long term it could spawn new products that use broadband connections in a variety of ways for home and business communications -- for an additional fee. But consumer and public interest groups expressed strong concerns after the WSJ report:

  • "If true, this proposal is a huge step backwards and must be stopped,” said Michael Copps, former FCC chair and advisor to Common Cause’s Media and Democracy Reform Initiative. “If the Commission subverts the Open Internet by creating a fast lane for the 1 percent and slow lanes for the 99 percent, it would be an insult to both citizens and to the promise of the Net."
  • Free Press President and CEO Craig Aaron said, "With this proposal, the FCC is aiding and abetting the largest ISPs in their efforts to destroy the open Internet. Giving ISPs the green light to implement pay-for-priority schemes will be a disaster for startups, nonprofits and everyday Internet users who cannot afford these unnecessary tolls. These users will all be pushed onto the Internet dirt road, while deep-pocketed Internet companies enjoy the benefits of the newly created fast lanes. This is not Net Neutrality. It's an insult to those who care about preserving the open Internet to pretend otherwise…. This proposal is short-sighted and should be strenuously opposed by the broader Internet community — including millions of Americans who have urged Chairman Wheeler and his predecessors to safeguard the open Internet. The only parties cheering this idea on will be the largest ISPs that stand to profit from discrimination. We urge Chairman Wheeler's colleagues not to support this item as currently drafted and to demand nothing less than real Net Neutrality."
  • Michael Weinberg, Vice President at Public Knowledge, said, "The FCC is inviting ISPs to pick winners and losers online. The very essence of a ‘commercial reasonableness’ standard is discrimination. And the core of net neutrality is non-discrimination. This is not net neutrality. This standard allows ISPs to impose a new price of entry for innovation on the Internet. When the Commission used a commercial reasonableness standard for wireless data roaming, it explicitly found that it may be commercially reasonable for a broadband ISP to charge an edge provider higher rates because its service is competitively threatening. It is hard to see how the commercial reasonableness standard, which inherently offers less protection than the standard in the previous Open Internet Rules, can serve the same policy goals.”
  • Delara Derakhshani, Policy Counsel for Consumers Union, said, “This plan doesn’t bode well for consumers. The FCC appears to have abandoned the principle that all web sites and services should be treated equally on the Internet. This move is likely to favor the companies with the deepest pockets and hurt the scrappy start-ups. It could create a tiered Internet where consumers either pay more for content and speed, or get left behind with fewer choices. It’s more than disappointing that the FCC is not embracing the best option for achieving net neutrality, which is reclassifying Internet service as a telecommunications service. Some details of this plan are still coming to the surface. We are going to review the proposal and push hard for final rules that ensure an open Internet.”
  • Casey Rae, Interim Executive Director for Future of Music Coalition, said, “Make no mistake, these proposed rules are not ‘net neutrality.’ This is the moment when the regulatory agency with a mandate to promote competition and diversity did just the opposite. The Internet in America will now be carved into a fast lane for well-heeled corporations and a dirt road for everyone else. A free market based on competition and entrepreneurship depends on the ability for anyone to bring the next great product, idea or innovation to the marketplace. A society that respects its creators must not place access to culture in the hands of just a few massive companies. These proposed rules not only don’t go far enough to safeguard consumers, they actively marginalize smaller and independent voices.”
  • Jessica J. Gonzalez, Executive Vice President & General Counsel of the National Hispanic Media Coalition, said, "[W]e may be on the cusp of a new era of the Internet, ruled by powerful gatekeepers and manipulated to the detriment of the millions of voices that, to this point, have made the Internet the democratizing force that it is today. NHMC has long-opposed paid Internet fastlanes because they would be out of reach for non-profits, independent creators and small businesses who have thrived under fair rules of the road. There are countless stories of Latinos and other people of color - who have long-faced marginalization from and discrimination in the traditional media system - using the Internet to organize, produce news and entertainment content, and make a living. Allowing large corporations to pay more for better access to Internet users by definition creates a system devoid of equity. Everyone who uses the Internet should be incredibly concerned with this course of action and should raise their voices to encourage the FCC to change course."
  • Demand Progress's Executive Director David Segal said, "These proposed rules would undermine the Open Internet by allowing Internet Service Providers to extort fees out of web platforms, and thereby advantage certain services -- those that are established and wealthy enough to pay the fees, and those that have financial ties to or are otherwise favored by the ISPs -- over other platforms. ISPs would be able to pick and choose which services their customers are allowed to access with ease, and make it harder for them to use other services. This is a fundamental reorientation of the way the Internet has always worked, and would undermine its use for free expression and innovation by making it harder to start a new website or a company or organization that relies on the web. As Demand Progress and others have made clear -- along with more than 150,000 Demand Progress members who have signed petitions to the FCC -- there is only one way forward that truly maintains an Open Internet: The reclassification of broadband as a telecommunications service, and the reimposition of the Open Internet Order or equivalent regulations."
  • "[T]he FCC appears to want the potentially enormous price of the fast lanes to be paid by the entities that offer content to consumers, and to insist that price to be 'reasonable,'" said the Writers Guild of America East. "Two responses are in order: First, it is naive to think that the consumers won't ultimately pay. Second, permitting the key corporate players in the digital world to favor content based on the ability to pay throws the concept of neutrality directly under the bus."

And Sen Bernie Sanders (I-VT) said, “Under this terribly misguided proposal, the Internet as we have come to know it would cease to exist and the average American would be the big loser. We must not let private corporations turn bigger and bigger profits by putting a price tag on the free flow of ideas.”

This strong reaction, mind you, was released within hours of the WSJ article – before the FCC shared anything official.

Later in the day, FCC Chairman Wheeler responded saying, “There are reports that the FCC is gutting the Open Internet rule. They are flat out wrong. Tomorrow we will circulate to the Commission a new Open Internet proposal that will restore the concepts of net neutrality consistent with the court's ruling in January. There is no 'turnaround in policy.' The same rules will apply to all Internet content. As with the original Open Internet rules, and consistent with the court's decision, behavior that harms consumers or competition will not be permitted.”

On April 24, Chairman Wheeler released a longer statement, “Setting the Record Straight on the FCC’s Open Internet Rules.” Here Wheeler said that a draft Open Internet Notice of Proposed Rulemaking “proposes the reinstatement of the Open Internet concepts adopted by the Commission in 2010 and subsequently remanded by the D.C. Circuit. The Notice does not change the underlying goals of transparency, no blocking of lawful content, and no unreasonable discrimination among users established by the 2010 Rule. The Notice does follow the roadmap established by the Court as to how to enforce rules of the road that protect an Open Internet and asks for further comments on the approach.”

Wheeler said the proposal would establish that behavior harmful to consumers or competition, by limiting the openness of the Internet, will not be permitted. The Notice will propose:

  • That all ISPs must transparently disclose to their subscribers and users all relevant information as to the policies that govern their network;
  • That no legal content may be blocked; and
  • That ISPs may not act in a commercially unreasonable manner to harm the Internet, including favoring the traffic from an affiliated entity.

Wheeler indicated he hopes to have new Open Internet rules in place by the end of 2014.

Chairman Wheeler also stressed two points:

  1. The Court of Appeals which vacated the FCC’s earlier rules made it clear that the FCC could stop harmful conduct if it were found to not be “commercially reasonable.” Acting within the constraints of the Court’s decision, the Notice will propose rules that establish a high bar for what is “commercially reasonable.” In addition, the Notice will seek ideas on other approaches to achieve this important goal consistent with the Court’s decision. The Notice will also observe that the Commission believes it has the authority under Supreme Court precedent to identify behavior that is flatly illegal.
  2. Even Title II regulation, under which traditional telephone service now falls, only bans “unjust and unreasonable discrimination.” [Editor’s note: The Benton Foundation advocates for the FCC to reclassify broadband service as a Title II telecommunications service to solidify the Commission’s authority to enforce Open Internet rules and to make necessary updates to vital universal service programs including E-Rate, Lifeline, and Link-up which ensure that telecommunications services are available and affordable throughout the country.] Chairman Wheeler indicated that reclassification remains a “clear alternative.”

Jon Brodkin of ars technica asks: what are the consequences of this decision? And Brodkin let’s the 2010 version of the FCC, led by previous Chairman Julius Genachowski, answer with some relevant quotes from the Open Internet Order. (Note: "Edge providers" are companies that offer services over the Internet, such as Netflix or Skype.)

[I]f permitted to deny access, or charge edge providers for prioritized access to end users, broadband providers may have incentives to allow congestion rather than invest in expanding network capacity.

Broadband providers would be expected to set inefficiently high fees to edge providers because they receive the benefits of those fees but are unlikely to fully account for the detrimental impact on edge providers’ ability and incentive to innovate and invest, including the possibility that some edge providers might exit or decline to enter the market... Moreover, fees for access or prioritized access could trigger an “arms race” within a given edge market segment. If one edge provider pays for access or prioritized access to end users, subscribers may tend to favor that provider’s services, and competing edge providers may feel that they must respond by paying, too.

Fees for access or prioritization to end users could reduce the potential profit that an edge provider would expect to earn from developing new offerings, and thereby reduce edge providers’ incentives to invest and innovate. In the rapidly innovating edge sector, moreover, many new entrants are new or small “garage entrepreneurs,” not large and established firms. These emerging providers are particularly sensitive to barriers to innovation and entry, and may have difficulty obtaining financing if their offerings are subject to being blocked or disadvantaged by one or more of the major broadband providers.

If broadband providers can profitably charge edge providers for prioritized access to end users, they will have an incentive to degrade or decline to increase the quality of the service they provide to non-prioritized traffic. This would increase the gap in quality (such as latency in transmission) between prioritized access and non-prioritized access, induce more edge providers to pay for prioritized access, and allow broadband providers to charge higher prices for prioritized access. Even more damaging, broadband providers might withhold or decline to expand capacity in order to “squeeze” non-prioritized traffic, a strategy that would increase the likelihood of network congestion and confront edge providers with a choice between accepting low-quality transmission or paying fees for prioritized access to end users.

The fact that Internet users have few choices of broadband providers makes pay-for-play even worse than it would be in a competitive market, the 2010 FCC reasoned:

Although these threats to Internet-enabled innovation, growth, and competition do not depend upon broadband providers having market power with respect to end users, most would be exacerbated by such market power. A broadband provider’s incentive to favor affiliated content or the content of unaffiliated firms that pay for it to do so, its incentive to block or degrade traffic or charge edge providers for access to end users, and its incentive to squeeze non-prioritized transmission will all be greater if end users are less able to respond by switching to rival broadband providers. The risk of market power is highest in markets with few competitors, and most residential end users today have only one or two choices for wireline broadband Internet access service.

[T]hose that can switch broadband providers may not benefit from switching if rival broadband providers charge edge providers similarly for access and priority transmission and prioritize each edge provider’s service similarly. Further, end users may not know whether charges or service levels their broadband provider is imposing on edge providers vary from those of alternative broadband providers, and even if they do have this information may find it costly to switch.

Broadband providers have incentives to interfere with third-party Internet services that compete against their own TV and phone offerings, the FCC noted. To top it all off, there's no reason to believe that ISPs will use fees from content providers to lower prices to customers, the Commission said:

By interfering with the transmission of third parties’ Internet-based services or raising the cost of online delivery for particular edge providers, telephone and cable companies can make those services less attractive to subscribers in comparison to their own offerings.

Some commenters contend that, in the absence of open Internet rules, broadband providers that earn substantial additional revenue by assessing access or prioritization charges on edge providers could avoid increasing or could reduce the rates they charge broadband subscribers, which might increase the number of subscribers to the broadband network. Although this scenario is possible, no broadband provider has stated in this proceeding that it actually would use any revenue from edge provider charges to offset subscriber charges.

A FCC spokesperson told the press this week that the 2010 order didn't ban pay-for-priority access and that the negative news coverage of Wheeler's announcement is due to reporters misunderstanding the order.

Brodkin writes that it is true that the 2010 order said that a "strict nondiscrimination rule would be in tension with our recognition that some forms of discrimination, including end-user controlled discrimination, can be beneficial. The rule we adopt provides broadband providers’ sufficient flexibility to develop service offerings and pricing plans, and to effectively and reasonably manage their networks." But the 2010 order also made it clear that pay-for-priority agreements would likely violate the rules being laid out. The order stated that commercial arrangements between ISPs and third parties to prioritize traffic "would represent a significant departure from historical and current practice." The actual rule states that "A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination." Network management would be considered reasonable "if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service." The 2010 order also allowed prioritization of "specialized services." Everything was defined pretty vaguely, but the order said that "as a general matter, it is unlikely that pay for priority would satisfy the 'no unreasonable discrimination' standard."

Brodkin believes the bar for allowing pay-for-play arrangements would be significantly lowered by Wheeler's proposal. Anything that is "commercially reasonable" will be allowed, and how that will be defined is up to the FCC. When asked what specific types of activity would quality as a net neutrality violation under Wheeler's new proposal, the FCC official said he didn't know. The standard of commercial reasonableness will take into account whether conduct is anti-competitive, bad for consumers, or an infringement of free speech, he said.

"To replace the 2010 anti-discrimination rule, the NPRM [Notice of Proposed Rulemaking] proposes a three-part legal standard for flexibly addressing practices that harm Internet openness: (1) a baseline rule prohibiting broadband providers from engaging in 'commercially unreasonable' practices in transmitting traffic to and from end users and edge providers; (2) a set of factors the Commission would consider in determining whether or not a practice is commercially reasonable; and (3) a process for case-by-case adjudication and informal resolution of disputes," the FCC outlined in a background document.

People concerned about specific deals could complain to the FCC, but the FCC would also examine deals on its own regardless of whether it receives complaints.

New rules that empower Internet providers to charge Netflix, Amazon, Facebook and others for faster service clashes with one of President Barack Obama’s oldest campaign promises. Before he arrived at the White House, then-Sen Obama in 2007 explicitly rejected the possibility that “gatekeepers” someday could “charge different rates to different websites” — a system, he said, that “destroys one of the best things about the Internet — which is that there is this incredible equality there.”

The FCC action on May 15 would open a broad public debate, the FCC spokesperson said. “We want to know how people are affected in their daily life. We want to know how businesses are being affected. We want to know if innovation is being affected." And who doesn’t like, broad, open debate? (Well, unless you live in a society in which the wealthy pay for special access and influence decision makers. You know, where “The voter is less important than the man who provides money to the candidate.” )

We’ll continue to track the net neutrality debate -- and we expect to see you in the Headlines.

Additional coverage, analysis, and opinion:

By Kevin Taglang.