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The Demise of Net Neutrality Will Harm Innovation in America

Congress needs to move fast to limit the damage.
December 7, 2017
Andrew Hart | Flickr

On December 14, the Federal Communications Commission is due to vote on a plan to repeal its net neutrality regime. If this gets a green light, it will reshape the way the Internet works in America, and most likely to the detriment of consumers and entrepreneurs.

The FCC’s net neutrality rules prevent Internet service providers such as Comcast and Verizon from blocking or slowing down (legal) content. They also prohibit them from engaging in “paid prioritization,” or letting some companies pay to have their content delivered faster than others. After much debate, the rules were enshrined by the agency’s Obama-era “Open Internet Order,” introduced in 2015.

Ajit Pai, a Republican and former Verizon executive appointed by President Trump to lead the FCC, wants to overturn the order. His intention to do so, which had been widely telegraphed (see “What Happens If Net Neutrality Goes Away?”), has sparked a heated debate. Pai and his supporters want to give ISPs greater freedom over how they organize and charge for their services; opponents fear his plan will give ISPs too much power to determine what people see online.

The Open Internet Order switched the classification of broadband from a lightly regulated “information service” to a “telecommunications service,” which empowered the FCC to impose tougher, utility-style regulation on ISPs. Pai and his allies blame this approach for depressing broadband investment. In a speech earlier this year, Pai claimed that domestic investment by the nation’s 12 biggest ISPs fell by 5.6 percent, or $3.6 billion, between the start of 2014 and the end of 2015.

But other studies show that overall broadband investment in America has been pretty much flat for a number of years. One paper by Free Press, a consumer advocacy group, even found that investment by publicly traded ISPs rose by 5 percent in the two-year period after the Open Internet Order took effect compared with the two years prior.

Advocates of net neutrality argue that the agency’s rules are more important than ever now that ISPs are getting deeper into content themselves—a shift that could tempt them to give their own services an unfair advantage over rival ones. AT&T, for instance, doesn’t charge its mobile customers for the data they use watching shows from DirecTV, which it owns. Under net neutrality, the FCC can scrutinize these so-called “zero rating” deals on a case-by-case basis.

If the rules are rolled back, more of these arrangements are likely to appear. ISPs will also start offering paid prioritization. Some of these “fast lane” deals might not lead to higher prices for consumers. But entrepreneurs are rightly concerned that large companies will spend heavily to dominate fast-lane access, making it harder for some startups, such as bandwidth-hungry mobile video companies, to challenge them. “Milliseconds of difference can leave you at a disadvantage when potential customers are evaluating your product,” explains Tom Lee, the head of policy at Mapbox, a location data platform for mobile and Web applications.

Even the very biggest startups could suffer. In an IPO filing published earlier this year, Snap warned that weakening or ending net neutrality would hurt its business if ISPs limited access to it or favored its rivals (see “Why Snap Is Worried About Net Neutrality”). Young companies that pay up for higher speeds would have to pass those costs on to consumers, making it harder to compete with bigger players.

Big ISPs say they’re committed to keeping a level playing field, but history and economic realism suggest they won’t. AT&T, for instance, blocked Skype and other Internet calling services on iPhones on its network until 2009. In many markets in America, there are still only one or two high-speed broadband providers. The lack of competition means there’s little to deter them from discriminating against services that pose a threat to their own offerings.

Pai’s plan would switch responsibility for policing ISPs to the Federal Trade Commission, which focuses on consumer protection and anti-trust issues. But the FTC can’t impose rules like net neutrality across the board; it can tackle complaints only on a case-by-case basis. And few innovators will have the time or the money to launch legal battles. “Most startups don’t have enough cash to deal with a complaint in a contractual dispute, let alone fund years of an anti-trust case,” notes Evan Engstrom of Engine, a startup advocacy group.

Attempts to stall the FCC vote have picked up since it emerged that nearly eight million online messages sent in during the agency’s formal comment period on Pai’s proposed plan appear to have been sent from temporary or disposable e-mail addresses, suggesting they may well be fakes. Most of these comments were in favor of scrapping net neutrality. A group of 28 senators and New York’s attorney general are among those who have called on the FCC to postpone the vote so the alleged fraud can be investigated.

Whenever the vote takes place, though, the Republicans’ 3-2 majority among the agency’s five commissioners means Pai’s plan is likely to pass. What happens then? There will almost certainly be legal challenges mounted to delay a dismantling of the rules. Some states may even try to introduce their own regimes, though the FCC’s plan specifically preempts such moves.

Engstrom and others are hoping Congress will take a stand. Politicians from both parties generally agree that consumers and young companies need to be protected from unfair practices by ISPs. Susan Collins, a Republican senator, and several colleagues from Maine have even publicly opposed the FCC’s plan. Other Republicans may take more persuading, but getting bipartisan agreement on a law that enshrines net neutrality would be the best way to protect consumers, and the startups that are the lifeblood of innovation.

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