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Net Neutrality Quashed: New Pricing Schemes, Throttling, and Business Models to Follow

A court loss for “net neutrality” could mean either a new era of innovation or preferential treatment and higher costs.

The Internet was built on the principle that all packets of data should be treated equally, which shaped the products and companies built on top of it.

A decision issued today by a U.S. federal appeals court struck down parts of the Federal Communications Commission’s Open Internet, or “net neutrality,” rules issued in 2010. Accepting much of a challenge by Verizon, the court killed the FCC’s policies that aimed to prevent data discrimination or data blocking. But the ruling does require carriers to disclose when they block, slow, or expedite various kinds of traffic in the future.

The results could be far-reaching. Consumers may see new offerings such as free content from companies willing to pay carriers extra for delivery; app companies could find themselves charged a fee to ensure that their videos get glitch-free performance; and e-commerce companies could be asked to pay to make sure their bits go through quickly enough to close a sale.

Plenty of such plans are in the wings or are already being offered. Just last week, AT&T unveiled a plan called sponsored data, under which a business like ESPN could pay for data delivered to your phone, so that your sports and related advertising viewing doesn’t blow through your monthly data caps. Such offerings dovetail nicely with efforts by AT&T and Verizon Wireless to get customers to switch to tiered plans, motivating customers to keep an eye on usage, and motivating providers to want to pay to get around such concerns.

Meanwhile, companies like Akamai and Ericsson have already hammered out technologies for mobile carriers to provide so-called “fast lane” technology, under which some sites can pay more to make sure their bits go to the front of the line (see “Akamai’s Plan for a Wireless Data Fast Lane”), while other data traffic gets bumped back. Similarly, Verizon has engineered a way for certain apps to get faster service to, say, resolve a choppy video on the fly (see “Verizon Plans a Fast Lane for Some Apps”). Behind the scenes, meanwhile, some of the biggest content-providing behemoths—such as YouTube and Netflix—could be asked to pay up or find the equivalent of traffic cones slowing their way.

Verizon, which brought the challenge, says that consumers won’t feel any pain, saying in a statement that “today’s decision will not change consumers’ ability to access and use the Internet as they do now. The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want.”

Others see it differently. The theoretical downside is that the Internet devolves into a kind of “pay to play” system, with smaller companies tending to be squeezed out, and prices tending to rise overall.

That is the dystopia envisioned by people like Susan Crawford, a visiting professor of law at Harvard University and a co-director of Harvard’s Berkman Center for Internet & Society. “We’ve got very powerful market actors in America who want to make more money from the same infrastructure, without expanding it,” Crawford says. “The way they do that is to divide markets and then steadily charge more. And on the other side, they want to charge people who want to reach subscribers different rates.”

Other academics say innovation is threatened in a world without good net neutrality rules (see “Q&A: Lawrence Lessig”). But an anti-regulation group, the American Enterprise Institute (AEI), argues that much Internet content isn’t really on equal footing right now, with customers paying extra for faster services, a few major companies inevitably dominating content delivery, and partnerships making for an inherently variegated system.

Roslyn Layton, a visiting fellow at the AEI and an Internet economist at Aalborg University in Copenhagen, argues that net neutrality concepts, taken to their logical extreme, would have prevented things like the exclusive Apple/AT&T partnership that launched the iPhone.

After all, she pointed out, this deal obligated AT&T customers who bought the iPhone to work within Apple’s closed app ecosystem and gave a subsidy to Apple on the retail price of the phone. “We can look back and say, ‘Oh, those were good things, glad they were allowed.’ That’s the point we are making about innovation,” she said in a conference call yesterday. “If we follow [net neutrality] to the letter, I don’t know if anything could be allowed, frankly.”

Today’s decision was the second time the courts struck down the FCC’s effort to put all Internet traffic on equal footing. An earlier effort was struck down almost four years ago (see “FCC Regroups After Net Neutrality Loss”), leading to the newly crafted regulations struck down yesterday.

FCC chairman Tom Wheeler said the commission is considering an appeal. The FCC could try again by reclassifying broadband providers as “telecommunications service providers” rather than “information service providers.”  

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