Wednesday, March 18, 2015

In Net Neutrality Order, The FCC Sides With Big Content Over Little Consumers

In Net Neutrality Order, The FCC Sides With Big Content Over Little Consumers


Who will pay for the communications infrastructure of the 21st century? Will it be broadband consumers, big content providers, or some combination of the two? In its Open Internet Order released last week, the Federal Communications Commission (FCC ) sided with Big Content and stuck broadband consumers with the full tab.

Before the FCC’s order, there were two possible ways by which Big Content—think Netflix or Amazon or YouTube—could contribute to the recovery of infrastructure costs by Internet service providers (ISPs). Content providers offering real-time applications (which for the most part do not yet exist) could pay for special handling of their packets or “priority delivery.” Alternatively, online video providers could pay ISPs a fee for interconnection.

By reclassifying ISPs as public utilities, however, the FCC has foreclosed both forms of contribution. Paid priority has been banned (see para. 19), snuffing out the market for real-time applications in its infancy. And interconnection arrangements will be regulated under Title II’s “just and reasonable” standard (see para. 29), which could mean anything, including Big Content paying only the ISP’s incremental cost of adding interconnection capacity (see para. 200). If Netflix has its way, that nebulous standard could mean free interconnection for the largest content providers.

Zero contribution is great news for Big Content. Indeed, Netflix’s stock price is up nearly $100 (a 25% increase) since President Obama came out in favor of public-utility regulations in November of 2014.

But it is bad news for broadband consumers. In a two-sided market such as broadband, banning payments from one side of the market will likely reduce broadband adoption. The simple reason is that broadband users are more price-sensitive than Big Content.