Net Loss? Is net neutrality important to small businesses?

To better understand the sometimes complex — and always contentious — net neutrality debate, it might be helpful to wrap your mind around a concept any 4-year-old child can grasp: the American choo-choo train. More specifically, you should brush up on the history of the railroad industry (if you haven’t done so already) and in particular an important legal concept known as “common carriage.”

In short, common carriage applies to carriers in an array of industries that are required to provide services to the public without discrimination. While the American railroad industry is generally the furthest thing from the mind of your typical laptop-wielding urbanite, it’s governed by laws that could have implications for small business owners and consumers alike — if those laws were applied to the much wilder and more labyrinthine world of the modern Internet.

It is the history of a light regulatory touch from Congress and the FCC that has allowed for the ‘freewheeling spirit’ that brought the U.S. the Internet we have today. — Thomas Moore, executive director, Wisconsin Cable Communications Association
 

“That concept, common carriage, came from very old railroad law,” said Barry Orton, a professor of telecommunications for the UW-Madison. “Common carriage was instituted by the federal government on railroads, so railroads had to treat all shippers of the same goods the same. That same concept was expanded over time to include other utilities that were providers of important transport services. So that included canals, it included trucking over highways, it included telegraphs and the telephone networks.

“So the common carrier — the phone company or the trucker or the railroad — had to treat everybody the same within the same classification they set up.”

When it comes right down to it, that’s the modern net neutrality debate in a nutshell. On one side, you have big cable and telecommunications companies like Comcast, Time Warner, Verizon, and AT&T, which think applying a common carrier-type standard to the Internet is unnecessary and harms their revenue potential. 

On the other side, advocates for net neutrality fear an Internet that becomes less free, less democratic, and potentially harms consumers as well as small businesses, which lack the clout to make the kinds of side deals that big operators like Google, Amazon, and Netflix might make to ensure their content is delivered quickly and reliably.

Alyson Shontell of Business Insider sums it up like this: “For example, Comcast would probably like to promote NBC’s content over ABC’s to its Internet subscribers. That’s because Comcast and NBC are affiliated. But net neutrality prevents Comcast from being able to discriminate, and it must display both NBC’s and ABC’s content evenly as a result. That means no slower load time for ABC, and definitely no blocking of ABC altogether.”

The idea that a giant telecom firm might block or slow access to major (or minor) websites sounds chilling to some — and downright un-American to others — but if critics are to be believed, a recent D.C. Court of Appeals ruling in Verizon v. Federal Communications Commission could swing the door wide open for just such a scenario. The January ruling, which struck down the Federal Communications Commission’s net neutrality rules preventing Internet providers from blocking or favoring online traffic, could encourage companies to enter into more deals like the one Netflix recently made with Comcast to ensure faster streaming.

Now, few people are likely to complain that House of Cards or the Breaking Bad finale is playing much too smoothly on their iPad, but critics remain skeptical of Internet providers’ intentions — and some argue that the effect on small businesses that rely on steady Web traffic could be devastating.

“One effect would be a small company with a Web-based business selling some kind of little videos or marketing something else on the Web, they become captive to the folks who own the pipes — and today the owners of the most robust pipes are the cable companies and the phone companies,” said Orton. “So if I rely on a system that somebody else owns for the transport of my commerce, whether I’m a farmer who relies on the railroads to haul my grain or I’m a Web-based company that relies on Comcast to haul my bits, and then Netflix has a deal that their bits go first, I’m going to be in a second-class position to do commerce to compete to grow my business, particularly if I’m trying to set up a niche of some sort that may be able to compete with the Googles and the Netflixes of the world — which is why net neutrality is so important.”

For Orton, there’s a simple fix that would allow small Web-based retailers to compete in the same way that businesses compete in the “real world” — make Internet providers common carriers.

As Orton points out, after the Telecommunications Act of 1996 was passed, the FCC classified the Internet as an information service instead of a telecommunications service, which means the agency, through its regulatory power, was trying to graft the common carriage concept (i.e., net neutrality) on top of existing law.

“My preference and a lot of net neutrality [advocates’] preference would be to classify broadband and Internet service as a telecommunications service under the Communications Act of 1934, similar to telephone, which would make it a common carrier,” said Orton.

Not so fast

If there’s a quick thumbnail response to the worst fears of net neutrality proponents, it’s that those fears have never, in fact, been realized.

The sky hasn’t fallen, and to most appearances, the Internet remains as wild and free as ever. Amazon.com certainly wields a lot of clout as one of the biggest retailers in the world — Web-based or otherwise — but it hasn’t prevented niche online retailers (such as Madison’s WisconsinMade.com and Full Compass, to cite just two examples) from carving out a sizable market share for themselves.

As Thomas Moore, executive director of the Wisconsin Cable Communications Association, argues, when it comes to the potential for anti-competitive mischief among cable providers and telecommunications companies, there’s just not a whole lot there.

“Critics — the net neutrality crowd — have been making those claims for years, and they have not materialized,” said Moore. “Now they are rushing to overstate the results of the D.C. Court decision. Remember, the court did affirm the FCC’s regulatory authority to regulate Internet practices. It just said they overreached in their administration of its anti-blocking, anti-discrimination rules. The commission’s open Internet process should give the critics comfort that consumers will continue to experience ready access to all legal content.”

Indeed, to folks like Moore, there’s something perverse in the idea that more regulation will lead to a freer, more open Internet.

(Continued)

 

“It is the history of a light regulatory touch from Congress and the FCC that has allowed for the ‘freewheeling spirit’ that brought the U.S. the Internet we have today,” said Moore. “The FCC order that was reviewed by the D.C. Court of Appeals represented a move in the wrong regulatory direction. Rather than harming competition and user experience, the result of the decision affirms current network practices. We anticipate continued investment and innovation by cable’s broadband providers as a result.”

In fact, say industry advocates, rather than taking a jaundiced look at every move Internet providers make — and seizing on every opportunity to question their motives — consumers should be thanking them for making the Web what it is today.

In a statement on the National Cable and Telecommunications Association’s website, the organization says it would simply be bad business for Internet providers to overly restrict Internet access or in any serious way mess with users’ online experience:

“The broadband industry has embraced — and fostered the development of — an open Internet because consumers demand it and it makes good business sense to provide customers full value for their Internet connections.

“As a result of the U.S. bipartisan policy of lightly regulating the Internet, private broadband providers have invested more than $1.2 trillion to build and maintain broadband networks since the 1990s. Today, wired or wireless broadband reaches 99% of Americans and we have some of the most advanced networks in the world with connections capable of 100 Mbps and faster available to 85% of U.S. homes.”

That point is brought home to millions of Netflix streaming subscribers, who are today enjoying better service because of the sort of side deal net neutrality proponents might find troubling.

“We continue to invest and innovate to increase network speed and reliability,” said Moore. “Deals like those announced between Comcast and Netflix are meant to enhance customer experience. Cable providers take great pains to manage our networks so all customers experience excellent service.”

Less than meets the eye?

For a smaller operator like Madison’s TDS Telecommunications Corp., the D.C. Court of Appeals decision is notable, but it doesn’t affect the landscape all that much.

“Obviously, the decision was noteworthy, but it really doesn’t change the operating environment that we’re in currently,” said Drew Petersen, vice president-external affairs and corporate communications for TDS. “We certainly abide by all of the five network neutrality principles that were put forward by the commission and haven’t had an issue operating under those environments.

“I think some people believe that the federal appeals court decision provides more latitude to service providers to adjust their network management activities. For us, we don’t see that being much of a change of business direction. … Our biggest guidepost is making sure that we can deliver as much broadband connectivity to our customers, that we make sure we maintain that competitive edge that’s equal to our larger competitive marketplace providers.”

To Petersen, it’s important that TDS be able to compete with companies like Comcast and ensure that TDS customers have equal access to Netflix and other content providers at a fair price. But he’s also skeptical of too much government oversight.

“Network neutrality requirements or regulatory aspects have not stood in the way of [our investments in broadband],” said Petersen, “but we would be troubled if the FCC decided to get more heavy-handed with the oversight, the regulatory construct of deploying broadband in markets, and regulatory barriers to entry would potentially stifle that. But again, network neutrality adjustments have had more impacts on the larger providers, and frankly haven’t been codified in law, so I think the best consumer safeguard is to provide good service at a fair price, and in the limited instances where we’ve seen network management practices run afoul of the consumer, the FCC has taken swift and decisive action and it’s corrected behavior, and I think that’s probably the best approach.”

Whither net neutrality?

While many net neutrality advocates are still reeling from the D.C. Court of Appeals decision, they haven’t given up on their vision of a free and open Internet. 

Democrats in Congress, led by California Reps. Henry Waxman and Anna Eschoo, have introduced the Open Internet Preservation Act, which would restore the FCC’s net neutrality rules until the commission can act.

In February, the FCC announced it wouldn’t try to appeal the D.C. Court of Appeals ruling but would propose new rules in late spring or early summer.

Meanwhile, the White House says it supports the concept of net neutrality but has stopped short of directing the FCC to reclassify providers as common carriers. In February, the official White House blog released a statement saying, in part, “Absent net neutrality, the Internet could turn into a high-priced private toll road that would be inaccessible to the next generation of visionaries. The resulting decline in the development of advanced online apps and services would dampen demand for broadband and ultimately discourage investment in broadband infrastructure. An open Internet removes barriers to investment worldwide.”

For his part, Orton seems skeptical about the prospect of any real change coming post-Verizon:

“If the FCC decides to do what I believe is the right thing and reconfigures broadband service as a telecom service, which I think in fact it is, then they have a legal basis. I don’t think they’re going to wind up doing that because I suspect the political pressure on them is going to be too strong to not do that. …

“If they decide to pussyfoot this and tweak net neutrality rules under the Telecom Act as an information service, I don’t think they’re going to get too far, because it’s going to be challengeable again or ineffective.”

Meanwhile, the elephant in the room — which, to mix metaphors, also happens to be a 1,000-pound gorilla — is the pending (as of this writing) Comcast-Time Warner merger, which would potentially create, to Orton’s way of thinking, an 1,800-pound gorilla.

It’s a deal that Orton believes is likely to be approved, and with the big guys getting even bigger, he says, the impact on the little guy — as well as the consumer — is likely to be negative.

“It’s concerning from the consumer point of view, and it’s concerning from the point of view of small businesses and even medium-sized businesses competing on the Internet with the mega-businesses,” said Orton. “If the mega-businesses make a deal where their stuff gets transported faster, more easily, or cheaper than their smaller would-be competitors, then the Internet isn’t such a free market anymore.”

Dreaming of a faster Internet

Three years ago last month, Google announced the results of its nationwide competition to select a launching point for its new ultra-high-speed Google Fiber broadband network, which promised speeds up to 100 times faster than your average broadband connection. 

Madison had been among the finalists for the project, going so far as to woo the company with a Babcock Dairy Google Ice Cream flavor.

Alas, Madison was frozen out in the end. Google chose Kansas City as the debut site for its cutting-edge 1-gigabit broadband service, leaving the rest of the country to plod through the sprawling Internet swamp while KC skates.

Google has since added Austin, Texas, and Provo, Utah, to its list of Google Fiber cities, and a handful of other cities are listed as potential suitors, but for people who are forced to deal with painfully slow download speeds and herky-jerky streaming in those yawning gaps between Google Fiber towns, that’s little consolation.

It begs the question, however: Why so slow? That is, why is it taking such a long time to get the rest of the country up to speed?

In a recent Wall Street Journal column, author and investor Andy Kessler presented at least one theory for why ultra-high-speed broadband hasn’t taken the country by storm.

His conclusions:

• There isn’t enough competition. As Kessler notes, 30% of U.S. homes have either no provider or only one provider of 6-megabits-per-second or better Web access, while another 37% have two providers — “probably a cable company and a phone company who refuse to compete on price or speed.” 

• Big telecom carriers aren’t eager to add fiber. Kessler quotes Verizon Chair and CEO Lowell McAdam as saying, “Going in and digging up yards and deploying fiber in a lot of markets isn’t in the cards.” In other words, writes Kessler, “no one wants to dig.”

• Meanwhile, some municipalities aren’t playing ball. While Kansas City rolled out the red carpet for Google — speeding up the permitting process and securing right-of-way easements, for example — not every city has been as accommodating. For instance, Google turned down Louisville, Ky.’s bid when it didn’t like the city’s terms.

Kessler argues that the FCC could expedite faster broadband for everyone by mandating right-of-way rules that would accommodate more competitors. Meanwhile, he makes his own case for a lighter regulatory touch with respect to net neutrality:

“New [net neutrality] rules aren’t the solution,” writes Kessler. “With real competition, you get net-neutrality for free. If one operator in your town makes Netflix pay to guarantee its movies stream smoothly, as Comcast announced [in February] it will begin doing, that opens up a market for the next operator to do it for less, or free.”