FCC Incurs Net Loss in Battle for Net Neutrality

The FCC’s mission of promoting Internet neutrality suffered a significant setback yesterday when the D.C. Court of Appeals ruled in Comcast Corp. v. Federal Communication Commission  that the FCC lacked authority to prohibit Internet service providers from monitoring and restricting their subscribers’ use of certain peer-to-peer applications.

The controversy arose in 2007 after Comcast subscribers noticed that the company was impeding their use of BitTorrent, an open source, peer-to-peer networking protocol that has rapidly grown in popularity due to its speed and efficiency, but has notoriously been exploited for the unlawful exchange of copyrighted material.  Read more »

FCC Proposes “Net Neutrality” Rule

Federal Communications Chairman Julius Genachowski is proposing to make it a formal rule that Internet service providers and wireless carriers cannot discriminate against certain types of traffic (e.g., file sharing or gaming) by degrading service.  The proposal, if made effective, may force US phone companies to open their wireless networks to rival internet services (e.g., Skype, Google Voice).  Senate Republicans are moving to prevent the rules.

The idea of “net neutrality”, the principle that internet access should be unencumbered, seems pro-consumer in spirit.   But what are the likely implications in the marketplace?  Assuming, as other commentators have pointed out, that there’s really “no such thing as voice or text or music or TV shows or video”, and that “[t]hey are all just data”, then the flat fee pricing models currently offered by service providers will probably need to change, and soon.  

For example, we expect customers will no longer pay $30 per month for internet, $40 per month for phone, and another price for cable television.  Instead, they will be charged a single price for accessing their data.  The question that remains unanswered:  Will data plans be priced to be unlimited or based on usage?  At the moment, customers that make only occasional phone calls and make slight use of the internet (e.g., minimal web browsing or occasional e-mailing) are effectively subsidizing other customers who consume an enormous amount of bandwidth accessing multimedia content (e.g., downloading movies or playing games).  But as technological innovation continues, and ever larger amounts of data are delivered to customers in widely diverging degrees, it seems highly likely that, if companies cannot discriminate in their delivery of certain types of data, they will eventually start charging customers based on the amount of data that customer actually consumes.