Eliminating Net Neutrality Rules Will Favor Carriers Over Internet Content Providers

November 21, 2017, 5:52 PM UTC

Less than a year after taking control of the top federal telecom regulator, commissioners appointed by President Donald Trump are poised to eliminate net neutrality rules that bar Internet providers from creating slow and fast lanes for online content.

Federal Communications Commission Chairman Ajit Pai on Tuesday unveiled his plan to erase the agency’s 2015 ban on Internet service providers discriminating against certain online content and services while favoring others. Pai’s plan also blocks state and local governments from imposing their own net neutrality rules.

Instead, Internet service providers, or ISPs, would be required only to disclose their practices. But very few customers have more than one or two choices when selecting an ISP, so the transparency may not help much. Pai’s far-reaching plan, expected to be adopted at the FCC’s Dec. 14 meeting, could create wide-ranging winners and losers across the digital landscape.

Huge Winners: ISPs

The nation’s largest Internet service providers, led by AT&T, Comcast and Verizon, stand to reap the greatest gains. They should easily be able to start favoring online content and services they own over others. In fact, the FCC under Obama-appointed chairman Tom Wheeler had already concluded that Verizon and AT&T were improperly favoring content they owned in likely violation of the 2015 net neutrality rules.

The prior favoritism took the form of allowing wireless customers to access carrier-owned video services without the usage counting against monthly wireless limits. Accessing all other video services did count against the limits unless the content provider paid extra. Known as zero-rating, the practice was more carrot than stick for wireless customers. But with the rules removed, carriers would be free to adopt more punitive forms of favoritism, like tacking on extra fees for some content or indirectly raising the cost to customers by charging the fees to the content providers. For home Internet users, the elimination of the rules gives ISPs a big incentive to continue adding monthly data caps to create a way to favor their own content over wired connections.

Possible winners: Medium-sized content producers

The new rules by themselves will likely give the carriers more incentive to buy content-producing companies, as Verizon (VZ) did in acquiring Yahoo and AT&T is attempting to do by acquiring Time Warner (TWX). That could raise the share prices of companies like CBS (CBS) or Viacom (VIAB) that are about the right size to become acquisition targets. However, the Trump administration’s Justice Department is suing to block the Time Warner merger, saying it could harm competition, so perhaps some such deals will be prohibited.

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Possible losers: Large Internet companies

Netflix, Amazon (AMZN), Google and other major suppliers of online video content could get squeezed. Some analysts have said that the big Internet companies are too powerful and their content is too popular for ISPs to threaten them. But given the breadth of freedom that would be granted to ISPs under the new FCC plan, the scale of the Internet giants may not be enough to save them from facing extra fees or being disadvantaged when trying to reach viewers who are customers of the big ISPs. Before the 2015 rules were enacted, Netflix (NFLX) fought with cable providers for years over intentional streaming slowdowns and extra fees for connecting with its customers. The companies can likely afford to pay extra fees, but could still be at a disadvantage when competing with carrier-owned services. For example, all of the major wireless carriers downgrade the quality of video streaming on some plans. Absent net neutrality rules, the video quality downgrade could be used on competitors but not carrier-owned services.

Possible losers: Internet TV services

Dish Network’s (DISH) Sling TV, Sony’s (SNE) Playstation Vue and Google’s (GOOGL) YouTube TV, among others, are trying to displace traditional pay TV service with much cheaper bundles available via the Internet. They compete directly with the cable and satellite TV services offered by the major ISPs, as well the ISP’s own Internet video bundles like AT&T’s (T) DirecTV Now app. They may find themselves blocked, slowed, or required to pay additional fees. Or they may just face the more subtle disadvantage of not getting zero-rated treatment.

Definite losers: Smaller content providers

Startup online content players, especially in the video arena, don’t have the popularity or the clout to appeal to a huge base of customers to protest disadvantaged treatment. And smaller players may not be able to afford to pay extra fees that larger services can to avoid getting blocked or slowed down. The big ISPs have occasionally been caught messing with less powerful players, as in 2008, when the FCC sanctioned Comcast (CMCSA) for slowing customers’ access to the video sharing network BitTorrent, for example (though a court later struck down the decision).

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