In a historic decision, the Federal Communications Commission (FCC) yesterday approved net neutrality laws proposed by its chairman Mr. Tom Wheeler earlier this month. The new laws will classify high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. Importantly, the latest regulations will be applicable to both mobile and fixed broadband networks.
The 5-member regulatory body voted in favor of net neutrality with a 3-2 margin. However, the voting pattern was clearly divided along party lines, as 3 Democrat representatives voted in favor of net neutrality while the 2 Republican representatives opposed it.
Notably, in Nov 2014, President Obama strongly proposed net neutrality with Title II norms. The reclassification of Internet makes a radical change in the way the government treats high-speed broadband service and Internet Service Providers (ISPs). The FCC can strongly regulate the ISPs now.
Net Neutrality
Net neutrality implies an open-Internet atmosphere which will prohibit ISPs, especially the telecom and cable TV operators, from discriminating against applications. In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs have been discriminating against several web-based contents and applications. Content developers have to pay heavy sums to ISPs for accelerated data transfer.
The implementation of the new law will ban common ISP practices such as data traffic blocking, slowing data traffic and paid prioritization. Notably, paid prioritization is a method through which content developers strike deals with ISPs for quick and smooth transmission of their data traffic. The FCC will closely monitor and put a check on all such deals in the future. Moreover, the FCC will also supervise interconnection deals, in which content developers pay ISPs to connect with their networks.
Arguments Against Net Neutrality
All ISPs, along with several cable and telecommunications industry bodies, have vehemently opposed net neutrality. Republican U.S. senators are also not in favor of this newly proposed directive. These groups believe that a slight law reformation under section 706 of the 1996 Telecom Act will be enough to enforce net neutrality.
The major argument, however, stands that the ISPs have to expend several billion dollars to install and upgrade a high-speed mobile/fixed broadband network. Disallowing discriminatory pricing policy will significantly reduce their revenues and margins, which will in turn result in lower investments in the high-speed broadband sector. Consequently, broadband equipment service providers will suffer (due to lesser investment by ISPs) and lots of jobs will be eliminated from this sector.
ISPs to Opt for Legal Battle
Telecom behemoths Verizon Communications Inc. (VZ) and AT&T Inc. (T) have decided to challenge the new regulation in court. In Jan 2014, Verizon won a federal court case against the FCC's previous set of net neutrality rules.
Major cable multi-service operators, namely Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC) and Charter Communications Inc. (CHTR) also strongly opposed the FCC’s decision and may file legal suits. This group made clear that though they have no objection to the open Internet concept, enforcement of stricter regulations by the government is not acceptable.
Meanwhile, Republican senators have also decided to challenge net neutrality in the U.S. Congress.
Gainers
Content developers and consumer groups are poised to benefit from the net neutrality law implementation. Netflix, Google, Amazon, Hulu and Twitter are some of the companies poised to take advantage from the change. At present, these companies pay a special charge to ISPs for speedy transmission of their content. The new rule will significantly alter online access charges of content including video, music, email, photos, social networks and maps for consumers.
Possible Effect on Big Ticket Mergers
The FCC is currently scrutinizing two large merger proposals in the broader telecom industry. AT&T’s proposed acquisition of DIRECTV for $48.5 billion and Comcast’s planned takeover of Time Warner Cable for $45.2 billion are currently awaiting regulatory approval.
Meanwhile, the FCC raised the download and upload speed of the Internet to be deemed as broadband (high-speed data). Together with this, the initial concern of strict net neutrality laws raised questions on these mergers.
Nevertheless, the FCC stated that the net neutrality law will not include retail price controls on broadband services. Also, net neutrality does not include rate regulation, tariff regulation and last-mile unbundling. Therefore, a not-so-hard law may pave the way to easier regulatory clearances for these deals.
Bottom Line
Telecommunications is a necessary utility. The need for telecom in both rural and urban areas, as well as its role in the infrastructural development of an economy, is of vital importance. Net neutrality may discourage large investments in the telecom sector but will cut down the cost of online access for end-users since content providers will no longer need to pay extra fees. However, it has yet to be seen how the government manages a trade-off between the two.
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