It’s funny how easily politicians – many of whom don’t understand the impact of the concepts they’re defending – glibly toss around terms like “net neutrality.” To be honest, though, it’s not funny at all if you’re a small or medium-sized business. Most officials and politicians who passionately defend net neutrality as an integral component of their “pro-business” agenda are either ignorant of the facts or deliberately being disingenuous. The huge scale-back of net neutrality that the FCC proposes isn’t pro-business at all.
It’s pro-BIG business.
What Is Net Neutrality?
Before we look at the possible effects of net neutrality, let’s make sure we understand the concept better than many political speechmakers.
The most natural comparison is to a multi-lane highway. All vehicles using the road are free to use any lane, so every driver has an equal opportunity to reach his destination in the fastest and most efficient way possible.
Now, picture the construction of unique, high-speed toll lanes on the highway, similar to the HOV lanes on freeways. Only those who pay an additional fee can use the express lanes; that payment allows them to bypass heavy traffic and slowdowns in the ordinary lanes so they can get where they’re going much faster.
The comparison to net neutrality is particularly apt since the Internet has often been referred to as the “information superhighway.” Under the net neutrality rules which were (for the most part) observed informally for many years and then codified during the Obama administration, all web traffic was allowed equal access to all of the “lanes” in the system used to deliver Internet content and facilitate data exchange. Internet Service Providers (ISPs) couldn’t give any customer priority unless they circumvented or violated the traditional principals that made the web, and data transmission on it, a level playing field.
The most significant change that will occur with the elimination of net neutrality is that ISPs would be allowed to set up “express lanes” for web traffic. They’d be allowed to charge enormous premiums for huge companies which want (and can afford) better Internet service while relegating everyone else to the “slow lanes.” Just as importantly, ISPs which also operate content businesses as well (such as Comcast and Verizon) could give preference to their offerings over that of competitors (like Netflix and Hulu).
You can probably see that the impending disappearance of net neutrality will cause significant shakeups in the way the Internet functions – defenders of the status quo call the scheme the end of the open Internet. And the fallout will be even more profound than might initially be obvious – particularly when it comes to smaller businesses that need every level playing field they can find.
Net Neutrality and Business: Potential Winners
If you run a significant data provider like Comcast or AT&T, you’ll be thrilled with an end to net neutrality – which is why the big telecom companies have been lobbying to kill the system for years.
To begin with, they’ll be able to create those data delivery “express lanes.” ISPs call this paid prioritization. It will give major telecoms a massive advantage over competitors. They’ll also be able to charge companies desiring access to the express lanes whatever the traffic will bear, which potentially gives large, established companies just as much of an advantage over small businesses and startups.
Let’s look deeper at the issues.
Once upon a time, the major networks and movie studios produced almost all of our entertainment, delivered to our homes (and businesses) by over-the-air TV stations. The networks and studios may have controlled some of the distribution channels (for example, the networks owned a few TV stations and had binding agreements with their affiliated stations) – but for the most part, that didn’t restrict access to all of the distributed signals, and one network couldn’t prevent a viewer from watching another network’s offerings.
Cable and satellite complicated the picture a bit over time since some large cable providers also eventually owned TV channels (think Time Warner and CNN). Theoretically, they could have refused to distribute competitive services – but in most cases, laws or rules like “must-carry,” plus the fear of legal challenges and the allure of compensation, meant that access to programming was still nearly-universal.
Along came the Internet and the emergence of businesses like Netflix, which relied on the net to deliver programming. Once again, the major cable and satellite providers couldn’t prevent or limit access to those services (even though some certainly tried). Even though companies like Time Warner had the technical ability to stop or restrict Internet delivery of their competitors’ programming, net neutrality prevented the companies from doing so. In 2015, the FCC issued a rule by a 3-2 vote making net neutrality the standard for the web and preventing providers from blocking or throttling delivery of any Internet service to anyone.
A mere two years later, and the situation has changed radically. The election of President Trump has resulted in a change of the board members of the FCC. Less than a month ago, the new board revoked the net neutrality rule, and indicated it would not support the concept moving forward. We now face a brave new world where ISPs create Internet express lanes, and the big telecoms have the power to deliver their own content swiftly and perfectly – and the power to either shift competitors to the slow lane or charge them an exorbitant amount of money for faster connection speeds.
The only forces that might prevent large telecoms from abusing their new power will be threats of monopoly or anti-competitive lawsuits, or the overburdened and Internet-inexperienced Federal Trade Commission, which will take over oversight of broadband services from the FCC if current proposals are adopted. Even scarier: the FTC won’t have the power to make rules governing net access. It will only be able to act on specific complaints it receives about an ISP.
The bottom line for content providers: the “open” net that once gave fledgling online content providers like YouTube the ability to deliver content at the same speed as Google Video will no longer exist. The next startup with a great idea may be snuffed out for no other reason than it doesn’t have the funding to scale up to the fast lanes provided by telecoms. Without fast speeds, there’s little chance such companies will have the same ability to grow like Facebook, YouTube, and Netflix did when those companies launched.
We’ve already seen what we can expect. Dominant companies like Comcast have tried over the years to throttle bandwidth-heavy uses of their broadband service only to be slapped down by the FCC (which in turn has been slapped down by court rulings). Unfettered, the telecoms will surely do the same. They’ll be, in effect, the gatekeepers of the internet, allowing them to rake in boatloads of new cash from all of those who are willing and able to pay for premium broadband speed.
So that’s how large telecoms will win from the death of net neutrality. Will any other businesses benefit as well?
Absolutely; the rich will get richer. Market-dominant companies will have the deep coffers they’ll need for access to the “express lanes.” For a company like Amazon that just dropped thirteen billion dollars to buy Whole Foods, the extra fees will be a new cost of doing business, allowing them to become even more dominant over smaller competitors who don’t have the financial wherewithal to buy the fastest Internet connections available.
Large companies, to be blunt, don’t want the level playing field that net neutrality guarantees. The new rules will be a permission slip for large multinational companies on the web to consolidate their market share while snapping up smaller companies that don’t have the money to compete for a song.
Net Neutrality and Business: Potential Losers
The Internet is not infinite, although many individuals have come to assume as much. Only a certain amount of space will be available on the “express lanes” due to genuine bandwidth limitations. Most businesses that find themselves stuck among the slow-lane riff-raff will be stuck with inferior Internet connectivity.
Here’s what that will mean:
- Slower loading speeds for web pages – today’s consumers have a vast range of website choices and are notoriously impatient. Business sites that load or respond more slowly than their large competitors, or must continually buffer, will see prospective clients give up and head to the “fast sites” run by bigger competitors who have better connectivity. Don’t think that’s a big deal? One expert says that a one second delay in loading time can cut an e-commerce site’s revenue by about 7 percent.
- Less-reliable internal communications – mid-sized and even many small businesses have come to depend on fast Internet speeds to communicate within or between their facilities. Slower data transfers will inhibit these businesses. It could also hamper many other everyday business activities, particularly those that rely on fast access to the cloud. Even running a credit card for a customer could be a more time-consuming process.
- Problems with video – slower connections will make it difficult for potential clients or leads to view videos that explain products or services. They’ll also create a massive roadblock for any site wishing to provide a large number of informational or archival videos to attract visitors.
- Difficulties with digital marketing – in our connected world, digital is an integral ingredient of nearly all marketing plans. Any campaign that requires large amounts of bandwidth is likely to become extremely expensive, or impossible, for small businesses that can’t afford extra ISP fees.
- Poorer search engine rankings – many business owners don’t realize that a crucial factor in Google’s search algorithms is speed. Sites which take a long time to respond because they’re on the Internet “slow lanes” will be marked down heavily by Google and will be listed lower in the search engine results pages.
- Product launch problems – we’ve already discussed the major issues that will face startups or relatively new businesses. But even existing companies trying to launch new products or services online may find the going tough because larger competitors already occupying the space will be likely to have a built-in advantage: the revenue to pay for faster connectivity.
Those against net neutrality have long claimed that eliminating the level playing field is a pro-business position. They say it’s only fair that companies that use more resources should be expected to pay more, just as they do for their water or electricity consumption. That’s a reasonable argument on its face but doesn’t take into account the fact that most small businesses have a hard enough time finding the money they need to stay alive and grow. They’re not in the same position as market leaders, who may be able to recoup additional Internet costs by raising prices.
By any measure, the death of net neutrality will lower the ability of small and medium-sized businesses to compete.
Net Neutrality: Other Potential Losers
Business owners are people, too. So, what does the death of net neutrality mean for each of us on a personal, daily basis?
- Those who watch Netflix, Hulu and other streaming services – these content services are among the prime candidates to suffer without net neutrality. Either a competing ISP/content provider will throttle their delivery speeds, or charge them enormous rates to get into the fast lane. In the first case, it will mean frustrating viewing experiences; in the second, it will mean significant increases in the price of streaming video subscriptions.
- Those who enjoy watching video online – unless a surfer sticks to sites which pay the enormous cost to get into the “express lanes,” watching videos could quickly become an ordeal due to slow loading times and endless buffering.
- Those who use the Internet a lot – there’s no definitive word on how or whether this will happen, but it’s likely that ISP customers who spend hours online a day will be charged more for the amount of bandwidth they consume. Also expect to see even more online advertising, both from ISPs and sites trying to recoup their extra connectivity expenses.
- Those who value their privacy online – the elimination of the FCC’s net neutrality rules will also eliminate rules prohibiting ISPs from selling surfers’ data to third-party marketers. Companies will sell peoples browsing histories and app usage data as well. The only way to prevent it is by finding the hidden opt-out checkbox somewhere on the ISP’s site. Even if people do that, the only recourse will be to complain to the FTC after their info has been given out.
There’s no way to predict, of course, the exact fallout we’ll see from the death of net neutrality. Given the arguments that ISPs have been making for years and their previous behavior, it’s a good bet that most of these predictions are going to come true – sooner rather than later.
Richard Chapo, Esq.