What Does Net Neutrality Mean for Investors?

There is a giant power struggle underway between proponents of the “Open Internet or Net Neutrality” and the large broadband Internet Service Providers (ISPs) over whether or not the Open Internet will survive.

To understand what is at stake we look at the nature of the Internet and how it works. First, no one controls the Internet. The Internet is a vast array of computers connected through bandwidth between your computer to your modem to your ISP. This is often referred to as the “last mile.”

The Federal Communications Commission has jurisdiction over control of the Internet. On December 23, 2010, the Commission issued its “Open Internet Order.” The Order had three main provisions: 1. Transparency, 2. Prohibiting Blocking and 3. Unreasonable discrimination to protect Internet Openness. The Commission further went on to clarify these provisions. The Commission’s statement from their website states: Under the Open Internet “consumers can make their own choices about what application and services to use and are free to decide what lawful conduct they want to access, create or share with others. This Openness promotes competition and enables investment and innovation.”

Fast forward to January 14, 2014. The FCC rules were challenged in federal court. The decision rendered was as follows: The Court affirmed the Commission’s authority to regulate broadband Internet access and upheld the Commission’s judgment. The Internet Openness encourages broadband investment and that its absence could ultimately inhibit broadband deployment.

Now for the real kicker. The Court VACATED the NO BLOCKING and NO UNREASONABLE DISCRIMINATION rules. The Commission set May 15, 2014 as the beginning period for public comment. To date, over one million comments have been sent to the Commission for review.

What we have now is a battle royal between the big player ISPs and the proponents of Net Neutrality. When we look at the list of ISPs we have thirteen players, among them are names like Cablevision, Comcast, Cox Communication, Charter Communications. and Time Warner Cable. They provide the streams of content that we as consumers receive. While on the surface the no blocking and no unreasonable discrimination rules seem unobtrusive, they are leading to possible turmoil in the industry. While ISPs may not block content outright, the can and do control how data is streamed to consumers. In a recent incident, Comcast delayed Bot Torrent’s uploading of the King James Bible. Comcast controls 37% of Internet broadband.

Other abuses could arise from ISPs charging higher fees to high content users such as YouTube and Netflix.

The obvious fix would be to provide more broadband. However, the United States has plenty of broadband when compared to other countries. Cable companies are fearful of losing TV customers to the Internet. They are charging higher prices for broadband to keep TV prices as low as possible. Often they offer “bundling” of services to hide the separate charges.

The issues at stake are complex. What is up for grabs is whether or not we will continue to have and Open Internet or Net Neutrality as we know it.

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