FCC’s Net-Neutrality Order Fails To Provide Clarity On Certain Issues

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The Federal Communications Commission (FCC) recently released a 400-page document which gives out the details pertaining to its highly controversial net neutrality reforms. The FCC passed the new set of rules in February which seek to regulate internet providers along the lines of the regulations imposed on traditional phone companies or other utilities. [1] The details of the document reveal that the FCC has taken a strict stance on some issues while leaving ample room to maneuver on certain other issues. The order is ambiguous on certain issues as the FCC feels that it will need to gather more experience by dealing with these issues on a case by case basis. We try to examine a handful of such important issues which will likely decide how the Internet is regulated in the years to come, assuming the proposals survive near certain judicial review.

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Ambiguity Clouds Certain Issues

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Net neutrality is a principal related to the way Internet traffic should be treated. It advocates that Internet service providers (ISP’s)  should treat all data traffic on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication. [2] In keeping with this principal, the FCC has stated clearly that Internet service providers will not be able to block or slow down web content and services of content providers. They will also not be able to give preferential treatment and increased speeds to content providers in exchange for payments.

However, the FCC has avoided setting definite limits for other issues and has positioned itself to punish bad behavior related to these issues. [3] One such issue is the authority of the commission over interconnection deals between ISP’s such as Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) and content providers such as Netflix (NASDAQ:NFLX). Content providers generally have deals with ISP’s in which they pay to ensure the smooth running of their services in times of high internet traffic. The FCC has stated that it will review the deals to insure they are “just and reasonable”. [4] The commission will tackle issues related to both payments and capacity. [3] However, “just and reasonable” is a statement open to interpretation and the commission claims the power to decide which deals violate this undefined standard on a case-by-case basis.  Given this framework, it is unclear how, or why, service providers will invest in capacity to support additional traffic.

The FCC is also unclear about how it will deal with sponsored data programs. [3] In these programs, companies such as Google (NASDAQ:GOOG) pay the cost of the data and their services are provided to the end users free of cost. Such plans have been criticized in the past on the grounds that bigger companies can afford such costs which give them an unfair advantage over smaller companies and start-ups. Another issue is how the FCC tackles arrangements in which certain services can be consumed by users without being included in their monthly usage targets. [5] Such services are termed zero rating services and were deemed as a violation of net neutrality laws in Chile. [6] How the FCC decides to act on data services such as sponsored data programs and zero rating services will set a precedent in how the Internet will be governed in the future.

Even though the FCC has promised to refrain from heavy handed tactics such as directly regulating prices, critics have voiced their concerns that this order could potentially lead to the FCC deciding the tariffs charged to the end user. [7] They also argue that price regulation risks hurting the industry and a future commission might not agree with the current one’s approach of not interfering with prices. While the ability to regulate prices could be a very potent weapon in the FCC’s arsenal, it still remains to be seen whether the commission ever decides to go for it, assuming there are no legislative or judicial reversals of this new regulation of the Internet.

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Notes:
  1. FCC Approves Net Neutrality Rules, Setting Stage For Legal Battle, February 26, 2015, Wall Street Journal []
  2. Net neutrality, Wikipedia Definition []
  3. FCC Leaves Itself Wiggle Room on Net-Neutrality Rules, March 12, 2015, Wall Street Journal [] [] []
  4. REPORT AND ORDER ON REMAND, DECLARATORY RULING, AND ORDER, March 12, 2015, Federal Communications Commission []
  5. Five Loopholes That Could Undermine Net Neutrality, February 24, 2015, technologyreview.com []
  6. When net neutrality backfires: Chile just killed free access to Wikipedia and Facebook, qz.com []
  7. FCC Chairman Says Obama’s Net Neutrality Statement Influenced Rule, March 17, 2015, Wall Street Journal []