The FCC Decision On First Net Neutrality Complaint Could Set Precedent

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A Federal Appeals Court recently refused to stay the implementation of the Federal Communications Commission’s (FCC) new net neutrality rules while they were being challenged in court by the Internet service providers. [1] As a result, the rules have taken effect. These rules seek to regulate broadband providers along the lines of the regulations imposed on traditional phone companies or other utilities. The new net neutrality rules require Internet service providers to comply with a ban against “paid prioritization”, thereby disallowing different treatment for different websites and content. The service providers will also have to abide by the FCC’s ban on blocking or throttling websites.

With the framework in place, the FCC has received the first net neutrality complaint, filed by Commercial Network Services (CNS) against Internet service provider Time Warner Cable (NYSE:TWC). [2] The complaint highlights the interconnection issues between the two companies. The FCC decision on the complaint could set the precedent on how the commission plans to handle future interconnection disputes.

Our price estimate for Time Warner Cable stands at $183, implying a slight premium to the market.

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What The Complaint Is About

The San Diego-based web hosting company CNS has filed an informal complaint claiming that Time Warner Cable (TWC) is in violation of the FCC’s rules on “paid prioritization” and throttling. The complaint highlights the interconnection issues between the two companies, with CNS stating that TWC is “failing to fulfill obligations to its subscribers” by “opting to use more congested traffic routes rather than pay for interconnections.” CNS further elaborates that “by refusing to accept the freely available direct route to the edge-provider of the consumers’ choosing, TWC is unnecessarily increasing latency and congestion between the consumer and the edge provider by instead sending traffic through higher latency and routinely congested transit routes.” CNS also argues that TWC disobeyed “paid prioritization” rules when it created a paid fast lane through its peering policy. [2]

Why The FCC Decision Will Be Closely Watched

Net neutrality is a principal related to the way Internet traffic should be treated. It advocates that Internet service providers 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. [3] In keeping with this principal, the FCC has clearly stated in its new set of rules that Internet service providers will not be allowed to block or slow down web content and services of content providers. They will also not be allowed to give preferential treatment and increased speeds to content providers in exchange for payments, dubbed “paid prioritization”.

On the other hand, the FCC has avoided setting definite limits for other issues and has positioned itself to punish bad behavior related to these issues. [4] One such issue is the authority of the commission over interconnection deals between Internet service providers such as TWC and content providers such as CNS. Content providers generally have deals with Internet service providers 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”. [5] The commission plans to tackle issues related to both payments and capacity. [4] 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 the FCC will look upon the TWC-CNS dispute. The FCC decision will give us a better idea on how the FCC plans to approach such issues in the future. Interconnection deals have been fodder for much debate in the recent past. The Internet service providers have already expressed concerns that a highly regulated environment could deter their investments in broadband services. If the FCC decides to take an unfavorable stance against the Internet service providers, the service providers might lose their incentive to invest in capacity to support additional traffic.

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Notes:
  1. UPDATE 2-Court declines to suspend U.S. net neutrality rules, June 11, 2015, Reuters []
  2. Time Warner Cable Hit With Net-Neutrality Complaint, June 22, 2015, Multichannel News [] []
  3. Net neutrality, Wikipedia Definition []
  4. FCC Leaves Itself Wiggle Room on Net-Neutrality Rules, March 12, 2015, Wall Street Journal [] []
  5. REPORT AND ORDER ON REMAND, DECLARATORY RULING, AND ORDER, March 12, 2015, Federal Communications Commission []