The Courts Deal Net Neutrality an Expected Body Blow

January 15th, 2014 by · 22 Comments

Yesterday the judicial hammer finally came down on network neutrality. A federal appeals court has sided with Verizon and rejected the rules put in place by the FCC in 2010 to prevent carriers from discriminating for or against various types of internet traffic. But while plenty will be outraged by the decision, I doubt very much that there are many that are the least bit surprised by the outcome.

tombstoneThe court said that the FCC simply doesn’t have the power to impose such rules on ISPs as currently implemented. They did leave in place the requirement that carriers must notify subscribers about its traffic management policies. But barring a successful appeal, the Open Internet rules have been essentially thrown out.

Everyone knew they were on flimsy legal ground and that this day was surely coming.  My own belief was that the FCC and its former chairman Julius Genachowski knew it as well, but faced an insoluble problem they had promised to do something about and thus did it anyway in hopes of gaining time for things to work out.  I suppose now we get to see how fruitful the last four years have been in that regard.

So what now? Well, I doubt anything instant will happen when it comes to last mile providers monkeying with traffic. The FCC hasn’t been the primary force keeping obvious abuses of the last mile in check, that has been and will continue to be the public’s job. The competition in the wireless space has made carriers increasingly sensitive to customer perceptions, and they know that to start slowing or blocking anything deliberately would be a good way to snatch defeat from the jaws of victory.

However, we saw AT&T unveil its plans for sponsored data the other day, and I suspect Verizon and others will float their own versions of the concept and everyone’s will be extended to the wired world as well as wireless. In order to take advantage of yesterday’s court decision, telecoms need some sort of economic infrastructure in place to allow the money to flow the way they want it to, and right now it just doesn’t exist.  They will therefore attempt to create it and try to convince content providers to sign on rather than risk open traffic warfare later.

The big content providers, on the other hand, will be faced with some choices. You see, there could be benefits to the telco’s approach for those that are already big. While they might pay more for access to their audience than they do now, it could also be said that their smaller upstart competition are likely to be less able to scale the new walls necessary to compete for eyeballs. A preferential traffic position could insulate large content providers from what is ever the industry’s greatest fear: the next big thing being hatched in some garage somewhere that they’re not a part of and don’t understand.

And that’s the big fear of the public interest groups here: that without network neutrality the corporate interests at the top of the pyramid on both sides will find a way to structure things in a way that protects themselves but stifles innovation from the base. Unless the FCC finds a way back in the game, avoiding such an outcome depends on the altruistic side of the corporate world. Don’t be evil, but defend those revenues.

Of course, the ideal way out here is for Congress, in a burst of bipartisanship led by resurgent moderates, to pass a law revamping telecommunications and internet regulation for the modern era in a sensible way that everyone can live with, that promotes both investment and innovation, and which can evolve with technology.  I rather doubt it.

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Categories: Government Regulations · Internet Traffic

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22 Comments So Far

  • beetlejuice says:

    Good riddance, IMO

    • Anonymous says:

      “In order to access, we will raise your bill by $5/month” – Your ISP.

      • beetlejuice says:

        yeah… I think that represents a lot of the sky is falling hyperventilating that keeps me second guessing the conventional wisdom on this topic.

        So, I don’t work for any of the ILECs or Cable Co’s that would supposedly “ruin the internet” with this set of laws (or lack thereof, I guess). In fact, I work a company that conventional wisdom says will suffer without net neutrality.

        It feels like the net neutrality rules are trying to solve for some larger existential questions in a really simplistic and uncreative way – the equivalent of 3rd graders whining that “its not fair”. It’s also glossing over some big questions that bureaucrats should not be sitting around answering – and if ever we wanted to make it much, much worse, take the advice above and get Congress involved.

        Although the US population increasingly sees everything as a “right”, the Internet is not some democratized free thing that floats around in the air. It exists because a lot of companies have invested trillions of dollars over decades to create and connect it. Those companies, including those who have infrastructure in the ground to deliver the bits, have a right to do what they want with it. Yes, spare me the lectures about monopoly and some rational limits – I agree and get it. As long as that last mile remains open to lease as it has since 96, I can always go with someone else – and there are increasing options beyond that, anyway. Thus, I can refuse to consume anyone’s content. And in an open market, we’ve seen it a lot of times: any provider who denies another provider’s content that’s popular enough can expect major PR hell. Just ask Level 3 back in the day trying to de-peer the porn peddlers like Cogent – how long did that last? If Comcast cuts or throttles Netflix, eff em – I would be gone quick.

        Not all bits are created equal – why shouldn’t I have the ability or responsibility to pay more for the data I think is more important? Consumers do it with HBO packages all the time. But think about the larger evolution of cloud services. If my business critical SaaS application is more important than your Roseanne reruns on Netflix, I’d like to get it prioritized. And in the free market, if you think RoseAnne is really critical, name the market price that makes it more important than my Whether that manifests itself as QoS on the provider’s backbone, or separate private data services (that also run over the same backbone, ironically), the result is the same: I paid to get it treated more importantly. If I am willing to pay $5, and you’re willing to pay $10, congratulations, your RoseAnne episodes are now more important than my CRM.

        I am tired of subsidizing the people who use the Internet way more than I do. We all pay some equal amount for the BW – but then I don’t DL TB’s of data per month/year, and you do with bit torrent, etc. How about YOU pay for the bits you use, and I pay for mine in a more usage or utility-based schema. Providers have every right to charge you for what you do on their infrastructure. Wait for the chorus of derision and anger from everyone on that…. visiting a site like telecomramblings in a best effort scenario – heck, I could probably do that on a dial up and still be okay in between Comcast streaming the latest stallone flick to houses on my block with a realtime marker on it. And if I couldn’t – how much longer would I be a Comcast customer?

        We already do this constantly with a subset of content, and I don’t hear much complaint. If all bits are created equal, how come I have to pay more for HBO as a consumer?

        Why is the internet traffic a sacred cow? The private services are all co-mingled on the same backbone these days anyway.

        • COST CAUSATION LOVER says:

          Beetlejuice, I certainly agree that if YOU, the COST CAUSER, utilize more bandwidth or require time-sensitive packets YOU should pay for them. After all, you sent the request to the content provider. The content provider is merely fulfilling your request.

          The content provider should not pay for that delivery. You are the COST CAUSER. The content provider is not the cost causer on the ISP’s network and therefore should not be forced to pay some toll to enter the network.

          If your ISP charges you too much for the bits you receive each month or wants to assess a premium on time sensitive packets for the content you want, new ISP entrants can look at the economics to evaluate if they can provide you with internet access at a rate lower than the one you pay now. That is how the marketplace should work.

          If the content provider wants to pay a portion of your ISP bill, they can do that by providing YOU with a monthly rebate of some sort.

          Both of those examples are very different from ISPs charging content providers.

          If ISPs are permitted to subsidize subscriber rates by charging content providers (who are not the cost causers) instead of the subscribers that requested the data, all sorts of market distortions arise.

          My point all along has been that ISPs should not be permitted to charge the content providers because the subscriber is THE COST CAUSER.

          • Internet Pioneer says:

            Sounds reasonable Mr CCL. But, I don’t think you grasp the “vision” or purpose of the Internet. You and your Monster ISP’s will end up destroying one of the most beautiful, inspiring advances ever experienced by Humanity.

            • COST CAUSATION LOVER says:

              Wow, if you’ve read my posts and have me siding with the “Monster ISPs” I obviously need to improve my writing skills.

              I’m a huge proponent of net-neutrality (which is consistent with the original vision of the internet). Everything I’ve written on this subject has been to promote net neutrality and to highlight possible dangers of its abandonment. Specifically, I’ve argued that Monster ISPs would love nothing more than to replace net neutrality with some switched packet access alternative where content providers pay fees to what you refer to as Monster ISPs.

              Can you point to something I wrote endorsing the Monster ISPs?

              • Internet Pioneer says:

                “The content provider should not pay for that delivery. You are the COST CAUSER. The content provider is not the cost causer on the ISP’s network and therefore should not be forced to pay some toll to enter the network.”

                Maybe I am taking this out of context. Your comments are lengthy.

                Who should pay? I subscribe to the Internet and visit many, many content providers, including Cisco, Netflix, etc. And, I use Coursera, 23andme, read the Times (that I pay the Times for), but I have no incremental charges related to accessing sites for research. That includes medical information, etc. If I have to pay for all then I will have to quit using the Internet for most things. Possibly a death knell for the Internet as we know it.

                • COST CAUSATION LOVER says:

                  All of the services you describe above are a result of net neutrality. If the ISPs are permitted to begin charging content providers like Netflix, YouTube, and others, those carriers will have to raise their rates (e.g., netflix) or begin charging in the case of youtube to recover their costs.

                  For a long explanation behind cost causation principles, I’ll refer you to my comments here on Telecom Ramblings on this subject from 4/16/2012.


                  (Unfortunately, they’re also very long.)

                  Here’s just a sample from those comment which explains why I support cost causation over an access structure.

                  “Rob, interesting, but you’ve essentially just reconstructed the switched access regime for the internet, exactly what ILECs would love. The switched access regime, through an artificial cross-subsidization scheme did nothing but assure the ILECs (i.e., Baby Bell’s) monopoly on local phone service until the passage of the ’96 telecom act.

                  I say, abandon all access structures. Make it all about COST CAUSATION. Plain and simple, if I and some subset of my Internet provider’s subscribers are consuming too much content/bandwidth, CHARGE US!!! Do not charge the content provider.

                  If my ISP (e.g., Comcast, VZ or T) doesn’t want me and a subset of its subscribers because we consume too much data, some other carrier will. Some other or new entrant will make the investment to win me and these other data hogs over to their network. Burying costs at other points in the packet stream is a monopolist’s/oligopolist’s dream because it keeps new entrants out of the market.

                  Personally, (and this will sound crazy) I believe the ILECs want metered usage LESS than its users do. Why? Because metered usage leads to two things — (1) unmetered usage and, worse, (2) competition from new entrants”

    • Nope says:

      Yeah: if it’s good for ILECs, it must be great for the Internet.


    Rob, you do realize that in your Sept 9th “Net Neutrality Gets Its Day In Court, But Does It Matter Anymore?” piece you say “But operationally, perhaps we are beyond the point where either can roll back the clock.” I guess the clock has rolled back?

    Of course, this fight’s hardly over but certainly becoming more intense, especially as investors pour more and more money into content assets.

    Make no mistake about the Eyeball Owning Network Operator’s (EONOs) endgame. They want a switched packet access regime (SPAR) modeled right after the switched access structure for voice that’s been in place for decades.

    A SPAR permits the EONOs to maintain a lower rate for subscribers which keeps new entrants out of the market while raising the cost of content. (Remember, nobody outside of telecom blamed the baby bells for the inflated long distance voice rates but it was the originating and terminating access costs that kept LD rates inflated. )

    This is a pure cross-subsidy model where EONOs get content providers like Netflix to pay a portion of the bandwidth internet subscribers consume through a complex web of fees. On the face this may look appealing because it keeps EONOs internet subscriber rates down. Subscribers beware though because it will certainly raise the cost of the content you want. Netflix rates will surely rise. Youtube and other streaming content services may have to charge users for usage. Net-NON-neutrality will also stifle the development of bandwidth intensive applications.

    We’re still a long way from this Internet Armageddon day, but that’s the path the EONOs have been marching down since they took on net-neutrality.

    If EONOs are successful you might want to dust off your separations accounting manuals and your 90s TELRIC (Total Element Long Run Incremental Costs) and TSLRIC (Total Service Long Run Incremental Costs) studies because content providers will have to march into the FCC with their own cost studies to push down the SPAR rates EONOs will seek to charge.

  • JPW? says:

    So now AT&T can charge their customer, charge the websites the customer is using, and go ahead and take some Connect America subsidies as well. Triple billing. $$$


      You nailed it! It will be far more subtle: think of the boiled frog parable where the frog is put into a pot of room temperature water and the temperature is turned up one degree at a time until our friendly frog is boiled. If the frog were put into boiling water it would jump right out.

      I suspect EONOs will try to do same by finding ways to gradually assess costs on content providers without them launching a huge legal and PR war that could derail EONOs win.

      (You might ask why the EONOs would want to boil the frog. The answer of course is to create their own — content that is. By raising the cost of content production through SPAR fees EONOs can build their own or charge more for the content they produce.)

      I have argued elsewhere here how crazy I thought content providers like Disney, Google, Apple and Microsoft have been staying on sidelines of this fight, leaving it up to Netflix as the most vocal opponent.

      IMHO these companies need to go full out assault on net-non-neutrality, putting pressure on regulators and elected officials.

      Waging this war silently through back channels (which is how I suspect content players have managed this) plays right into the hands of EONOs like ATT, VZ and Comcast that together have over 200+ years of gaming the regulatory process.

  • pbadowski says:

    Turnabout & Fair Play

    So What about a future where say Google has fiber to the home in a bunch of cities (Especially ones where AT&T is). If Google got along really well with Netflix then Netflix could turn the tables on AT&T and say something like – “Your customers are using a lot of our bandwidth and you really need to pay us for this added load on our services. And Oh, by the way, Google is our friend and if your customers move to Google for their service provider they won’t get charged this silly added fee! (Insert appropriate hand gesture here.)”


      PB, I’m not sure I’m following your traffic flow entirely here. Yes, Google could (and has) launched their own Fiber to the Curb/Home (FTTC/H) projects which helps balance the traffic a little. But net net the EONOs today own way too many eyeballs to equalize the balance of traffic.

      You’re right that if NETFLIX produced such high quality content that users had to have it and GOOG purchased NETFLIX, GOOG could justify building out their FTTC/H in other markets and then the traffic flows might be more balanced.

      It is really critical that requlators make explicit any and all subsidies from a Switched Packet Access Regime (SPAR). Of course just as ILECs did with switched access, EONOs will seek to make those access costs as obscure as possible.

      Possible new ISP entrants must know the size of the subsidy EONOs enjoy so they can determine the potential revenue stream from entering the market to compete against Incumbent EONOs (I-EONOs). The New Entrant EONOs (NE-EONOs) would do this by underpricing I-EONOs subscriber rates and, simultaneously, charging content providers a lower SPAR.

      CLECs first enterered the ILEC’s space in the early 90s as Competitive Access Providers (CAPs) by providing special access to the IXCs (or long distance providers) which enabled the IXCs to avoid originating access charges from the ILECs (or baby bells) for large IXC enterprise customers, e.g., Merrill Lynch, IBM, Fidelity and so on.

      If regulatory rules and subsidies permit it, NE-EONOs may first enter this market by establishing interconnections with I-EONOs deep into I-EONOs networks and deliver content packets at those points.

      This may be an arbitrage for content providers like Netflix and Youtube between the I-EONO SPAR rates and the NE-EONO transport rates.

      The parallels between the switched (voice) access structure and a potential switched packet access regime or SPAR are very disturbing when you understand how the baby bells played this game.

      ATT and VZ have institutional history and regulatory power to usher a SPAR through.

      The biggest difference between the establishment of the switched (voice) access structure and the SPAR is the I-EONO’s opposition — content providers — is pretty powerful too.

      In the 80s when Ma Bell was broken into 7 companies, MCI was an upstart with little power and influence in DC. By the time MCI entered the game, the rules were already set. MCI looked more like a law firm than an IXC.

      Today, the content providers (the equivalent of the 80s IXCs and 90s CLECs) have deep deep pockets to fight this battle. So far, they really haven’t done it very well, but maybe this is a wake-up call.

  • Anon says:

    This is why Google will buy lvlt.


      Why? This decision is terrible for LVLT (although they probably won’t say it publicly for fear their stock price would take a hit). LVLT has been one of the most vocal opponents to Eyeball Owning Network Operators (EONOs) like T, VZ and CMCSA on the issue of net-neutrality.

      Although LVLT has worked hard to diversify its revenue away from the Dedicated Internet Access (DIA) and transport services, they still derive hundreds of millions in these products, not to mention their data center business that could be impacted by a switched packet access regime.

      This decision, should it survive, is terrible for LVLT. LVLT data center customers might be forced for economic reasons to move their data centers off the LVLT network onto the EONO networks in order to get a packet delivery cost reduction.

      I’ll be curious to see if LVLT issues any statement on the federal appeals court ruling. Under Crowe, who admittedly I was no fan of, they definitely would have. Storey seems far more sensitive about stock price and may elect to stay silent.

  • Nope says:

    I can’t wait to for Comcast CompuServe!

  • John Carry says:

    Join World’s largest telecom network today.

  • Anonymous says:

    Amazon Considering Online Pay-TV Service
    Live TV Channels Would Compete With Cable, Satellite

    According to WSJ, things may be brewing up.



    Colbert Report segment on Net Neutrality, hysterical and on point.

    • Anonymous says:

      the harvard professor says “what we need is bits to be served just like electricity” – LOL, last time I checked my electricity was metered – use more, costs more….

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