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The Battle for Network Neutrality

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The Federal Communications Commission is about to codify the open structure of the Internet. The FCC has presented a slate of suggested regulations and invited others to comment and fine-tune the rules.

In the red corner
Privacy and deregulation proponents like the Electronic Frontier Foundation tend to oppose the FCC regulating network practices at all. In part, they argue that less regulation is always better for the consumer. Moreover, the EFF doesn't think that Congress has endowed the FCC with the powers it would need in order to have any regulatory powers over Internet traffic policy in the first place.

On the other extreme end of the spectrum, you'll find companies like recent eBay (Nasdaq: EBAY  ) spinoff Skype. The online communication specialist just wouldn't function without open access to the Internet pipes, and management has filed a statement with the FCC saying as much. The proposed regulations are welcome to Skype, because they generally safeguard the status quo and stop service providers from throttling, tiering, or otherwise meddling with traffic.

And in the blue corner
It's no surprise to find Google (Nasdaq: GOOG  ) on the second side of the fence. Google says that its "interest in this proceeding is straightforward: to keep the Internet awesome for everybody." That means supporting the FCC's suggested slate, because it is a "balanced, flexible, and minimally intrusive approach to safeguarding the Internet's openness."

But Google also worked up a joint statement with Verizon (NYSE: VZ  ) , which you might expect to sit in the "get your filthy regulations off the Internet!" camp. The companies disagree on finer points, but both generally like what the FCC is proposing.

Note that AT&T (NYSE: T  ) did not sit in on this draft; what's left of Ma Bell is reportedly working up tiered network pricing as we speak, which flies in the face of these regulations. Gotta do something to handle those bandwidth-hungry Apple (Nasdaq: AAPL  ) iPhone users, I suppose. Another alternative would be to put in a bulky order to someone like LM Ericsson (Nasdaq: ERIC  ) or Alcatel-Lucent (NYSE: ALU  ) for a fresh batch of 3G or 4G wireless network infrastructure, but that's definitely the expensive way out.

Other commenters of note include performing artists like R.E.M., Pearl Jam, and They Might Be Giants, who argue that their modern-style marketing and fan outreach tactics wouldn't work in the long run without regulation-protected Internet access.

While I don't expect the rock 'n' roll arguments to carry much weight with the FCC on their own, they could help build a grassroots movement, inspiring people to write in with support for the neutrality cause. And the argument largely applies to anybody who makes a living by promoting their businesses or activities over the Internet, all the way down to Aunt Edna's Wicker Basket eBay Shoppe.

What's next?
With more supporters than detractors, including supposed bandwidth Scrooges like Verizon, the FCC looks likely to pass openness regulations in some form. You won't notice a thing, because the Net will continue to work like it does today -- and that's the whole point.

Why should I care, then?
If you're invested in companies like Google, Skype (nice to see you, private equity dudes!), or Netflix (Nasdaq: NFLX  ) , you will eventually come to appreciate this regulation, though. Expect the likes of AT&T to continue gnashing their teeth in attempts to get through the regulatory framework and impose their own restrictive ideas of network management. Allowing them to do so would be very bad for many online business models.

The FCC expects network traffic to quintuple in the next three to five years and grow a staggering 30-fold before 2020. The networking infrastructure and regulatory policies we have today were simply not designed for such massive bandwidth demands, and both need to evolve very quickly. I wish Google, R.E.M., Skype, and Verizon my Foolish best on the way to establishing a legal framework that could hold us over for the foreseeable future. And I sure hope that future is further off than "next Wednesday."

Fool contributor Anders Bylund owns shares in Netflix and Google, but he holds no other position in any of the companies discussed here. He does have a long history of tracking network neutrality issues. Google is a Motley Fool Rule Breakers recommendation. Apple, eBay, and Netflix are Motley Fool Stock Advisor choices. Motley Fool Options has recommended a bull call spread on eBay. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 15, 2010, at 1:39 PM, debi39 wrote:

    While I agree that the Internet should be free, who pays for the infrastructure and the equipment and work to keep it functioning, not to mention technical upgrades and additional servers as technology changes?

    Ironically we are moving right back towards Regulated Service governed by the FCC which would guarantee margins to the infrastructure providers above a certain level of investment rate (read: technology upgrades/new machines etc.). This could be a form of taxes or fees through the infrustructure provider.

    Or look at what COMCAST is doing with metered usage -- where a user is charged for the amount of bandwidth used ( remember minutes and rates on the phone bill? ) --

    And then what about Rurual Areas - how do you ensure that all areas where costs to build out will higher will be cared for? Again the FCC regulated Telephone Service for these reasons in the past -- (See FCC Communications Act).

    The question is who/how will it be paid for and will they look at new ways to do this or will they revert back to the old way?

  • Report this Comment On January 17, 2010, at 6:26 PM, CalBubba wrote:

    This is not an insightful article, sort of a "net neutrality for the compete idiot." Once you digest the coprporate positions - which aren't represented here accurately - the serous questions arise as to who's right and who's wrong factually and legally, how much authority the FCC really has over the Internet (not much), what Congress is going to do by way of granting the FCC some authority, what sort of regulations the FCC might actually write, and what difference any of it makes given that the FCC is a national regulator and the Internet is international. Canada and Europe have already ruled on the question, deciding to wait and see.

    The underlying issue is how the phone and cable companies are going to make Skype work on wireless networks while people are watching TV on their iPhones. If the rules Skype wants are adopted, they'll be the first casualty because management doesn't have a clear picture of where there interests are.

    The Internet is not now free, nor has it ever been; so the real questions relate to service disclosure rather than some pinko fantasy about a network that never was.

  • Report this Comment On January 22, 2010, at 12:13 AM, chaz572 wrote:

    debi39, wake up. Internet service providers are already making money hand over fist. They charge us multiple times what users in other countries pay, and their costs fall reliably every quarter. You make it sound like they're starving. They're not. They're growing fat off caviar. Who pays for the infrastructure and the equipment? The Internet service providers do. And guess what, they can afford it.

    CalBubba, your point about authority and jurisdiction is spot on. I'm writing my Congressman right now to ask that he explicitly give the FCC the necessary authority. The solution to your Skype vs. streaming television conundrum is simple -- put Quality of Service in the hands of the users. Let's make it the law that ISPs can offer as many tiers of service quality as they want at any prices they want, as long as it all shows up on the end user's bill. No deals with content providers; no deals with other online services; only deals with their own customers -- their subscribers. Let the people who are using the bandwidth prioritize it as they see fit, and pay for what they ask for. I guarantee you if that regime were put into place, 99% of users would pay for a bit more priority on their Skype calls, and almost nobody would do the same for streaming television. The right things would get priority treatment, users would be happy with the network experience, the ISPs would be just a little richer, and all would be well with the world.

  • Report this Comment On January 22, 2010, at 3:48 AM, CalBubba wrote:

    Content and services companies are customers too, chaz, but you're demanding a free ride for them. That doesn't fly as a principle of economics, and it doesn't fly on the Internet either.

    The main problem with net neutrality is that it's technically naive.

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