What the FCC's Net Neutrality Proposal Could Cost Consumers

Until fairly recently Internet service providers operated under the principal of net neutrality -- the idea that all content would be treated equally by Internet service providers. 

In January a federal court overturned the Federal Communication Commission's rules that maintained net neutrality. Under the new rules -- or at least under the common interpretation of what the ruling means -- ISPs are still letting all content through, but they now have the right to slow down delivery speeds. This gives the ISPs enormous power over consumers and it forced Netflix  (NASDAQ: NFLX  ) to make a deal with Comcast (NASDAQ: CMCSA  ) to ensure its customers who get Internet through the cable giant have a good experience.

Now the FCC wants to end the confusion and has proposed making it law that internet service providers could charge streaming content providers, such as Netflix and Amazon  (NASDAQ: AMZN  ) , more for preferential treatment as long as the same deals are available to others on "commercially reasonable" terms. The potential new rules are likely to be voted on at the FCC's May 15 meeting, and would give the FCC the authority to review these arrangements to ensure that they don't harm consumers and competition.

That's probably not a lot of comfort for consumers. The FCC has always been highly political and its decisions tend not to put the general public first. It's hard to imagine that a government agency that supports a law that will increase costs for streaming video services -- and almost certainly consumers -- will also be the public's watchdog to make sure all companies can purchase the same preferential treatment.

Netflix has already paid

Netflix and Comcast made a deal in February in which Netflix will pay Comcast for faster and more reliable access to Comcast's subscribers. The two companies clearly had very different takes on the deal with the cable company trumpeting it as a victory for consumers and Netflix making it's distaste in having to make the deal very clear. No financial details of the deal were disclosed but a person close to the companies said it involved annual payments of several million dollars, The New York Times reported.

"This is the water in the basement for the Internet industry," Tim Wu, a Columbia Law School professor and advocate for net neutrality told the Times, the first in what could be a flood of such arrangements. "I think it is going to be bad for consumers because such costs are often passed through to the customer."

Netflix Vice President of Content Delivery Ken Florance argued on a company blog that these types of deals are bad for consumers and it made its deal with Comcast only because it had to. "Netflix agreed to pay Comcast for direct interconnection to reverse an unacceptable decline in our members' video experience on the Comcast network," he wrote. "These members were experiencing poor streaming quality because Comcast allowed its links to Internet transit providers like Level3, XO, Cogent, and Tata to clog up, slowing delivery of movies and TV shows to Netflix users." 

Florance explained that Comcast does not carry Netflix data over long distances. Usually that is done by companies called transit providers, but Netflix has decided to be its own transit provider and carries the expense of moving its data around. Comcast and other ISPs however control the so-called "last mile," the actual gateway to customers. Florance believes that what Comcast is doing is wrong. 

"Comcast is not charging Netflix for transit service. It is charging Netflix for access to its subscribers," Florance wrote. "Comcast also charges its subscribers for access to Internet content providers like Netflix. In this way, Comcast is double dipping by getting both its subscribers and Internet content providers to pay for access to each other. 

However you look at it consumers are the ones being squeezed as most people have limited choice when it comes to ISPs. In my house I can choose between cable company Internet and phone company Internet -- if both choose to ransom Netflix and other streaming services by holding my level of service hostage, it's not like I'm going to move just to have a better choice in ISPs.

The FCC is not looking out for consumers

If ISPs can charge streaming (and other) services for preferential treatment, it's likely those costs will eventually be passed onto consumers. And while the proposed law will make it so the ISPs have to offer any content provider a similar deal, the cost of such a deal could be a huge barrier to entry for new streaming content companies, depending upon how the FCC interprets "commercially reasonable" terms. 

Let's say the Netflix/Comcast deal is a flat-rate deal not dependent upon how much data flows and Netflix is paying $5 million a year. If Netflix makes similar deals with other major ISPs, perhaps the company would have $15 million to $20 million a year in costs. That's an unpleasant but relatively minor expense for a company that spent $2 billion in content in 2013.

But for a potential new player in the field it's a company killer. Even if the ISPs offered some level of metered deal based on volume it's an added expense that will be passed onto consumers.

Under the proposed rules the ISPs are making out on both ends of the transaction and customers are getting the short end of the stick. It's not like Comcast, with its new source of revenue, plans to lower rates for its customers. Instead the cable company is using its customers as a wedge to force Netflix and others into these deal.

The FCC should be protecting the American public but it seems like protecting giant cable and telephone companies comes first. 

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  • Report this Comment On April 28, 2014, at 12:15 PM, aszakmary wrote:

    If it would benefit 99% of the population, why doesn't Congress immediately pass, and the President sign, a law that restores net neutrality, much like the European Union has already done? This whole episode is a testament to the profound corruption of the U.S. political system, whereby a tiny elite, via massive campaign contributions, gets favorable rules for itself against the interests of the overwhelming majority.

  • Report this Comment On April 28, 2014, at 12:41 PM, 24penny wrote:

    Why does everyone think that Net Neutrality is about network performance? Net neutrality is about NOT BLOCKING content (like child porn). Every TCP/IP packet must wait at the gate for its turn. It may look like Netflix is discriminated against because they are sending so many more packets thru than anyone else. So Netflix is now paying to be inside the gate, for preferential treatment that is. Sorry people, I'm with Comcast on this one. They have every right to charge a company that clogs its pipes extra. And it's that last mile that is so easily clogged because we share it with our neighbors. Yes your packets are still arriving at 50mbps (or whatever your deal is), it's just that not every packet in the stream is yours. And if your neighbor is streaming Netfilx on 4 devices, very few of the packets are yours.

  • Report this Comment On April 28, 2014, at 9:43 PM, SB2 wrote:

    A variant of this comment was previously posted elsewhere when the net neutrality issue first stirred public debate in 2014. FYI it’s been tweaked a bit and the second-to-last paragraph is a new addition. Anyway it's fitting that I share the comment here so here it goes.

    ----------------------------------------------------------

    It is right that this move against net neutrality generally has the populace up at arms. Unfortunately people who (a) haven’t been subjected to wrongful stifling, (b) haven’t learned the dangers of limitations on free speech by studying history, and/or (c) aren’t critical thinkers might not see the potential dangers in this type of move until it is too late. This should be ended posthaste…and I don’t state that on a whim. History is full of bad acting influential entities that have abused power that they should have never had in the first place. Think about these couple of scenarios:

    1) A startup launches and its success is highly dependent on its ability to deliver various web content to the masses. However, a direct competitor owns and/or operates one or more metaphorical “internet pipelines” (or is an associate of an entity that owns and/or operates one or more metaphorical “internet pipelines”). No problem…just have the delivery of the startup’s web content degraded and/or charge the startup an exorbitant dollar amount. Ours is a fast-paced society full of people who are accustomed to instant gratification. That being the case it is a foregone conclusion that a startup that is subjected to inefficient and/or buggy web content delivery will fail if web content plays a significant role in its business model.

    2) A group is fighting against influential wrongdoers and the group is effectively and rightfully utilizing the internet during the course of their warranted and rightful battle. However, one or more of the wrongdoers owns and/or operates one or more metaphorical “internet pipelines” (or is an associate of an entity that owns and/or operates one or more metaphorical “internet pipelines”). No problem…just have the delivery of the group’s web content degraded and/or charge the group an exorbitant dollar amount. Again, ours is a fast-paced society full of people who are accustomed to instant gratification. That being the case it is a foregone conclusion that a movement against wrongdoers that is subjected to inefficient and/or buggy web content delivery will fail if web content plays a significant role in the movement.

    Those who have a problem visualizing the scenario outlined immediately above need do nothing more than look at corruption-plagued countries that are built upon cultures where censorship is par for the course. Of the many things that this net neutrality move might be, one of the things that it definitely is is a gateway to the implementation of an alternative form of censorship. I’ll repeat that so that it will sink in…a gateway to the IMPLEMENTATION OF AN ALTERNATIVE FORM OF CENSORSHIP.

    There are probably multiple other scenarios that could be listed above but the given scenarios are sufficient to make my point. Again, this is not the right move and IT SHOULD END POSTHASTE. Even if there are conceivably some significant benefits (not that we’re necessarily of the mindset that there are) the very real risks far outweigh any potential rewards. And just in case anyone is saying “if you’re in one of the two groups listed above then sue”, you are naïve. The victims—and make no mistake about it, in the scenarios outlined above they are VICTIMS—indicated in the above two scenarios are already fighting against nearly insurmountable odds and they don’t need any other problems piled on. In other words, in a manner of speaking they are already “down” and don’t need anymore “kicks” such as having their web content interfered with and/or being faced with exorbitant costs. Although some things are right about America, some things are definitely going in the wrong direction. People such as Hitler, those who conducted the Tuskegee Experiment, and those whom were responsible for disseminating smallpox infested blankets to Native American Indians (just to name a few) would have a heyday with this move if they were alive and engaging in their bad acts today. Reason being, it goes without saying that as it stands the internet is the average joe’s most efficient form of a mouthpiece. And let us not forget that in America (as well as in the rest of the world) some of the greatest achievements have been accomplished by determined average joes who spoke out to the masses as efficiently as was possible. Rest assured that this move will make influential bad actors everywhere rejoice…they are likely already planning ways to exploit it (assuming that they haven’t already planned a plethora ways).

    In case anyone somehow thinks that I have no idea what I’m talking about. I will state that I most certainly do. I am personally involved in a long-running, massive, warranted, and rightful fight against epic public corruption. I can tell you that it is an undeniable fact that that warranted and rightful fight has been plagued by civil liberties infringements carried out via wrongful attempts by bad actors to stifle our free speech. For the record the fight is called GATORGAIT and those who are unaware of it can find out more information at the damning, truthful, and lawful website gatorgait-dot-com . Also for the record, the complete website and all of the website’s extensive content works perfectly and efficiently as of the time of this post (i.e. 04/26/2014). Additionally, there has been various other truthful and lawful Gatorgait-related content that has been posted online by us justice seekers and which has remained not interfered with…that content also works perfectly and efficiently as of the time of this post.

    As the net neutrality proposal involves revenue generation I’ve included this paragraph. Any “additional billing”, if any, for internet content received through “the internet pipelines” need only be on the end of the content recipient. Great power for abuse lies in that little area of the unknown created by the uncertainty bred by billing from “both ends”. In the proposed new internet model when your internet account (as a content recipient) is in good standing and lawful content you seek out is delivered in a slow and/or buggy fashion—assuming you can access said desired content at all—your natural response will likely be “oh, the content provider’s account with the ISP must be in ‘bad standing’”. But what if the content provider’s account is not in bad standing and the provider’s lawful content has merely been inappropriately interfered with or censored? No problem, you’ll know that’s the case right…W-R-O-N-G!!! You will likely have no idea of the truth behind the content delivery issue for it goes without saying that any notice posted by the content provider regarding the interference or censorship would likely be posted on the very same sabotaged website (and thus not be viewable or be difficult to view) and/or posted on some other distinct high visibility webpage that would itself likely subsequently be targeted and relatively quickly interfered with or censored. The only thing you could ever be certain of is the good standing or bad standing of your own personal internet service account. Rest assured that bad actors who would abuse the power granted by this assault on net neutrality know these things and are praying that the citizenry (1) has it’s blinders on and (2) is flush with apathy in regards to the matter. Those bad actors’ prayers must not be answered for history has shown time-and-time again that when warranted vigorous opposition is left undone when faced with intentionally-implemented incremental, but significant, wrongful acts (if not outright evil acts) what soon follows is sweeping persecution. If the additional revenue is so necessary—and for the record I’m of the mindset that it likely is not necessary—with all the years that the internet has been operational ISPs have the data available to classify the data volume and speed requirements of the median internet account (as in the median content recipient’s internet account). Using that data, after possibly incorporating a few infrastructure changes, pricing models could be established and tiered as needed…kinda like with cell phones. But with that the following must be stated. In my opinion the anonymity offered by the internet is an awesome thing…sure that anonymity can be abused but it’s my personal opinion that anonymity’s resultant long-term good far outweighs its resultant long-term bad (FYI bad actors who’ve been placed under scrutiny online, to their dismay, know this as well). Having stated that, I prefer the current pricing models where the ISPs calculate acceptable and reasonable profit margin targets and charge their customers that are generally in the same class pretty much the same thing across the board. As long as the ISPs meet their targeted profit margins all is well…that is until greed, corruption, etc. steps into the picture. It is my personal view that anything—that is anything besides the slander and libel remedies already in place and other public-driven backlash—that potentially pushes people towards self-censoring is problematic. And should this revamp of net neutrality be enacted that is exactly one of the things that would likely happen because the proposed billing would likely usher in closer monitoring of people’s internet usage…in other words more surveillance would likely ensue thanks to internet billing that is less standard (at the expense of being more individualized). But obviously this time the arena targeted for surveillance would be, reminiscent of CISPA, the internet. Sure the internet might be a more cordial place for it, but the cost for that is way too high. Thankfully the ol’ saying “sticks and stones may break my bones, but words will never hurt me” is true in a significant number of cases. When the day comes that America’s leaders (1) are by and large above reproach, (2) consistently show that they are more concerned with serving the interests of the common man than they are with serving themselves and/or elitists whom they’ve embraced, and (3) consistently act with integrity I think we will be able to enact policies that don’t account for dissension (including anonymous lawful dissension). Unfortunately that day hasn’t yet arrived…thus the right to dissent must receive the utmost protection.

    Generally speaking I have lost faith in man’s ability to consistently do what’s right. Over hundreds of years of bad practices and policies promulgated largely by those who have wrongfully and shortsightedly used their gift of intelligence to increase their power and “line their pockets” at the long term expense of mankind and the world we have, as a whole, lost our way. Let’s see where this recent net neutrality move takes us. Just as we opposed the most recent attempt to pass the far too intrusive CISPA and the recent tentative decision regarding search engine censorship we strongly oppose this net neutrality move. Pay attention…close attention. As indicated above I’m jaded; therefore, I have no confidence that if there isn’t an abrupt about face that bad acting men and women won’t ensure that action becomes warranted. It may be soon or it may be later, but rest assured that serious action will become necessary.

    Best wishes to all,

    SB

    “Some people see a problem and do something about it. Others do nothing but sit on their a$$e$ and complain. Be a doer.”

  • Report this Comment On April 29, 2014, at 9:18 AM, 24penny wrote:

    I can't imagine an activist group dumping as much content on the web as a streaming video business does. Again, are we talking about performance or censorship? With Netflix it certainly is performance and they create their own perfromance challenges. Do you think Comcast turned a mgic valve when Netflix ponied up? No, they let Netflix tap directly into thier servers. Do think there are no costs for Comcast associated with that?

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