Recently, Verizon Communications (NYSE:VZ) wrote a letter to the Federal Communications Chairman Tom Wheeler, laying out why the government agency can't regulate Internet connection deals it makes with Netflix (NASDAQ:NFLX)or other companies.
The letter was sent as the FCC is about to decide whether to reclassify Internet providers as "common carriers'" under Title II of the Communications Act of 1934. This reclassification would give the government more control over some Internet connection deals and proponents of the rules say it will help protect Net Neutrality.
But Internet providers don't see it this way. Verizon's VP and Associate General Counsell, William H. Johnson, wrote in the letter:
"Those arguments are misplaced and wrong. They are misplaced because, as the Commission itself has repeatedly found, interconnection agreements involve issues that are distinct from net neutrality, which has always focused on broadband Internet access providers' handling of traffic over the last-mile connection to consumers."
Verizon believes reclassifying the company as a common carrier will not make for more open Internet, and will instead hurt businesses trying to build out Internet networks. Verizon and other Internet providers are also scared that new regulations will make current deals with Netflix and other content makers less lucrative or non-existent.
Months ago Netflix started paying Verizon, AT&T, Comcast, and Time Warner Cable for improved delivery of its content over their Internet pipelines. And though Netflix is shelling out the cash for these deals, the company has made it clear that it would prefer that the FCC make it so they wouldn't have to pay (big surprise!).
If all of this weren't enough, FCC Chairman Wheeler reignited the debate at the International Consumer Electronics Show last week when he made it all but definite that the FCC will vote to reclassify Internet providers under Title II.
Is your Netflix connection doomed to buffering?
The direct effect of Netflix paying providers is faster content delivery speeds across major Internet networks. If the FCC approves Title II regulations for Verizon and others, it's likely the current Netflix deals will stay intact, but could ultimately change how they're made and how much Verizon and other providers makes off of them.
Regulation under Title II, whereby internet service providers are considered "common carriers", will give the FCC some power to regulate rate deals between companies and, as Verizon argues, new rules could result in higher Internet bills for customers.
"To replace this flexible approach with rigid rules would destroy a well-functioning market, chill investment, and shift costs from large content providers -- and ultimately their users -- to an ISP's entire subscriber base," Johnson wrote.
Raising rates on subscribers to cover any new costs from regulations would be a very bad move for Internet providers -- considering these companies are already some of the most despised consumer businesses.
In the end, Netflix streaming speeds are likely to stay the same whether or not the new regulations pass. Slowing, blocking, or giving prioritization to certain online content is exactly what the FCC is trying to fix.
The government wants to ensure that big companies don't pay for faster connection speeds, leaving smaller companies (with less money) left to deliver their content over slower parts of the network. But even if the new regulations pass, it's still not clear the FCC will have the power to make these prioritization deals go away entirely. We'll know more when the FCC votes on Tittle II expansion later next month, but even after that you can expect that this debate won't die down any time soon.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Netflix and Verizon Communications. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.