Breaking Down the Net Neutrality Debate

Here's what business leaders need to know about the battle between Internet service providers and content providers.
Customer Experience

Internet access speed is the life-blood of businesses. Business owners know that making a consumer wait even a few seconds for a page to appear can spell disaster. And companies have spent billions of dollars placing cables in the ground and erecting cell phone towers to provide content providers and consumers with fast Internet access.

But as Web usage grows, someone has to pay for the infrastructure required to provide the connectivity that people are accustomed to, say Internet service providers (ISPs). It is against this backdrop that network neutrality, an idea that ISPs should treat all Internet traffic equally, has turned into an explosive issue.

Coined more than a decade ago, network neutrality puts forth the idea that ISPs should not be allowed to degrade access to certain websites or services, or create a "fast lane" that allows content favored by the ISP to load more quickly than other content.

Network neutrality has long been at the center of a debate on Internet regulation. Congress played a crucial role in the debate when it passed the Telecommunications Act of 1996, which created two categories: telecommunication services and information services.

Traditional phone lines were placed under telecommunications servicesand the law imposes a wide variety of legal obligations on telecommunications services and gives the FCC broad discretion to regulate them.

Services that allow people to store, process, and publish information online are categorized as information services and are exempt from most FCC regulations. And in 2005, the Supreme Court ruled that the FCC could classify broadband services as information services.

This decision received fresh attention in January this year when the U.S. Court of Appeals for the D.C. Circuit ruled that because the FCC had classified broadband as a low-regulation "information service," it could not impose network neutrality regulations on it. And one month later, Comcast, the largest U.S. telecommunications company, unveiled plans to merge with the second largest telecom, Time Warner Cable, placing more pressure on the FCC to decide how ISPs can treat traffic on their networks.

FCC chairman Tom Wheeler is reportedly weighing several options. The FCC could reclassify wired and wireless broadband connections as a Title II telecommunications service, thereby allowing the agency to enact strong network neutrality regulations.

This idea gained momentum in November, when President Obamaannounced his support for it: "For almost a century, our law has recognized that companies who connect you to the world have special obligations not to exploit the monopoly they enjoy over access into and out of your home or business," Obama said in a statement and a video on the White House website. "It is common sense that the same philosophy should guide any service that is based on the transmission of information-whether a phone call or a packet of data."

But industry experts argue that reclassifying broadband connections as a telecommunications service would subject content providers to a wide variety of rate, quality, and privacy regulations.

"Platforms like YouTube, Shutterfly, Twitter, and Twitch could be argued to be telecommunications services, as could the connections to videos or ads within various websites," observes Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University's Center for Business and Public Policy. "All of this will be litigatedand until it ends, businesses won't know whether they are running or inventing unregulated services subject to Title II regulations."

Network neutrality advocates rebuke that claim with the argument that the FCC can usea legal principle called forbearance to avoid enforcing regulations that are contrary to the public interest. Kovacs acknowledges that "some past attempts by the FCC at forbearance have been successful" but "final decisions will be made by the courts, not by the FCC."

Kovacs also points out that when the D.C. Circuit overturned the FCC's previous attempt at open-Internet rules, it explained how the FCC could use Section 706 of the Telecommunications Act to protect the open-Internet. "Section 706 does not automatically invoke the plethora of rules that Title II invokes," Kovacs notes "and is thus less likely to create collateral damage to businesses, large or small."

The FCC is also reportedly considering a hybrid solution that would distinguish between "wholesale" and "retail" broadband transactions. Under the hybrid proposal, it would allow the FCC to enforce net neutrality and apply strict regulations to the wholesale portion of the broadband transactions while treating transactions that send data through the ISP to the consumer-i.e., the "retail" transaction-with fewer regulations.

Nicholas Economides, an economics professor at New York University's Leonard N. Stern SchoolBusiness, dismisses the hybrid proposal as "an awkward and bizarre setup." The more logical approach, according to Economides, is to reclassify broadband connections as a utility. "For all intents and purposes, the Internet is like a telephone service," he says. "When I download something from the Internet, bits and pieces of data get transported; it's not like searching a database which would be an information service."

Another possibility is to allow content providers to pass the bandwidth costs to consumers, suggests Don Peppers, founding partner of the consulting firm Peppers & Rogers Group. Just as hotel guests have the option of paying for premium services to stream videos, which takes up more bandwidth, consumers could be charged by the amount of bandwidth that they use, while not allowing the ISPs to discriminate in how they charge publishers.

"Bandwidth costs money and someone needs to pay for it, or we won't build any more of it," Peppers says. "So the only real question is, what is the most equitable and efficient way to ensure that when more bandwidth is needed, businesses have the incentive to build it? In my opinion, there's no argument that by far the most equitable way to charge for anything is to charge based on how much of it someone consumes."

Jason Thibeault, senior director of marketing strategy at Limelight Networks, a content delivery network, notes that consumers are already willing to pay for higher bandwidth speeds, and "as evidenced by Netflix's recent cost increase for 4K content, consumers might be willing to stomach incremental charges so long as there is perceived value."

At the same time, there is no way to predict how a future of a non-neutral Internet would play out, Thibeault adds. "It's quite possible that there could be unforeseen benefits to allowing Internet tariffs such as new business models that we can't predict today," he says. "At the same time, there are valid objections to removing net neutrality as it seems to undermine the idea of a free market economy where everyone has an equal cost to compete; although, quite interestingly, one could argue that not allowing access networks to monetize their networks does the same thing."

According to Marty Puranik, founder, president and CEO of, a cloud-based hosting solutions provider, arguments about how to classify broadband connections are "only trying to treat the symptom instead of the underlying illness, which is a lack of competition in the way we get Internet access."

Founded in 1994, the company started as a dial-in Internet services provider but eventually switched to cloud-based services. Approximately 40 percent of its business comes from the U.S. and the rest is from overseas clients in Europe and Asia. "The tragedy is we're seeing other countries build better Internet infrastructure than the U.S., which invented it," he says. "We need to wake up and not be left behind from the next big innovation."

Business owners and consumers will have to wait until at least next year for the FCC's decision. The FCC initially expected to vote on rules for broadband providers in its December monthly meeting, but it has pushed the vote to 2015.