What’s Up with this Net Neutrality?

If a tree…falls in the middle of the internet but nobody is around to click, to play the video, does it make a sound? I wrote that sentence to offer an interesting start to this post but the more I think about the current battle over the internet, it actually is pretty descriptive of what’s at the essence of all this Net Neutrality talk.

OK so what is Net Neutrality?

Net Neutrality is simply the desire to have all the data you pay for across the internet be treated the same. The internet should not care what you choose to do with the bandwidth you purchase. Customers want to have unfettered access to the service they purchase without priority being given to websites, apps., streaming services, etc... Basically your ISPs (Internet Service Providers) should not slow down your internet when you feel the urge to watch that cute dog bowling video on YouTube and then speed up your connection when you want to binge watch season four of Orange Is the New Black on Netflix. If that dog bowling video is taking too long to load, chances are you will move on to the next thing that you need/want to do online…the proverbial tree (or dog video) will not make a sound in your internet forest. Customers do not want their ISPs to pick winners and losers but instead want equal opportunity use.

Well duh…doesn’t everybody want that? What’s all the hoopla about in DC and around the country that has Al Franken all in a tizzy writing articles like this in the Washington Post.

Alright so lets go back to the 90s, the golden era of hip-hop but the not-so golden era of the internet. Twenty years ago the internet essentially existed as a place to search for information and interact with other people on a computer. Today the internet is vital to our everyday lives. Our connection to it is depended upon for personal and work communication, security systems, paying bills, banking, filing taxes, entertainment, shopping/gifting, applying for jobs, sharing pictures/videos with family and friends, etc… The methods of access have expanded from solely using computers to mobile phones, tablets, STBs, gaming systems, and even vehicles with V2X. The internet has grown to places unimagined two decades ago and it all happened with basically little regulation by the U.S. government. And the U.S. government wanted it this way. In fact, in the Telecommunications Act of 1996 under Pres. Clinton you can find the following language regarding the U.S. government’s role regarding the internet:

It is the policy of the United States– `(1) to promote the continued development of the Internet and other interactive computer services and other interactive media; `(2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation;

But in 2015, things changed. The FCC stepped in, placing the internet under Title II (Communications Act) utility style authority and enacting the Open Internet Rules to protect net neutrality. The rules are simple, No Blocking, No Throttling, and No Paid Prioritization.

Last week things changed again. On April 26th new FCC Chairman Ajit Pai, backed by a Republican majority in the commission basically announced his plan to eradicate the Title II authority over the internet and the Open Internet Rules (established by his Democrat predecessor Tom Wheeler) in his speech on The Future of Internet Freedom.

So who are the good guys and who are the evil ones trying to take away my internet that is currently free of shenanigans?

Well, the internet is not free of shenanigans today (more later on zero-rating). Unfortunately, we live in a very divided political climate where each side seems to best demonize the other side on every issue. The arguments over what is the best approach at protecting one of the most important resources in this country are no different. I will let you guess but one side is either a puppet for big cable/telecom (i.e. Comcast, AT&T, Verizon, and Charter), hater of free speech and the poor… OR a champion for free markets and growth unshackled by government regulations. The other is either a paranoid government bureaucrat seeking to seize our freedom of internet, halt innovation and growth… OR ultimate hero protecting the internet from the immoral desires of the big ISPs to fatten their pockets while dividing us based on economic status. I will spare you any opinions on who is good and evil in the Shakespearean “To Regulate or Not To Regulate?” debate in DC. Here you can watch Pai represent for team not-to. The politicians will spray their opinions backed by data from as many sources as possible to frame the debate in black and white hues.

But don’t be fooled. There are things that have changed in the past 20 years outside of whether to regulate or not.

The biggest internet paradigm shift that has occurred in the past twenty years is the evolution of streaming video. This disruptive force fossilized then destroyed video rental giants such as Blockbuster Video all while putting ever bursting bandwidth demands on cable/telecom operators hemorrhaging from losing video customers through cord cutting. At the turn of the millennium there were approximately 67 million cable video subscribers in the US and only 4 million data subscribers. Download speeds on wire-lines were at Flintstone levels nearing 512kbps. In Q2’ 2014 data subscribers surpassed video subscribers and didn’t look back (see below chart from Business Insider).

US Cable Subscribers, By Service

Fixed broadband speeds have increased exponentially, averaging over 50Mbps according to the 2016 Speedtest Market Report which is up 40% over 2015. Today through DOCSIS 3.1 and fiber-deep initiatives, operators like Comcast are offering gigabit speeds with plans to invest in simultaneous gigabit speeds in the near future through FDX (Full Duplex DOCSIS). Telcos like AT&T have invested in technology solutions like G.Fast to maximize speeds over phone lines and are increasingly deploying AT&T Fiber to satisfy the market demand for internet super speeds. Google Fiber is still out there too although not for long. Meanwhile since ditching DVDs (in 2011) and going exclusively SVOD (Streaming/Subscription Video on Demand), Netflix subscribers have grown from 23 million to nearly 94 million.

Netflix Subscribers

Other SVODs have followed such as Amazon Prime.  The networks have even gotten into the mix via ESPN3, HBO Now, Starz, and HULU which is owned in parts by Disney/ABC, FOX, NBC Universal, and Turner Broadcasting. Today you can pretty much stream anything that is available on cable, satellite, etc…

The lines have blurred and the continued blurring is driving the debate.

The overwhelming majority of US consumers want the fastest internet they can get for the lowest price and use (legally) it as they choose. I’m sure those searching for the slowest and most expensive connection are out there somewhere. You might be able to sell them a bridge in the Sahara desert but I digress. Competition is what fosters an economic environment for lower prices. Today’s competitive landscape is pretty slim. According to the FCC’s most recent Internet Access Services report only 42% of the nearly 90 million developed households in the U.S. had at least two fixed broadband choices for at least 25 Mbps downstream and 3 Mbps upstream as of June 30, 2016.  Only 12% of developed households had at least two choices for at least 100 Mbps downstream and at least 10 Mbps upstream. The overwhelming majority of US households have one provider or less for high speed internet. There is mobile broadband for home use for those outside the preferred fixed networks. The nation’s largest 4G LTE network advertises turtle paced download speeds between 5 and 12 Mbps. 

So imagine if you are a customer in one of these single provider households and let’s say you only have AT&T for fixed broadband. You get a cool discount on your wireless bill if you are an AT&T customer. You don’t want to waste money paying to rent a STB from AT&T’s U-Verse or DirecTV but instead you rely on streaming your news and subscribe to HBO Now to watch your favorite movies and series. AT&T calls you and tells you about a spanking new streaming service named DirecTV Now where you can stream your news and favorite HBO movies as well. You can even use this new service on your phone and it won’t count against your data cap (this is known as zero-rating) because you are an AT&T wireless customer. Sounds like a great value right?

Well, what if in the next few months ISPs are allowed to slow down everything on their networks unless your favorite websites and streaming services pay up. Essentially only allowing their own content services (i.e. DirecTV Now by AT&T, Go90 by Verizon, and Stream by Comcast) to use the high speed data you pay for. The choice or lack there of is clear. Now as the decision is being made by the SEC on approval of AT&Ts acquisition/merger of Time Warner (owner of HBO, CNN, etc…), let’s expand this scenario to include AT&T now owning your favorite content. They can now offer all the HBO content you want for free with a speed upgrade. This would be like your power company not only selling you electricity but also selling appliances with a rebate and offering lower rates in exchange. Whoever controls your internet pipe, increasingly controls share and distribution of everything else.

What is the long-term effect of this model? Is that a question that should be proactively answered by the federal government? Or should the free market take its course and consumers ultimately dictate the winners? Should we trust in the statements of the ISPs like this one from Comcast Cable CEO Dave Watson, “ We do not block, slow down, or discriminate against lawful content…That will remain true even if FCC reverses public utility regulation of our broadband network.”

The answer to these questions is what is driving all the discussion on net neutrality.

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