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The concept of “net neutrality” is very simple: Internet service providers like Comcast (NASDAQ: CMCSA) and Verizon (NYSE: VZ) should treat all data – regardless of who produced it or the content – equally.
Until now, this is how internet service providers (ISPs) have operated. Even data from sites like Netflix (NASDAQ: NFLX), responsible for as much as 30% of internet traffic at peak times, received equal treatment from the ISPs.
This is already starting to change, however. And its ramifications will be far reaching.
While some companies will profit, consumers will certainly lose as a result of the new net neutrality rules the Federal Communications Commission (FCC) is considering.
The game changed when Netflix announced in February that it had reached a service agreement with Comcast. As part of this agreement, Comcast will give its subscribers faster and more reliable access to Netflix. Netflix announced a similar deal with Verizon only a few weeks ago.
The FCC plans to allow a “fast lane” and a “slow lane” when it comes to the internet, a departure from the concept of neutrality. That said, the FCC announced yesterday that it may be stepping back from this plan, though the vague description of its replacement sounds similar to the “fast lane/slow lane” approach.
The FCC announced that it plans to modify language pertaining to net neutrality. With the change, “internet service providers must offer SOME amount of access” but CAN offer faster access to certain content providers.
With these pay-for-speed deals, major ISPs like Comcast, Verizon and CenturyLink (NYSE: CTL) have ushered in the brave new world of a multi-tiered consumer internet. In this brave new world, consumers pay for access to a mediocre internet experience or pay extra for the internet experience they should already be getting.
From an ethical and societal perspective I find this whole progression to be very troubling and I dearly hope that the proposed rule changes are not allowed to become policy. But with a former industry lobbyist running the FCC and two former commissioners lobbying for Comcast, the writing is on the wall.
There is a way to profit from this unfortunate trend, however.
Simply put, as Comcast, Verizon and the other ISPs corner the market on internet access, they can only profit. Under the new rules these companies will be allowed to burn the candle on both ends, charging both the content providers like Netflix as well as consumers for faster access.
A tiered internet will surely lead to improving margins and higher revenues for these companies, the core of profitability.
This is the end of net neutrality as we know it and it means that we will all pay more to use the same internet – an internet which, I might add, is far less powerful than in most developed nations.
Whether you physically pay more to your ISP for faster internet or you pay for it indirectly as services like Netflix or Amazon Prime (NASDAQ: AMZN) pass the costs to consumers through subscription fee increases, you’ll certainly pay for it.
In the wake of huge criticism and opposition by large internet companies like Google (NASDAQ: GOOG) and even members of the commission itself, the FCC may be backing away from this plan. We can only hope.
This is a world in which the ISPs get to make the rules since they stand between the content we want and our internet-connected devices.
And our FCC, run by a man who spent his career lobbying for the telecommunications industry, may let this world become our reality.
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