Anne Wallace, Esq.

Net Neutrality and Small Business

Why is everybody yelling about net neutrality, and why now?

Actually, it’s a very big deal for small businesses with an online presence, and the Federal Communications Commission may have added fuel to the fire by sending confusing messages about its regulatory intentions.

In the political world, it seems to put the President at odds with his appointee, the chairman of the FCC. In a policy sense, the argument seems to pit those old foes, free markets and free speech, against one another yet again. In a business sense, it takes on a David and Goliath hue. The legal issue is predictably strange (as technological arguments tend to be) turning on the question of whether broadband is more like electricity or cable television.

A Brief History of Net Neutrality

The dispute has been ongoing for several years. In 2010, the FCC adopted rules that embraced the principle that internet service providers should treat all web traffic equally, later dubbed “net neutrality,” by Columbia Law Professor Tim Wu. The rules would prevent broadband providers from offering faster internet speeds for some traffic, presumably for a price. Since broadband is a zero-sum game, that would necessarily mean slower speeds for others.

In 2011, Verizon sued over the regulations, arguing that the FCC had exceeded its regulatory authority in promulgating these rules since it had earlier declared that broadband companies were beyond its reach. In January 2014, the Court of Appeals for the D.C. Circuit agreed. Having apparently decided not to appeal, the FCC now has to amend its rules.

Which Way Now?

This could get complicated from a legal perspective. Taking the position that broadband providers are “common carriers” like utility companies would give the FCC the power to reinstate the regulations. But it might also allow or require regulations that would mandate rates, interconnectedness and speeds, which would take some of the internet’s utility away.

Candidate Obama emphatically supported the principle of net neutrality, a position he repeated and amplified in a speech on November 10, 2014. In his remarks, the President urged the FCC to adopt the strictest rules possible to prevent broadband companies from blocking or intentionally slowing down legal content and from allowing content providers to pay for a fast lane to reach consumers.

In April, David Wheeler, the FCC Chairman reportedly proposed rules that would permit broadband providers to negotiate speed for a price, which he has since denied. But then, he baffled net neutrality-watchers again this week with statements that appeared to distance himself from the President’s position, but might not have been intended to do so.

The argument on the other side, of course, is that less regulated markets are healthier and that businesses, including broadband companies, should be free to negotiate contracts in a commercially reasonable way.

Why it Matters

The internet is one of a few rare level playing fields where start-ups and small businesses can compete with behemoths such as Amazon and eBay. If service providers were essentially able to auction off the highest speeds to the highest bidders, it could put comparatively underfunded enterprises out of business. If a site takes too long to load, customers go elsewhere, and the smaller players, like Etsy, Kickstarter and their cadre of users would pay the price.

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The argument could be made that unregulated markets for essential services like internet connectivity tend towards monopoly, which is ultimately worse for consumers than the peril of over-regulation. In any event, the direction the FCC takes on net neutrality will have enormous consequences for small businesses for the foreseeable future.

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