Verizon challenged the FCC over net neutrality—and won. So what changes now?

To figure that out, it helps to start with a quick primer on net neutrality and what it means for the Internet.

In its simplest form, net neutrality is about protecting the Internet as an “end-to-end” network in which end users have the freedom to send anything to anyone else without undue restriction. In practice, it prohibits Internet providers like the cable or cellular companies from filtering, slowing or otherwise limiting the data traffic that flows over their network—for instance, by blocking services they don’t like, or by charging exorbitant traffic fees to rival services. Such fees, of course, would be in addition to the payments ISPs already receive from end users via, say, your cable or DSL bill.

(One tangential note: The FCC’s net neutrality plan basically applied only to wired Internet access, essentially exempting the mobile Internet from regulation.)

There are a bunch of players involved, of which four main groups are the most significant for our purposes:

  1. End Users: People like you and me who log on to the Internet to work or play. 
  2. Backbone Networks: The companies, organizations and entities that operate big fiber networks that crisscross the world.
  3. Broadband Providers: Companies that provide data services to homes, businesses and individuals, such as Verizon or Comcast.
  4. Edge Providers: Providers of Internet services that include, well, just about every website and app maker on the planet. Google’s YouTube, Amazon, and Apple’s iTunes are all large edge providers.

These categories aren’t mutually exclusive. Broadband providers often also run backbone networks, and individuals also often act as edge providers—say, by hosting a blog on a home server. A company like Google actually spans all these categories—its Google Fiber service is a backbone network and broadband provider, but the company is also a huge edge provider and end user.

When it comes to net neutrality, the battle is really between the broadband providers and the edge providers. The broadband providers want to be able to regulate the type of traffic that passes through their pipes to the individual, while the edge providers want a free and open Internet.

The classic flashpoint example is Netflix, which now accounts for something like a third of peak U.S. Internet traffic. That irks some broadband providers, who’d like to be able to throttle that firehose of data—ostensibly to keep it from overwhelming their networks, although potentially also to favor competing services (some of them provided by the ISPs themselves).

The principal of net neutrality as defined through the FCC’s Open Internet Order—which Verizon explicitly challenged—says that the broadband providers cannot fundamentally restrict or inhibit this traffic in any way. The U.S. Court of Appeals for the District of Columbia sums it up nicely in its ruling on Verizon vs. FCC:

They fear that broadband providers might prevent their end-user subscribers from accessing certain edge providers altogether, or might degrade the quality of their end-user subscribers’ access to certain edge providers, either as a means of favoring their own competing content or services or to enable them to collect fees from certain edge providers. Thus, for example, a broadband provider like Comcast might limit its end-user subscribers’ ability to access the New York Times website if it wanted to spike traffic to its own news website, or it might degrade the quality of the connection to a search website like Bing if a competitor like Google paid for prioritized access.

Verizon Beat The FCC—But Not Net Neutrality

The FCC issued its Open Internet Order in December 2010, and it immediately became a hot topic among technologists and policy wonks. Net neutrality is a term that inflames hearts and inspires mobs with pitchforks to assail cable and cellular companies. Those companies then fight back and gather their own mobs and rattle their sabers at the edge providers like Google, Amazon and Netflix. Much vitriol is expended and nobody really accomplishes anything.

Surprisingly, though, the specifics of the Open Internet Order are actually tangential to the court case Verizon just won. The appellate court issued no ruling on the policy itself; it just determined that the FCC had improperly assumed the authority to implement it.

That has to have been disappointing to Verizon, which had attacked the Open Internet Order as a violation of its Fifth Amendment property rights and its First Amendment rights to control the “speech” its pipes carried. Of course, Verizon also challenged the FCC’s authority to make rules governing broadband in the first place, which was the only point it actually carried before the court.

The appeals court ruled that, based on its reading of the 1996 Telecommunications Act 1996 (itself an extension of the Telecommunications Act of 1934 and the 1980 Compute II regime policy), the FCC exceeded its legal authority when it issued the Open Internet Order. Basically, the court argued that the FCC had previously classified ISPs as information services under the law, but then tried to regulate them as “common carriers,” a designation typically applied to old-style local telephone service that had to connect anyone for the same price. The court then called foul.

The ruling leaves open the possibility that the FCC could reclassify ISPs as common carriers and retain its net-neutrality rules, although current FCC Chairman Tom Wheeler hasn’t sounded very enthusiastic about that strategy. The FCC could also face blowback from Congress should it take that path. Of course, Congress could also grant the FCC new statutory authority, but given the high degree of partisan gridlock in Washington, no one should hold their breath for that.

Wheeler issued a prepared statement following the court ruling:

The D.C. Circuit has correctly held that ‘Section 706 . . . vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure’ and therefore may ‘promulgate rules governing broadband providers’ treatment of Internet traffic.’ I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment. We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans.

Content Providers and Consumers Could Be Big Losers

Without some type of net neutrality policy in place, critics fear that cable and phone networks will begin policing Internet traffic over their pipes. For instance, a company like Twitter could theoretically end up having to pay more to send its traffic across the world through network pipes. Ultimately, carrier behavior could Balkanize the Internet—or so goes the worst-case scenario.

The carriers’ retort has been—and probably always will be—along the lines of, “We own the pipes and we should be able to control the traffic that flows through them!” This is a long running concern of the Internet’s pipe owners, summed up perfectly by former SBC chief Ed Whitacre in a 2005 interview with BusinessWeek:

How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?

The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!

Again, recall that SBC (now AT&T) already gets paid by users of its pipes. What Whitacre and his descendants want is the freedom to levy additional fees on service providers—in essence, so they can get paid twice for transmitting the same data. Economists call this “rent seeking,” and it’s basically the antithesis of competitive, customer-focused behavior.

Views like these have driven companies like Google, Amazon, Facebook and Microsoft to quietly go to war with cellular and cable operators for control of the Internet’s backbone. Google and Microsoft have been doing a lot of research into “white spaces” (unused wireless spectrum bands that fall between used spectrum bands) and buying dark fiber (fiber optics cables that have not been activated but have been built). Yet if a company like Google or Microsoft controlled the pipes, the concept of net neutrality would still have to apply.

Essentially, companies like Verizon, Comcast and their kindred want to claim a certain amount of ownership over the Internet and what happens on it. That’s contrary to what the Internet has been and should be: a decentralized global system that no one company, government or organization can control.

Lead image via Shutterstock

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