By R. Alan Clanton
Thursday Review editor
(Originally published July 11, 2014) Back in February of this year, when Brian Roberts, CEO of Comcast, announced Comcast’s proposed buyout of Time Warner, there was a storm of media coverage about what the merger of these two cable and internet giants would mean. The majority of the press narrative surrounded customer service: would such a mega merger be good for customers in the long run?
The overwhelming response by those who joined in the discussions regarding the massive merger: no. Most feared longer on-hold waits when calling for customer service or technical support, longer delays in the field during outages or service problems, higher rates and new fees, and—in general—abysmal service from two companies with already poor customer service rankings.
Some economists and business analysts looked at the equation from the standpoint of jobs: layoffs will surely follow in the wake of such a massive merger; more call center and tech support operations will migrate overseas; thousands of blue collar, white collar and office support people would be dumped into unemployment. Cynics said nothing much would change at all.
But some realists, and a few optimists, saw merely an inevitably shifting market with new opportunities: Other technologies would continue to spring to life, especially as younger consumers sought content in unorthodox and unconventional ways. Technical innovations would arrive—as they seem to arrive daily—giving us alternative tools to TV content and entertainment choices. Satellite companies would likely gain customers, and their increased revenue would give them more leverage to expand and update their own technological strengths.
But, at about the time that DirecTV was seeing a surge in new customers—mostly those engaged in a pre-emptive bailout from cable in Time Warner and Comcast areas—AT&T announced its proposal to purchase the satellite giant outright. The marriage of AT&T and DirecTV was, in fact, a logical response to recent Comcast acquisitions. Not wanting to be left standing without a chair when the music stops, other media and telecom giants are looking to shore up flanks and find new ways to remain relevant in an age in which technological changes create paradigm shifts almost overnight. Everyone is affected: Verizon, Apple, Amazon, T-Mobile, Sprint, Charter, Cox.
And remember Aereo? Its tiny dime-sized device—basically an antenna for receiving and storing TV signals—threatened to unravel the business model of both broadcasters and cable television. Aereo’s little device was so disruptive to CBS, Fox, ABC and NBC, that the contentious matter ended up in the Supreme Court, where justices recently agreed with broadcasters and declared Aereo’s antenna a tool for theft.
Aereo lost its case, but you can bet that there will be more digital disruptors and existential challenges very soon, especially as Facebook, Amazon, Apple and Google seek to grab more hours of our collective attentions. It was for this very reason that Comcast justified its need to merge with Time Warner, and those same imperatives apply as AT&T makes its case to Congress for the right to acquire DirecTV. The mergers will continue, and customer relations may suffer.
But lost in the hue and cry over customer service has been what some technologists regard as the more transcendent issue in these massive mergers: net neutrality.
Net neutrality, for those unclear on its passive, almost oblique language, is the basic philosophy that says that all internet traffic should be treated equally. Net neutrality is to internet content what Lady Justice is to the law: a formidable, stoic presence ensuring evenhandedness and fairness, and blindfolded to issues of creed, color, convention and context. Net neutrality means that your cable or internet provider will treat equally all traffic coming into your home: streaming movies, online games, access to banking or retail activity, music downloads, payment activities, photo uploads or downloads, television content, music videos and other short video material.
Advocates of a free and open internet regard its neutrality as crucial—a fundamental tenet essential to the free flow of information and the growth of innovation. And there are other comparisons employed. Just as your landline phone is neutral, able to make or receive calls in an unfettered landscape (unless you choose to block certain callers), so too should your internet access be unhampered. Just as your electricity flows into your home on an equal playing field with that of your neighbor, so too should your web access.
Originally a cherished and critical element in the thinking of the FCC and other Federal agencies, net neutrality has seen slippage over the last decade. In an important change of direction, the FCC in 2002 declared that the internet was more akin to an information service than a public trust. In that sense, according to then-chairman Michael Powell, your internet service provider (ISP) was more like a magazine or newspaper: you can subscribe to it—for a price—but there are no guarantees about its content, which comes at the discretion of owners, publishers, and editors.
That change of philosophy set in motion a slow but inevitable shift in the winds. But the tide has ebbed and flowed well into the late aught years. In 2010, largely as a result of complaints that Comcast was interfering with its customers’ web access and internet preferences, the FCC took a step back toward a policy of neutrality by reaffirming its view that the internet should be treated in the same way that government treated phone lines in the early part of the twentieth century: the web is a public trust, and its architecture serves as a “common carrier.” The FCC’s 2010 position was imperfect, and many technology advocates complained of the loopholes, but it was an important step in the direction favored by those who want to see the freest flow of information and content.
But early this year, a U.S. Appeals Court ruled against the FCC and in favor of Verizon; the case had centered upon Verizon’s arrangements wherein the mobile phone giant was charging additional fees to companies like Amazon, insuring those companies premium access (meaning faster speeds), and relegating other applications and services to a slower lane.
The issue has now become a political challenge facing the administration of Barack Obama—and probably the administration of the next U.S. presidents. Back in 2008, Obama had campaigned on a promise that he would honor net neutrality, but in practice he has done little to re-establish that central canon. Recent telephony and cable television mega mergers have made it abundantly clear that the time is ripe to establish a core value system for the internet’s rules-of-the-road.
That Appeals Court decision in the Verizon case opened the door to more preferential treatment, and by extension it created an avenue for more revenue for ISPs offering premium access. Comcast and Netflix recently came to an undisclosed arrangement whereby, for a fee, Netflix can stream its content across Comcast’s vast infrastructure without inhibitions on speed or quality. Likewise, AT&T enabled iTunes to have a special “fast lane” across its massive architecture, but only after Apple negotiated for the use of that specially tweaked speed and access. Meanwhile, services similar to iTunes, like Spotify, are left struggling with inferior access simply because they are unwilling or unable to negotiate preferential treatment.
Advocates of an open and neutral internet agree that what suffers most from a tiered arrangement is technical innovation. Smaller companies, unable to pay the premium fees charged by a large ISP like Comcast or AT&T, would face serious challenges to the development of their products and services, and some of those hurdles would be insurmountable without the same access to the internet as other companies. Worse, some fear that a pay-for-speed web would begin an organic process favoring almost entirely the biggest players—those with deep-pockets and little to fear from negotiating privately with big ISPs. Smaller players would be forced from the table quickly, and even those who survive would almost certainly be forced into shotgun marriages with other, larger firms—a cycle of larger companies buying out the smaller ones.
There is also the specific concept of “the last mile” of delivery. Without some form of regulation to maintain an open, unfettered internet, big ISPs become gatekeepers and key-masters in one stroke. Innovative web companies, tech start-ups, hardware makers, software designers, and content creators may have great products and services, but if a big carrier can establish a rate structure for content based on speed and reliability, the benefits and value of these products are lost.
Consumer advocates worry that tiered-price arrangements for content providers will increasingly translate into equally complex pricing and fees for subscribers and web users. In the near future, when Comcast completes its merger with Time Warner, at least one third of the U.S. will be inside the footprint of the Philadelphia-based cable company. That means that customers may experience the full effect of an internet that is anything but neutral. And some business analysts worry that the effects of a stratified U.S. internet could easily spill over into similar behavior in markets around the world. And it may also stifle technology in the U.S. while driving it into foreign markets.
The January court decision was not a total setback, however. Verizon had gone so far as to argue that the FCC had no authority to regulate broadband or wireless access, a position the court rejected totally. But the court basically ruled that the FCC’s 2010 working-position was akin to an overreach. The FCC, according to U.S. Circuit Judge David Tatel, should have more carefully linked its requirements regarding net neutrality to the concept of common carriers. The problem sprang from the FCC’s own bipolar thinking, and dates back to Powell’s 2002 interpretations of ISPs as information services. That 2002 working-position was a legal time bomb, and when in 2010 the FCC attempted to reassert net neutrality, the fuse started burning.
But experts say that now is the time to rewrite and retool the guidelines to better encompass the rapid technologies now unfolding around us.
Some Thursday Review readers have commented in the past about articles we have posted on this topic, especially in the context of recent mergers. One reader, someone familiar with the cable business from the inside, said that the original thinking on internet access was right all along—it’s just that we didn’t collectively see the metaphor as flexible.
“In the 1990’s we called it the Information Superhighway,” he said, “and advocates of a free internet understood that to mean just what that image elicited—lots of cars and trucks moving along at a moderate-to-fast clip. But what was not seen was an age in which there were special lanes for carpooling, lanes for buses, lanes for electric cars, bike lanes, wheelchair lanes, you name it. And there are toll-booths. Some people have speedpay, others pay by the month, some by the year.”
In other words, to paraphrase George Orwell, some web access is more neutral than others.
Verizon, Comcast, Time Warner, AT&T and other ISPs also make the case—and it is not unreasonable—that it is, after all, their capital and their labor which builds the highway. Should they not, under such circumstances, be able to charge more for use of the fastest lanes? And if Amazon and Netflix are willing to pay more for the fastest streaming available to Comcast subscribers, would not that additional revenue stream enable Comcast to reinvest in bigger, better, faster highways for everyone? Maybe.
But not so fast, some say. In that January 2014 court case, the decision was based on a three-judge panel. Even then there was dissent. Judge Laurence Silberman, writing a minority opinion, said that new innovations are always at work, sometime undermining conventional business models.
“This regulation [of internet speeds and reliability],” Silberman wrote, “essentially provides an economic preference to a politically powerful constituency, a constituency that, as is true of typical rent seekers, wishes protection against market forces.”
In the meantime, a billion or more people are now connected to the internet via broadband, telephone infrastructure, or through handheld devices. That number grows by millions worldwide every day. Even giants like Comcast, AT&T, Verizon, Deutsch Telekom, T-Mobile and others cannot keep up with that growth. Thus companies like Google, Facebook and Amazon enter into serious consideration of space hardware and drone technology to bring internet access to still more millions.
In the end, innovation suffers most. Without net neutrality, the web’s core value gets inverted. The internet has enabled tens of thousands of business start-ups to blossom, often with little or no investment of cash, and this influx of dazzling competitiveness has radically realigned the marketplace and reshaped the economy. The power of a neutral highway means that thousands of little companies have the same opportunities as the dozens of big companies, and this can sometimes have transformative effects (just look at Blockbuster, Borders and most major daily newspapers). That level playing field ought to be honored as central to a dynamic economy and a capitalist framework.
Thursday Review will have more on this important topic in the near future, and we invite our readers to send us their opinions and comments on this issue.
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