Net Neutrality Regulation Looms/European Regulators Restrain U.S. Technology Firms, Business and Industry Trends Analysis

The Internet world, in America in particular, has long debated the concept of “net neutrality.”  That is, should all Internet traffic be treated equally by Internet access providers, or should those carriers have the ability to limit bandwidth for access to some Internet sites while favoring others, perhaps for a fee.

The rapid growth in popularity of videos and movies online has brought this debate to a peak.  Netflix states that watching a movie online takes about 1 GB per hour for standard definition and up to 3 GB per hour for high definition.

A January 2014 ruling in a U.S. appeals court deemed U.S. federal rules invalid that called for Internet service carriers to treat all content equally.  This clearly opened the door for carriers to begin charging fees to certain bandwidth-hungry sites, such as music download, TV, video, news and search services.  Meanwhile, in February 2014, Netflix agreed to pay Internet access giant Comcast fees for providing direct access to Comcast's broadband network for Netflix servers.  This is largely unrelated to the January 2014 court ruling, which concerned the final delivery of content to the end user.  The Netflix-Comcast deal concerned an uncommon level of integration with Comcast's network.  A modest number of major content companies have been paying similar integration fees to Comcast and other carriers for several years.

However, by early 2015, the FCC proposed to regulate the Internet industry as a utility, which would subject it to greater scrutiny and intrusive regulation.  Specifically, the FCC proposes to regulate the Internet access industry under the same rules that are applied to traditional telephone service.  These rules are referred to as Title II (of the Communications Act of 1934).

To some observers, this is a necessary evil that will ensure that all comers have an equal ability to publish on the Internet.  High volume Internet publishers such as Google and Netflix will generally support the rules as necessary to restrain Internet service providers (such as telephone and cable companies) from any plans to selectively slow down certain types of Internet traffic, or favor some Internet publishers over others.  To many analysts, however, it is a vast misapplication of archaic rules (Title II) that were written decades ago to cover an industry that is now a dinosaur at best: the delivery of land-based telephone service over copper wires.  Many worry that the application of Title II will stifle innovation, deter investment and result in slowing down what has been one of the fastest-growing sectors for economic growth and job creation.  Investment in broadband improvements is vital to the nation as a whole. 

The FCC, with the backing of President Obama, voted in February 2015 to ban broadband providers from altering web site speeds or blocking Internet publishers altogether if fees aren’t paid.  Major lawsuits by telecom companies, Internet providers and related broadband firms are expected. 

European regulators have already made many attempts to restrain U.S.-based Internet titans that operate globally, including Microsoft, Google, Amazon, Apple and Facebook.  The EU’s complaints and lawsuits cover a wide range of conditions in the Internet and ecommerce business.  As early as 2000, there was a European probe of Microsoft’s bundling of its Media Player software into its Windows product—seen as anti-competitive.  More recently, the British government faulted Facebook for failing to alert users of a terrorist attack in 2013, and the Europe Court of Justice created an online “right to be forgotten” in relation to Google searches in 2014.  France and Germany requested that the European Union investigate the establishment of new rules of competition and other regulations in late 2014, while the European Parliament approved a resolution for a possible breakup of Google.  In late 2015, EU officials agreed on a pan-European digital privacy law that replaces 28 different sets of national privacy laws and boosts penalties to 4% of a company’s worldwide revenue.  The new law is expected to sharply curtail new data mining practices.

An immense issue remains in this net neutrality conflict:  how can the carriers, whether landline, satellite or wireless, afford to cover the infrastructure needs and costs of the soaring demand that businesses and consumers place on the Internet?