How Proposed Net Neutrality Law Could Affect You

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Internet Neutrality
Matt Rourke/APProtesters demonstrate across the street from Comcast facilities in Philadelphia.

It's easy to take Internet access for granted when it's obtainable in the palm of your hand. Faulty connections or issues with the Internet service provider are often blamed for spotty service, but what if it turned out the provider you pay $50 each month was controlling loading speeds based on which sites you visit? That's essentially what "net neutrality" is trying to prevent.

A concern of the Federal Communications Commission for a decade now, it's been difficult to find the sweet spot when it comes to ISP regulation. Because the United States operates a free-market policy, in which competition is encouraged and companies fail or flourish with little intervention, the Internet must remain monopoly-free as well. However, keeping the Internet an open marketplace has been difficult without regulation. According to The Verge, the FCC started establishing policies in 1980 to help regulate different communication services to stay competitive, non-discriminatory and fair for consumers and companies alike. But ISPs enjoy a convenient loophole.

On Feb. 26, the FCC will vote on a proposal by FCC Chairman Tom Wheeler to change the classification of ISPs from Title I of the Telecommunications Act to Title II, essentially applying open Internet regulations to telecommunications carriers like Comcast (CMCSA), AT&T (T) and Verizon (VZ). So how will stricter regulations affect pricing models and your bottom lines if the Internet is effectively deemed a utility?

From the Fast Lane to Neutral Ground

Regulation of communication providers -- namely cable and Internet -- began in 1980. A distinction was made between "basic" and "enhanced" communication services through "Computer II" policies, The Verge reports, which eventually evolved with the Telecommunications Act of 1996 to Title II "telecommunications carriers" and Title I "information service providers," respectively. Think of the difference as your phone company vs. broadband provider. (Yes, they may be the same company.)

In 2002, cable broadband was deemed an information service, falling into Title I, and by 2005 wireless and DLS services also received this designation. The subsequent establishment of open Internet rules, meant to keep competition on the Web fair, didn't apply to ISPs, only Title II carriers. The FCC has since failed in court to hold ISPs to the same guidelines as companies that fall under Title II regulation, and it is hoping reclassifying broadband Internet under Title II will make everyone play fair by the same rules.

This proposal, to protect net neutrality, is in staunch contrast to the FCC's move mere months ago when it advocated for fast and slow lanes -- websites could pay a premium to service providers for faster download speeds, essentially disrupting fair competition between websites. Many feared start-up sites would be unable to compete with the Amazons (AMZN) and Googles (GOOG) of the world; the FCC received strong objection in the form of 3.7 million public comments.

Swinging in the opposite direction now, applying Title II designation to ISPs would, in the words of Wheeler, assure "the rights of Internet users to go where they want, when they want, and the rights of innovators to introduce new products without asking anyone's permission."

The five-person commission will vote on Feb. 26 to approve this new designation, but Congress could potentially undermine the FCC's authority. This move has President Obama's support. However, Wheeler, also a Democrat, could face a majority Republican Congress that supports net neutrality measures but opposes Title II reclassification. Net neutrality is an attempt by the government to regulate a monopoly, and it might be necessary.

How Title II Classification Will Affect Providers, Customers

There is much debate over whether reclassifying ISPs under Title II will make a difference; but many argue this is the only way to keep the providers fair in a market that is lacking competition.

Nearly 30 percent of the U.S. population has access to only one ISP, according to SoftBank CEO Masayoshi Son. Even as a majority shareholder of Sprint (S), SoftBank's CEO admitted that an additional 37 percent of Americans have access to only two ISPs, limiting choice and competition for these providers that already need-not adhere to open Internet principles. In total, 65 percent of Americans have just one or two ISPs in their regions to choose from.

However, some argue that sites like Netflix (NFLX), Google and Facebook (FB) already operate in a "fast lane" due to special privileges, like dedicated computers for their sites, with ISPs. Therefore, reclassifying ISPs under Title II won't promote fairness.

How Title II reclassification will affect your bottom line, and that of your service provider, is still under debate. A 2010 study by Stratecast argued that any costs incurred through further net neutrality regulation will be passed to consumers; those who can't afford a higher premium for service, estimated by the study to be as high as $55 more than current pricing, will leave the market, resulting in job losses as broadband networks shrink with decreased demand.

It's argued that either of these two outcomes could occur to consumer bottom lines: net neutrality could prevent price and content discrimination by opening up the marketplace, or it could result in increased costs for access that are passed on to consumers. Others believe that keeping ISPs under Title I will allow them to increase revenue from websites and, therefore, decrease costs to consumers. However, freedom of the Internet could be lost, impacting small businesses and content curators who can't afford fast-lane prices and, hence, lose traffic to the big guys. Unfortunately, the jury is out regarding the practical implications of the Feb. 26 vote and subsequent classification of ISPs in this long-standing battle to fairly regulate Web access.

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