The new FCC chairman wants to dismantle the rule that equalizes access to the Internet. If he succeeds, it will hurt all of us.
This alarming turn of events comes on the heels of Congress voting to roll back a Federal Communication Commission (FCC) rule, which eroded consumers’ abilities to keep their information private from internet service providers.
Net neutrality is a fairly basic first step to be sure we all have access to Internet, and at the same terms of pricing and speed.
Net neutrality rules were first put in place in 2015 when the FCC determined that broadband Internet service providers were to be considered “common carriers” – entities that provide an important service to the public relating to moving things (in this case, data) from place to place – and prohibiting them from charging customers different rates for different speeds.
Now Pai is making a case for reversing those rules.
Chairman Pai stated on April 26th that Title II (net neutrality) is adversely affecting low income rural and urban neighborhoods and widening the digital divide (see ~28:10 in the linked video) because investment in internet infrastructure went down between 2014 and 2016.
Pai said that during that same time period (see ~27:36 in the linked video), “According to one estimate by the non-profit Free State Foundation, Title II has already cost our country $5.1 billion in broadband capital investment. Given the multiplier effect from such spending, that means Title II has already cost us approximately 75,000 to 100,000 jobs.”
The connection between Title II, job losses, and net neutrality is theoretical and shaky at best. Correlation isn’t causation – and the Free State Foundation (FSF) “think tank” consists of a former FCC Associate General Counsel, his wife, and a few Fellows who regularly quote Chairman Pai in their materials and whose non-profit 990 tax return doesn’t reveal their donors. FSF has ties to the conservative leaning American Legislative Exchange Council (ALEC) through Seth Cooper, who joined FSF as a research fellow in 2010. Mr. Cooper is the former director of the ALEC Telecommunications and Information Technology Task Force and acts as Amicus Counsel for ALEC.
What is Net Neutrality?
Net neutrality in its ideal form is when all Internet traffic (emails, streaming video, music, etc.) is treated equally without preference for or against any particular type, or source, of data. Data creators and users are thereby treated by owners of the connection (the Internet Service Providers, ISPs) without bias – i.e. neutrally. The ISPs can’t price access differently for different application service providers (i.e. Netflix) based on who they are, and can’t give one application service provider a speed advantage over another in return for more money.
Until recently, ISPs could not look at the data that flowed through the pipe, but now they can, and they can sell it, as a result of the rollback of Internet privacy rules this month. Net neutrality thereby allows the Internet to be a free and open market; in this case a market that underpins basic household needs and foundational commercial transactions, both large and small.
To illustrate, imagine one super-sized highway, with multiple lanes. There are four ambulances carrying four heart-attack patients to the hospital. One patient pays for fast lane service; three can’t afford it. The patient who can afford more gets to his destination a lot more quickly – but if every patient deserves the same opportunity for basic services, then access to the road should the same for everyone. That’s net neutrality in a nutshell.
Without net neutrality, it’s the same highway – but with multiple paid express lanes that have no speed limit for some, while others are stuck in specific lanes with lots of traffic and varying speed limits.
Net neutrality and free markets
In America, we generally support the notion of free markets, believing that markets work better and are more fair when unencumbered by burdensome regulations or unfair trade practices. Citizens and businesses have over the years come to require certain basic services and accesses, and attendant rules have evolved in order to balance consumer needs with market forces. Rules are put in place by lawmakers to combat financial fraud, pollution, price fixing, and abusive monopolies, while still allowing for a balance that allows market growth.
Typically, those who lean right politically have supported free market economics, commonly defined as economies “where buyers and sellers can make the deals they wish to make without any interference, except by the forces of demand and supply.” As applied to net neutrality, it is difficult to understand how lawmakers espousing free market principles can support extinguishing the rights of individuals and small businesses to have equal terms and access to the communications channels and tools of education and commerce that each entity and individual should possess.
The rollback of net neutrality is contrary to an individual’s rights and liberties in this modern world, where even your child’s elementary school homework is online, and it also undercuts the most important sector of our economy – small businesses.
While proponents of net neutrality say Big Telecom already has too much power, those opposing net neutrality argue that it gives disproportionate power to the government to govern the Internet – the same government that is incapable of running its own technology. While it’s tough to argue for the competence of the government in this regard, or its speed or efficiency, this point conflates the notion of directing Internet traffic with regulating the companies that provide Internet service, and ensuring that those companies are treating people fairly. The government plays a role in overseeing the equitable use of basic services like water, power and roads, and this is no different.
The impact on Nevadans – less access, diminished ease of use and hard on new businesses
The biggest Internet issue for Nevadans is simple access. This is mostly an issue in the rural areas, but it is also true in some urban areas where the carriers do not earn a high return on establishing residential service.
Although Americans embrace capitalism and the notion of a business’s right to generate a return on investment, they also believe that certain basic services are essential to most American’s ability to survive and thrive: water, power, and telephone communications services are among them. That is why these services have rules that enable all households and businesses to be treated fairly and in a manner that does not impair their ability to fully participate in daily activities and the economy.
Today, Internet connectivity has moved from a luxury to an essential service – as it did in the past with with electricity or the telephone. Indeed, the most financially fragile are the most dependent on the Internet and smartphone connectivity to find employment, housing, and transportation
Recently 56 senators from both parties, including our own Sen. Catherine Cortez Masto (D), wrote a letter to the FCC stating that “Many operators remain unable or unwilling to offer such broadband because their prices would still be unreasonably high … despite the reforms last year, millions of rural consumers are still not seeing widespread affordable standalone broadband services.”
In May 2016, then-candidate Cortez Masto stated that she would work to ensure “every rural community has access to high-speed broadband, and small businesses have access to necessary capital to keep and create jobs.” She followed up on that in a speech in April to a joint session of the Legislature, “The Internet has become a necessity in today’s society, and no Nevadan should be without access, regardless of where they live.”
Killing the net neutrality laws on the books would make this lack of access worse.
The internet needs to be treated like a utility. In fact, that was the underlying premise when the FCC ruled in 2015 that ISPs (especially high speed Internet) are common carriers. This built on precedent that defines this term such as when the Ninth Circuit Court of Appeals in 1924 ruled that “A common carrier is generally defined as one who, by virtue of his calling and as a regular business, undertakes to transport persons or commodities from place to place, offering his services to such as may choose to employ him and pay his charges.” In this case the commodity is data.
Why speed matters: Three words – PAGE LOAD TIME
Right now, by law, your Internet Service Provider is required to provide access to all content on the Internet to you at the same speed. This means that your connection to the kid who is starting a cool website out of his basement is the same speed as your connection to Facebook. This matters.
According to a 2008 Aberdeen Group study “A 1-second delay in page load time equals 11 percent fewer page views, a 16 percent decrease in customer satisfaction, and 7 percent loss in conversions.” That difference means that a small business or a tech startup may not be able to get off the ground if they are at the bottom of the speed priority list, while their deeper-pocketed corporate competition thrives.
After all, how often would you really use a retail website that made you wait much longer than Amazon? About as often as you would go that funky neighborhood boutique if you every time you shopped there, you had to wait in line significantly longer than at a major department store.
To see what this could mean, consider this true story. It is January 2005, and three friends named Steve Chen, Chad Hurley, and Jawed Karim decide to figure out a better way of sharing some videos they had made during a friend’s dinner party in San Francisco. They soon went on to found YouTube – a site where users could easily upload, share and view video content. Now imagine that this video content took forever to load because they couldn’t afford to pay the ISP fees to guarantee fast speeds and priority access. There would likely be no YouTube, and we would not be using YouTube today as a hub for personal creativity, study and work. (Incidentally, YouTube was sold to Alphabet for $1.65 billion in November of 2006. That’s rather notable economic value creation.)
Without net neutrality, the next YouTube, PayPal, or Facebook – web-based products that have clearly contributed both to our economy and well-being through job and value creation, as well as our education and our entertainment – may not be created or will die just after birth.
Killing net neutrality kills the fundamental thing that makes the Internet so great for consumers in the free world: choice. When you kill net neutrality, you take the choice out of the hands of the individual and put it in the hands of their Internet Service Provider. Killing net neutrality not only destroys today’s competition but also stifles tomorrow’s innovation. This creates tremendous disadvantages for the smaller players, and for end users.
Small businesses and startups will be disadvantaged
For the 238,000-plus businesses in Nevada that employ more than 40 percent of the private workforce, loss of net neutrality can and probably will have a large impact – and disproportionately in the rural areas of Nevada and smaller cities that have a greater percentage of their population engaged in commerce generated by small business, versus people working for big corporations.
How much does page load time affect a small business in Nevada? PC911, a leading Las Vegas IT service, video surveillance and security company, used a Content Delivery Network to decrease its average page load time by 22 percent. That improvement alone made the “bounce” rate (how many people leave your website after reading just the page they came to) drop by 28 percent. That’s right: reducing page load speed by one-fifth caused more than one-quarter of the people that visited the website stay and look at other content.
Today’s small businesses are tomorrow’s major companies. “It is estimated that two thirds of the companies that will make up the S&P 500 in 10 years’ time haven’t even been created yet,” according to Michael Hayman. Now more than ever small businesses and startups matter, and slow page load times will drastically affect them.
Further eroding the competitive landscape for small businesses is page load time impact on Internet search results. All search engines use an algorithm to decide what to put on your search results based on a multitude of factors including web page load times. Slow page load times lower your Google and Bing rankings in search results. The lower your website is ranked, the fewer people will see it or initially go to it. Without net neutrality, creativity and merit matters less, or not at all. This results in less opportunity for small businesses to grow into big business and in turn erodes our economic growth.
Population data taken from Nevada Demographics.
Firm data taken from the Small Business Administration.
How does it affect individuals? Higher costs, worse service
A loss of net neutrality means individual consumers, already at the bottom of the pay-to-play totem pole, may have less access and could even have to pay more for existing services.
First, access. A company (especially a startup or small business) will most likely buy higher priority speeds based upon market penetration. They are going to think, “How can I reach the most potential users for the least amount of money?” Clearly buying “fast lane” access in a big city like Las Vegas is going to make much more sense than paying an ISP in Sloan or Tonopah. After all, they are going to spend their money to target a bigger market (i.e. more people) than places that have a smaller market, in part because they have a limited budget. Reduced demand will naturally diminish services over time to smaller markets. If we kill net neutrality, a nationwide company would have to pay every single ISP in America to get priority access to make sure their app works as they tested it. That does not seem affordable.
Without net neutrality, those who will require “fast lane” access to maintain their existing business models – for example Netflix, to which almost 4 out of every 10 households in America subscribes – will most likely be charged more by their ISPs to maintain the same speeds due to the high volume of data it takes to stream video. They will then pass those additional charges down to you, the consumer. To stay competitive without net neutrality, websites and apps like Netflix, Skype, and YouTube will have to increase prices, start charging to maintain the same speeds, or force you to view more ads. This is why Netflix, and others who want to keep their prices low and customers happy, have come out against killing net neutrality.
Another possibility is that people will pay more for the services they already have without even getting a faster speed. Because ISPs are regional, a company will in all likelihood charge everyone a higher price, instead of charging by area or zip code, which can lead to headline risk – when bad news stories lower a company’s value. So you would pay more for Netflix whether you lived in Los Angeles or Georgetown, South Carolina, but only users in Los Angeles would maintain the speed they already have.
Nevada is a good state-level example of this problem. In Tonopah (89049) there are only three home Internet options and four business Internet options – and only wired Internet or DSL. By contrast, parts of Las Vegas (89118) have four home Internet options and 29 business Internet options including fiber, cable, wired Internet, and DSL. In this case businesses have almost five times as many options in Las Vegas than Tonopah for providing internet, and faster internet options too like cable and fiber internet.
How does it affect the country? It will divide us more.
Killing net neutrality will further divide our country. It will further split those who live in big cities from those who live in smaller communities. The coasts and big cities will have the same access, but everywhere in between could pay higher prices for slower service.
Places such as Hawthorne, Ely, Fallon, and smaller communities in Nevada will suffer the most. Households could end up with different access to technology based solely on the demographics of the area. It will affect how people get their news, educate their children, and find medical resources, among other things.
Killing net neutrality is the best way to turn today’s big tech companies into tomorrow’s robber barons. Consumers will be gouged and small businesses will die before they ever have a chance. We need to speak up to keep the Internet neutral.
FCC Chairman Ajit Pai will seek public comment in May and then the FCC will formulate a new set of regulations that will require a vote. Some Republicans in Congress have supported open-Internet legislation that would override the FCC rules. Democrats say they will oppose overturning the current rules.
Researcher David Serabian contributed to this piece.
Heather Murren served as a Commissioner on the White House Commission for Enhancing National Cybersecurity, a 12-member commission charged with identifying the steps our nation must take to ensure our cybersecurity in an increasingly digital world. The commission report was submitted December 2, 2016 and made recommendations relating to consumer rights and responsibilities in the digital age, the internet of things, building cyber workforce capabilities, and better equipping the government to function securely and effectively in the digital age, among others.
Murren volunteers her time and expertise to The Nevada Independent as an analyst and special correspondent. You can read more about her in this welcome note by our editor, Jon Ralston. Murren is married to Jim Murren, Chairman and CEO of MGM Resorts International, a $250,000 donor to The Nevada Independent.
Feature photo by scyther5 at istock.com.