So Much for Net Neutrality
A federal appeals court today ruled that the FCC overreached two years ago, when it issued a cease and desist order against Comcast for deliberately slowing the Internet file transfers of BitTorrent users. Comcast ended the practice soon after, but the situation made clear that the FCC believed it had the legal right to mandate “Net neutrality.”
Today’s ruling seemingly moves the debate over to Congress, which would have to grant the FCC the authority to regulate ISPs. A second possibility — the “nuclear option,” as some are calling it– would be for the FCC to reclassify broadband as a regulated service, reversing a decision made under the Bush Administration to classify broadband providers as an “information service” that are beyond the scope of the FCC’s power.
Given that it already looks to be a grueling election year, the first scenario seems unlikely at this point — unless something forces the hand of Congress. Understandably, VCs fear that such a “something” could be an ISP’s favorable treatment of a strategic partner or other self-interested maneuver.
“Imagine if Comcast decided once day that they didn’t want anyone else to allow voice over their network,” says Allan Leinwand, a venture partner at Panorama Capital. “Maybe they claim that Vonage somehow damages its bandwidth, despite that a packet is a packet.”
It’s a scenario that worries a wide number of investors, including Fred Wilson of Union Square Ventures, who wrote me earlier today that: “Until the principals of Net neutrality are embraced by the access providers — namely the right to run any application on their networks — we are at risk of ruining the atmosphere of ‘permissionless innovation’ that has characterized the first 15 years of the commercial Internet in this country and allowed us to build some of the most important new companies in the world.”
Not everyone shares Leinwand’s fear that the Net neutrality issue will now get “stuck in a legal battle between service providers who want to manage networks around their own business policies versus people who want to use the Internet in an unfettered way.”
Jeff Nolan, for example, thinks Net neutrality proponents have already lost their battle to ”regulate on hypothetical damage.”
Nolan, a private investor who has worked at both SAP Ventures and NewsGator, calls Net neutrality “one of those great policy issues that’s good to study because it demonstrates how government can threaten to get involved in an issue where there’s no apparent harm.
“People talk all the time about the importance of Net neutrality, but how will that change how business is operating today? We’re basically operating in a free-for-all. The only provider I know that discriminates against the types of services being offered is China,” he says
Nolan acknowledges the potential threat posed by today’s ruling. “I get why everyone is upset. I wouldn’t want to go into a deal where AT&T or Comcast or anyone else was going to sandbag me by going with a competitive offering, then gaming their system.”
He doesn’t see that as a very likely scenario, however. ISPs already have “a bad enough customer service reputation,” he says. “They don’t need to make things worse.”
For some great reading on the issue, check out this link and this one and this one.
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Dana Spiegel said on April 6, 2010
When it comes to enabling innovation, Fred Wilson hit the nail on the head. And unfortunately, though we’d all like to think that Mr. Nolan’s best case scenario is grounded in reality, it is clearly and demonstrably not. There have been countless instances in the past 5 years where telco/cableco’s have tried to “game” the system, and these companies have taken advantage of their position as (near) monopolists and duopolists in the landline communications marketplace consistently since their inception.
As they say, “Fool me once, shame on you. Fool me twice, shame on me.” Except, of course, this would be “fool me a thousand times” when it comes to whether or not telcos/cablecos will be trying to take advantage of their positions.