A ruling by a federal appeals court effectively demolished the FCC’s Open Internet rules, a 2010 statute preventing internet service providers (ISPs) from – among other things – blocking or slowing high-bandwidth traffic like streaming audio and video services. Following this ruling, ISPs like Verizon and Comcast can discriminate against any web traffic as they see fit. For cloud-based, high-bandwidth companies like Netflix, Hulu, and Pandora, it could be the end of a net neutrality era. For other businesses, it could impact the flow of information, communication and other critical business processes – not to mention innovation.
Canary in a Coal Mine
Netflix has been the poster child for net neutrality of late. The streaming video entertainment giant accounts for more than 31 percent of all web traffic in North America – and ISPs are not exactly happy about it. Following the January ruling, things looked bleak indeed for Netflix. After Comcast – the nation’s largest cable provider – agreed to acquire Time Warner Cable – the second-largest cable provider – things became dire indeed.
In late February, Netflix entered into an agreement with Comcast that would require the company to pay the ISP giant an undisclosed amount to ensure that its customers would continue to receive the same level of service they received before the court’s ruling.
Meanwhile, bandwidth provider Cogent Communications has been embroiled in a similar battle with Verizon. Ars Technica’s Jon Brodkin sums it up like this:
“Cogent is an Internet bandwidth provider that sells transit to Netflix and other companies. When Netflix purchases transit from Cogent, Cogent is responsible for distributing the traffic to all corners of the Internet. But no single company controls the entire Internet. Thus, Cogent must exchange traffic with other network providers, including Verizon.”
Because of the volume of traffic occupied by Netflix, Verizon wants Cogent to pay a fee for delivering this traffic. However…
“Cogent has refused to pay. As negotiations stall, Netflix performance has dropped measurably for months on both Verizon and Comcast. Cogent claims this is because Verizon and others – but especially Verizon – are refusing to upgrade the connections between networks. Cogent points out that Verizon offers its own streaming video services, such as Redbox Instant, and thus has an incentive to harm Netflix traffic.”
The Slipperiest of Slopes
This is bad news for everyone except the ISPs themselves. AT&T is already charging companies for premium content delivery through its Sponsored Data program.
Sponsoring companies agree to pay AT&T so its subscribers need not worry about monthly data limits – a digital version of the razor/razor blade theory. Content providers willing to do this are giving their users more or less a free data pass, so consumers will consider this a plus.
If this becomes the industry norm, smaller companies whose businesses require heavy bandwidth, like media providers and SaaS firms, may lose out. Without the deep pockets of a giant like Netflix, small companies will lose their ability to compete – or do business altogether.
The Free Market to the Rescue?
However, the prognosis for the cloud may not be terminal. Alternate ISPs may yet arise and offer different policies. While established ISPs like Comcast and Verizon aren’t likely to abandon the model they’ve spent so long creating, alternate providers like Google Fiber may ultimately decide not to follow suit (although Google’s stance on the issue is as yet unclear).
There would certainly be a market for neutral ISPs. A Consumer Reports survey recently found that 71 percent of households would switch ISPs (or attempt to switch, if they’re located in an area with multiple providers) if their current provider opted “to block, slow down, or charge more for bandwidth-heavy services such as Amazon Instant Video, Netflix, Pandora, and Skype.” A further 10 percent said they’d drop the Internet altogether.
And yet, the end of net neutrality doesn’t necessarily mean the end of the cloud. The post-neutrality Internet is still in its infancy, and the FCC has promised to continue battling for an open Internet. How aggressively ISPs pursue bandwidth-heavy companies remains to be seen, as does consumers’ willingness to tolerate its effects. Still, cloud-based companies face an uncertain future. Only time will tell if the cloud will remain open to all, or if it will become just another feature locked behind a paywall.