By Venkatesh Shankar, Texas A&M University Mays Business School
Newswise — The Federal Communication Commission (FCC) voted 3-2 on Dec. 14 to overturn the net neutrality rule that was put in place in 2015 by the then-FCC. What does it mean for different stakeholders, including consumers, companies and communities?
The net neutrality rule required common carriers or broadband providers or Internet service providers (ISPs) (e.g., Comcast, Verizon, Charter, AT&T) to treat all data on the Internet equally and not discriminate or price differentially by user, content, website, app, device, platform or communication mode.
What are the pros of net neutrality? In principle, net neutrality is egalitarian. Since the Internet is a public information network, it should be viewed as a public utility, much like electricity and water. Net neutrality treats all content and data equally, whether they are from a big firm like Netflix or Google or a start-up firm. It also prevents ISPs from blocking or throttling (slowing down) data, or price discriminating against Internet users. Without net neutrality, ISPs may be emboldened to raise prices on certain consumers and firms and shut out competitive services.
What are the cons of net neutrality? It goes against the general principle of less regulation. It does not offer sufficient incentives for ISPs to invest in technology for faster and higher quality access to the Internet. While the market values of content providers like Google, Facebook and Netflix have multiplied enormously in the last few years, those of Internet service providers have stalled in comparison, stifling ISPs investment in innovation. Also, whether high-volume users should pay the same as low-volume users is debatable.
Net neutrality is still a good rule in principle, but it’s unclear if its reversal will have a negative impact in the short run. Even before net neutrality was passed in 2015, ISPs were put under market and public pressure to treat all users equally. Now, content providers like Netflix have preferential access and have diversified away from dependence on U.S. ISPs. But prices for consumer services could still creep up. Also, there will be legal challenges to this ruling, so it might take time for the reversal to take effect. Thus, Internet speeds for most consumers are unlikely to change immediately.
What about the long run? That is an open question. As ISPs consolidate, they might become more powerful and start flexing their muscles. Also, content providers with high market capitalization and free cash can acquire some of the ISPs, creating content and service behemoths, crowding out the smaller and innovative firms. Such enterprises could invest more in newer technology and scale faster than current ISPs. But they could also mean higher prices and more restrictions for consumers and fewer disruptive innovations. The silver lining is that when such scenarios emerge, the FCC could revisit the reversal again and make suitable changes.
Venkatesh (Venky) Shankar is Coleman Chair Professor of Marketing and Director of Research at the Center for Retailing Studies, Mays Business School, Texas A&M University. His areas of specialization include digital business, marketing strategy, innovation, retailing, international marketing, and pricing.