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Net Neutrality and The Effect on ISPs

To understand the effect of net neutrality on Internet Service Providers (ISPs), we must first understand the meaning of net neutrality.  Net neutrality is the concept of an “open internet” meaning that consumers have equal access to all Internet content and applications without restrictions and/or obstructions to traffic.  It prevents Internet service providers from disturbing the flow of traffic based on select variables and forces ISPs to treat all traffic the same.  On December 14, 2017 the FCC voted to repeal legacy net neutrality provisions designated under Title II of the Telecommunications Act.  The repeal of the net neutrality provisions allows ISPs the authority to govern the traffic flow of internet content and applications.  The repeal will now have a major impact on Internet Service Providers in the areas of revenue, governance and legality.

As it relates to revenue, there is much speculation as to how ISPs can and possibly will increase their revenue due to the repeal of net neutrality provisions.  Since the concept of “open internet” no longer exists, ISPs could charge those companies that are prone to pass more traffic over the internet more money to compensate for the additional traffic.  For example, companies such as Google, Bing or streaming services such as Hulu or Netflix may be charged additional fees as they are known to traverse the internet more than other companies.  This will provide an additional revenue stream for ISPs, if they attempt to go this route.  In addition, ISPs will have the ability to hamper certain services from companies that are in direct competition with their own products or services.  For example, in the event Verizon or AT&T has their own “Wallet” or payment service, the repeal of net neutrality will now allow ISPs to prevent the company from operating on their network and/or charge the company a premium fee for utilizing traffic for that service, thus increasing revenue for the ISP.

As it relates to governance, ISPs will now have the power to control and manage the amount of traffic traversing the internet.  In the example mentioned above, ISPs now have the authority to govern internet traffic which means ISPs can throttle internet traffic.  For instance, streaming companies such as Netflix, Hulu, or iHeart traditionally have higher amounts of internet traffic based on the nature of their business.  ISPs now have the ability to throttle that traffic and charge the company a premium rate to increase the speed of that internet traffic.  A major concern among consumers is that the premium rates will be passed through to the consumer which will increase the current rate of the services.  Another governance related challenge facing ISPs will be the equality of traffic passed on to companies.  For example, a smaller streaming company that does not have the same economic capacity as a Hulu or Netflix may not be able to pay the premium fee an ISP poses on a Hulu or Netflix, which could make it difficult for smaller or newer companies to compete from a traffic perspective.  It is important to note that the FCC has documented provisions in the new ruling that is meant to protect against throttling and manipulating internet traffic.

One of the more significant impacts ISPs are faced with as it relates to the repeal of net neutrality provisions is that of legality.  There have been numerous lawsuits filed against the FCC and various ISPs to bring back net neutrality or at least prevent ISPs from having too much control over the internet.  Many ISPs have had to augment their legal departments with resources who have expertise in this area.

In conclusion, the repeal of net neutrality has an impact that has yet to be seen among the ISPs, content providers and consumers.  ISPs will have more authority as it relates to governance, the potential to increase revenue and the need to address legal issues that may arise.   We’ll keep you posted on the impact.

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