US Digital Policy | Weaving A Complex Web

The repeal of net neutrality sparked immediate political response from consumers, but its impact on business will be complicated, and take time to unfold and to absorb.

Pretty much every company is connected to the Internet, even if only by a bare-bones website; and in the US, the rules just changed. On December 14, the Republican-majority Federal Communications Commission, as promised by chairman Ajit Pai, repealed rules protecting net neutrality, which guaranteed equal access to the Internet for all content.

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The change now allows US Internet providers to slow or block access to certain sites, or speed access to others, provided they alert consumers. It’s a dramatic reversal from the stance adopted in the US and European Union in 2015—and it may yet be reversed again. Democrats are working to overturn the FCC repeal, which is hugely unpopular with consumers, but given current political conditions, they may not succeed. Many observers comment that where the US leads, much of the rest of the world follows.

“America gave a lot of inspiration for net neutrality,” says John Strand, CEO of Strand Consult, a telecommunications-research firm. “Now it’s providing a lot of inspiration for rolling it back.”

What makes the net-neutrality issue important to CFOs and other financial executives is that the Internet now is so entrenched as part of everyday business operations. Net neutrality, like the Internet itself, spans the globe, with each country adopting laws and regulations to meet the challenges of this new technology. In many cases, the issue isn’t addressed with a specific law, but rather guidelines and regulatory policies that stem from existing communications and information law.

strand, strand consult
Strand, Strand Consult: America gave a lot of inspiration for net neutrality.

What does it mean for financial executives? “What I would be concerned about, as CFO, is just the level of uncertainty,” says Patrick McCormick, a longtime IT strategist who has consulted for local and state governments in the US and Australia. “If I’m moving masses of data to the Cloud, for example, I don’t know if the providers are going to start charging more for their pipe to me or their pipe to others. And this uncertainty comes just at a time when we are so dependent on bandwidth.”

According to the Global Net Neutrality Coalition, Tunisia was way ahead of the pack, with an actual law protecting neutrality in 2001. Japan was another leader, placing the principle under ministerial guidelines in 2006, bolstered in 2007. One group of nations, including Canada, Norway and Paraguay, put in place net-neutrality protections of one sort or another around 2009.

The big rush didn’t come until 2015, when the US FCC codified rules that, in some form, had been part of the agency’s modus operandi since August 2005. The European Union adopted net neutrality the same year, although its rules are open to interpretation, especially on zero-rating—the practice of not charging for data used with a particular application or class of applications—which US regulations have never prohibited. Today, big swaths of the world have net-neutrality protections, and many others are considering them. Mexico, nearly all of South America, India and South Korea, in addition to those mentioned earlier, have laws or protections.

The countries that have not embraced net neutrality are not necessarily models to emulate: Pakistan, South Africa, Nigeria and Russia, for example. Russia has no official law on net neutrality. China has neither a law nor protections—indeed, the government openly censors content and blocks all sorts of websites and apps.

“It’s hard to find a model that works,” says McCormick. “And a model that does work won’t necessarily work everywhere.”

Why All The Fuss?

While the net-neutrality issue has been at least somewhat politicized all over the world, the intensity of the debate has been hottest in the US. The largest companies it would affect—Amazon, Apple, Facebook, Microsoft, Netflix, Twitter and many other Web-based content providers—are America’s economic blue bloods. Yet even the US did not have explicit neutrality protections until 2015, and opponents of net neutrality say that Internet service providers (ISPs) won’t make any drastic changes—at least not right away.

Chris Reichert Kennedy Institute
Reichert, Kennedy Institute: Having net neutrality removes the incentives to tinker.

“The net-neutrality protection we’ve had in place for the last two years hasn’t changed the world, and it wasn’t horrible before that; and it might not get bad right away [now that we’ve lost it],” says McCormick. “But there are market forces that would like to reshape the Internet in a different form.”

The corporations that will be most affected, certainly at first, will be the ones that use the most bandwidth. Amazon and Netflix consumers use a tremendous amount of data when streaming. (For Amazon, it’s not the retail site, but the company’s music, video and Amazon Web Services content.)

“Content providers may end up paying to reach their customers,” says Trey Hanbury, a former Sprint executive who served in various policymaking positions at the FCC and is now an attorney specializing in technology, media and telecoms at Hogan Lovells. “That’s just an economic shuffling of dollars between ISPs and content providers.”

Nearly all corporations advertise, however; and as advertising increasingly moves to the Web (along with consumers), ISPs’ power over ads will matter greatly. There’s nothing in the rules to say ISPs can’t charge extra or block access for reasons unrelated to bandwidth. Twitter came under fire in October after blocking an advertisement for the senatorial campaign of US Rep. Marsha Blackburn (R-Tenn.) that boasted of her work in an alleged baby-body-parts scandal at Planned Parenthood. Twitter later changed its decision and allowed the ad. In January 2017, the FCC Wireless Telecommunications Bureau put out a report that zero-rated video services by AT&T and Verizon may have been in violation of the FCC’s Open Internet Order, with the bureau alleging that AT&T was offering sponsored data to third-party content providers at terms less favorable than for its own DirecTV affiliate. Yet no action was pursued.

PAtrick McCormick, Consultant
McCormick, Consultant: It’s hard to find a model that works, and what works won’t work everywhere.

Strand points out that net neutrality now exists in more than 50 countries, with 28 of them in the European Union, which has a variety of strong consumer protections. “Net neutrality is the least of it,” comments McCormick. “There’s the ‘right to be forgotten’ and all of that.” But telecommunications companies have now filed lawsuits in Germany, Sweden, Slovenia and elsewhere in Europe over pricing issues. One reason is that EU rules on net neutrality are nonbinding; so member states are free to legislate the way they want, and there’s still a lot open to interpretation.

Net-neutrality opponents say it stifles innovation. Strand notes that his analysis indicates that in countries with “hard rules” enforcing net neutrality, giant content providers from the US such as Google and Netflix crowd out locally made content innovation. “Countries with soft rules have a higher rate of locally developed content and applications,” he says. “It is an important point for countries that wish to support their native industries.”

Those soft rules give leeway for net neutrality, however. “Net neutrality in and of itself doesn’t stifle innovation. We went from 3G to 4G to 5G in a highly regulated environment,” notes Chris Reichert, a longtime IT consultant in the US and Australia, currently working as chief information officer at the Kennedy Institute in Massachusetts. “But net neutrality removes the incentives to tinker for unfair advantage, on either the infrastructure side, to crush start-ups, or the content side, to control information.”