Net Intervention: Winners and Losers

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Net neutrality means that ISPs must give the same quality of service to consumers of all websites. That means everyone is supposed to pay the same price and get the same speed of service regardless of whether they are downloading a Netflix movie or visiting a tiny startup’s website.

But thanks to a proposal from FCC chairman, Ajit Pai, with a December vote, Net neutrality will be no more. The FCC will intervene in the operation of the Internet — plunging its significant weight on the scales of the free market in order to bring further comfort to the most comfortable companies — ISPs — who will now be “able to charge users more to see certain content and to curb access to some websites,” according to the New York Times.

AT&T was happy with this proposal. As Joan Marsh, a vice president at AT&T told the Times, “This action will return broadband in the U.S. to a regulatory regime that emphasizes private investment and innovation over lumbering government intervention.”

The same is not true for Facebook. Erin Egan, a vice president at Facebook. said: “We are disappointed that the proposal announced today by the FCC fails to maintain the strong net neutrality protections that will ensure the internet remains open for everyone. We will work with all stakeholders committed to this principle.”

Netflix is not a fan either. It argues that consumers will see their costs go up if they want high-quality access to popular sites like Netflix  — which said on November 21 that it opposes Pai’s proposal.

If you don’t like Net Intervention, you can participate in a process of public comment between now and December 14 when the FCC is planning a vote on it. Or you can try to offset the higher prices you’ll pay by investing in the winners and consider betting on a drop in the loser

Winners

The biggest winners are the Internet Service Providers — AT&T, Verizon, and Comcast come to mind. They will be able to charge consumers more for what they get now — access to the entire Internet in one bundle — on a piece-by-piece basis.

Maybe they’ll decide to charge you much more to get access to Netflix without buffering. And maybe they’ll decide to charge Netflix and other popular content providers more money for the option to deliver their content to consumers quickly.

What it means is that rather than regulating them like utilities — which allows them to enjoy market power while requiring them to meet consistently high service standards — they will be freed to charge more for the content that consumers want the most and decide what they’d rather not carry at all.

I don’t know how much more profit these ISPs will make, but I expect it to be substantial.

Losers

Consumers will be the biggest losers. As Ro Khanna illustrated in a Tweet, with Net Neutrality consumers pay $54.99 a month for social media, gaming, email, and video. Once Net Intervention is the rule, they will pay different amounts for each type of content — say, $12.99/month for social media, $14.99 for gaming, $8.99 for email, and $17.99 for video.

Net Intervention will leave it up to Comcast and the other ISPs to decide how much you will pay to access different websites. If ISPs want to charge a premium to access Netflix or Facebook, it’s possible that those big companies will eat the higher cost rather than passing it on to consumers in the form of higher prices.

But given how addicted consumers are to these content providers, the odds are greater that consumers will gulp and pay more to satisfy their addictions.

Startups and venture capital firms will also suffer. After all, startups generally try to keep their prices much lower than more established competitors in order to get lots of users quickly.

With Net Intervention, the FCC will give startups a choice — pay a premium to deliver their content at the same speed as the big players and lose more money — or pass that higher cost onto consumers and grow more slowly.

That, in turn, will give their venture capital backers a choice. Write bigger checks to cover the higher costs that their startups will need to pay to compete, or let them twist in the wind — ultimately leading the venture firms to take more write-offs of failed investments.

In the Middle

Perhaps Net Intervention will end up being good for the biggest content providers like Facebook, Google, and Netflix since it will eliminate many upstart rivals.

If you want to participate in Pai’s profit party, perhaps you should pour your money into Net Intervention’s winners.