Not All Internet Content Created Equal

A decision with huge global implications transpired in mid-January, when the US Court of Appeals struck down a Federal Communications Commission (FCC) order from 2010 that forced Internet service providers (ISPs) like Verizon, AT&T, Comcast and Time Warner Cable to abide by the principles of net neutrality. Under previous net neutrality rules, ISPs had to treat all content accessed over the Internet as equal, without speeding up traffic from websites/content providers they have agreements with or throttling competitors' traffic where there is no agreement.

The decision to revoke net neutrality therefore allows ISPs to force websites to pay for faster delivery of their content. This issue has been simmering for some time, and is due to come to a head, as broadband providers are under ever greater pressure to speed up their connections and increase capacity from users who want to watch binge-watch Netflix or play high-quality video games for hours on end. The problem is that Verizon doesn't make any extra money from users watching hours of video, and so there is no incentive for it to continue investing without passing on these extra costs to consumers.

While the January decision is good news for ISPs, content providers and innovators will suffer from having to pay for prioritisation. This will particularly affect smaller start-up companies which lack the ability to pay for faster traffic, potentially killing off the next Twitter or Spotify service before it can take root, by creating an unequal playing field.

While the debate rages on between ISPs and content providers, consumers will see a change in the way they access their favourite websites and applications. Whichever side wins in the net neutrality debate, BMI expects to see a rise in prices for consumers, as the extra costs will inevitably be passed on. It will also change the way consumers access content and the internet, including a dreaded 'pay for what you use' system, and a slowing of websites that ISPs don't get revenue from.

This is mainly a problem for companies in developed markets at the moment, but the decision in the US court is likely to have a global impact. Other markets will look to the US to set the tone on net neutrality, and are likely to follow in its footsteps.

Following the mid-January court decision, the FCC chairman stated on February 12 that he will issue plans to 'rescue' net neutrality 'in the coming days'. US President Barack Obama has also reiterated his support for an open internet, and a group of senators (from both parties) in February proposed an emergency bill to protect net neutrality. While recent developments generally seem to be designed to protect net neutrality, we do not expect the debate to be resolved easily.

BMI's Quick Views

  • Immediate term: No change for subscribers, as the key players consider their positions.
  • Medium term (over the year): Operators will experiment with new charging strategies, prioritising negotiations with major 'bandwidth hog' content providers.
  • Long term: Higher costs for consumers to access online content, either from operators or content providers increasing their pricing.

Further analysis of all the latest trends affecting the global telecommunications sector is available to subscribers at Business Monitor Online.