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NEW YORK (
Verizon(VZ - Get Report) and the
Federal Communications Commission are poised to re-open a debate on net neutrality, or the ability for Internet service providers to prefer some users over others, in a court battle that could have big implications for media industry upstarts like
Netflix(NFLX - Get Report),
Pandora(P - Get Report).
Net neutrality is considered by freedom of speech advocates to be the lynchpin of fair Internet access in the U.S., allowing for equal treatment among Web sites irrespective of their size or the services they offer. Charging for broadband data usage could give rise to a media industry where only the richest content providers have the ability to make their voices heard, some freedom of speech advocates argue.
While Verizon's court battle with the FCC does have clear freedom of speech implications, in the near-term the biggest issues of the case are likely to be economic. Cable and telecom giants such as Verizon believe they should have a say on how to charge for data after spending billions of dollars to build out high speed nationwide Internet service.
Verizon is challenging a 2010 Open Internet Order ruling by the FCC, which said that Internet service providers could not block or discriminate against Web traffic, ultimately giving all sites equal access to the Internet. For high users of Internet data such as Netflix, Amazon and traditional broadcast and cable channels, the decision has allowed them to build out streaming video services and dominate Web data usage on most nights.
An overruling of the FCC's Open Internet Order could pave the way for ISPs such as Verizon and
AT&T(T) to charge high users of broadband data, in a move that could pose a threat to the fast growth of streaming media services. The prospect that a Federal Court overturns the FCC's order could also shut the agency out from regulating competitive dynamics within the broadband market.
"[The] case has the potential to open a Pandora's box of cable and telecom issues, from who pays what to whom for transport to whether it is or isn't anti-competitive for cable operators to impose usage caps and charge for usage," Craig Moffett, co-head of research firm
MoffettNathanson wrote in a Sept. 6 note. He expects the FCC will lose, given the precedent set by an appeal filed by cable giant
Comcast(CMCSA) against its order in 2010.
The FCC will argue that broadband falls within its jurisdiction because the commission is responsible for a timely deployment of broadband service, according to Moffett. That would contrast to previous instances where the FCC was seen as looking for a way to use its purview over the telecom industry to impose price regulation on the broadband services.
If the FCC loses, it raises the prospect of a re-pricing of broadband data that could pose a threat to streaming video services. Recently, some have speculated that a possible wave of cable industry mergers could be the precursor to
tiered broadband pricing. Usage-based pricing could undermine the business models of high intensity video services such as Netflix and Amazon Prime.
"As we've argued many times before, Net Neutrality was never really about the high minded principles of non-discrimination and First Amendment censorship. It is about who pays what to whom," Moffett wrote.