The fall of net neutrality: Cable's plot to destroy the internet

Higher costs and worse service loom on the horizon

Netflix has accused Comcast, AT&T, and Verizon of holding its customers hostage. Last September, Netflix suffered a sudden, simultaneous decline in the speed in which its shows traveled across those companies' networks. Video sputtered and picture quality decayed, while customers of smaller companies like Cox and Cablevision saw no such hiccups.

Video files consume huge bandwidth, and Netflix's avid customer base is prone to binge-watching. That leaves the company accounting for 28 percent of all U.S. web traffic. (By comparison, YouTube is second at 17 percent.)

Comcast, AT&T, and Verizon felt Netflix should pay for all that traffic — and had the leverage to do it. Netflix ultimately caved and paid Comcast and Verizon (but not AT&T) undisclosed sums. Just as quickly, users on Comcast saw an extraordinary jump in quality.

With colleagues slathered in money, Al Franken is among the few to make a fuss
With colleagues slathered in money, Al Franken is among the few to make a fuss

The whole episode has the appearance of extortion. It also demonstrates the power of internet providers to make or break services.

Even after paying the ransom, Comcast users still experience slower Netflix speeds than Cox and Cablevision customers. But if it wanted to maintain its business, Netflix had no choice but to pay.

"Comcast knows it can charge Netflix more," says Mitchell. "Netflix had to choose between watching their business model crumble and paying Comcast a toll to access its customers."

While Professor Odlyzko appreciates Netflix's complaint, he's not all that sympathetic. He notes that Netflix is also trying to create its own content monopoly. For the moment, Amazon and Hulu are distant also-rans with under 3 percent of web traffic combined.

"One of the things that made me reluctant to get involved in the net neutrality debate is that at the moment most of the public's attention is attracted to a struggle between very big monopolistic companies — telecoms on one side and Netflix on the other," Odlyzko says. "A lot of what you hear is basically posturing by the sort of big guys that at some stage may need to be regulated."

Closing off the internet

Odlyzko is more worried about small companies like the UpTake, a nonprofit online news organization in the Twin Cities. Seven years ago, Executive Director Jason Barnett and his partners recognized how their video could reach small, dedicated audiences.

UpTake has covered stories involving hours of streaming video in a way no broadcast station would dare, from real-time footage outside the 2008 Republican National Convention to live coverage of the Franken election recount. It also live-streams Minnesota legislative sessions.

"During the RNC we were using live-stream video through cellphones and were able to show what was happening at a street level to an international audience," says Barnett. "It was a ton of fun, crazy, and kind of shocking what we went through to do that. None of that would've been possible without easy access to the internet and being able to live stream video."

Believe it or not, there's money in this so-called "long tail" form of coverage. The UpTake has built a catalog of over 6,000 videos on its YouTube channel. Small, independent operations are making a living appealing to narrow niches, rather than fighting in the mainstream marketplace for a sliver of mass attention.

"[The videos] all generate revenue for you, a penny at a time, and it adds up." says Barnett. "It's not a lot of money, but enough money to pay our rent and a couple other bills. That's really what the internet provides. You can develop a sustainable business if you're able to capture enough of these niche audiences."

Those audiences are the very people Congressman Ellison fears will be left behind. If it's forced to pay more for decent internet speed, the UpTake will likely see its tight profits turn to losses. This added pressure weighs especially heavy on newborn companies with little money. It's especially troubling for an economy that's witnessed declining entrepreneurship over the past quarter-century.

For consumers, video and live-stream music will either face slower speeds or higher prices under Wheeler's proposal.

"I'm worried we're pulling the ladder up after some big boys have gotten on top of the roof," says Ellison. "We don't need a situation where these big companies, once their fortunes are made, solidify their position by closing off the internet."

Returning fire with paper

After Wheeler's plan was announced, nearly 150 tech companies sent a letter to the FCC, arguing against the fast lanes. "The open internet," they wrote, is "a central reason why the internet remains an engine of entrepreneurship and economic growth." Amazon, eBay, Facebook, Google, Microsoft, Netflix, Twitter, and Yahoo were among the signees. (Apple was conspicuously absent.)

A day later, 50 venture capital firms also sent a letter, noting how often they invest in fledgling companies trying unproven ideas. Since then, there have been reports of a decline in tech investments over fear that new companies will be placed at a disadvantage.

"Without lawyers, large teams, or major revenues, these small start-ups have had the opportunity to experiment, adapt, and grow, thanks to equal access to the global market," investors wrote to Wheeler. They worry that ISPs will favor their own offerings or discriminate against competitors. "They just need to create a credible threat so that investors like us will be less inclined to back those companies."

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