Netflix the Biggest loser from net Neutrality repeal
It’s common to blame “bad Internet” for caton, but if your Internet provider happens to compete with the site you’re watching, the reason may not be so simple. This may sound conspiratorial, but it has caused a business dispute in the US, where the government once regulated such phenomena through “Net Neutrality” principles that ensure network providers treat all Internet media platforms fairly.
On The afternoon of December 14, however, the Federal Communications Commission voted 3 to 2 to formally repeal the Obama-era “net neutrality doctrine”. The decision, which has been in the works since the first half of this year, has been met with public protests from Internet media outlets ranging from Netflix, the streaming platform, to Playboy and Pornhub, the world’s largest porn website. With the FCC’s decision on Dec. 14, their efforts have largely failed. What exactly is “net neutrality” and how would its repeal affect U.S. Internet users? Is the repeal of net neutrality a blessing or a curse for the US Internet entertainment industry in the Age of Trump?
What is the “net neutrality principle”?
The principle of net neutrality was first proposed in 2003 by Tim Wu, a professor of media law at Columbia University in the US. It states that Internet Service Providers (ISPs) must treat all content from all parties equally. The five principles of net neutrality proposed by the Obama administration for the FCC in 2014 were: no carriers blocking websites, no slowing down load times, no extra payments for acceleration, the need for greater transparency of service data and regulation of wideband wireless networks. The FCC makes policies based on these principles and can directly restrain and punish operators’ illegal behaviors.
The FCC was authorized by the Communications Act of 1934 to regulate all means of communication in the United States. The act divided the different communications services in the market at the time into private carriers and the “common carrier,” which served the “public interest and demand,” such as telephone and telegraph. The act requires “common carriers” to provide undifferentiated service to all customers, such as telephone companies that cannot cut off phone lines because the content of a call may harm the company’s interests.
Because broadband in the United States was first laid out by telephone companies, the “common carrier” rule was tacitly extended to today’s Internet service. But because the 1930s act did not foresee the invention of the Internet and clearly regulated Internet services, Internet operators remain in a gray area. When the FCC began regulating Internet carriers, carriers refused to recognize the agency’s jurisdiction and sued, saying the law was not clear.
Verizon, the fourth-largest U.S. network operator, sued the FCC in federal court in Washington, D.C., in 2011, claiming that the FCC was overstepping its authority under the law to regulate Internet carriers, and appealed after losing the first case. In 2014, the Washington, D.C., Court of Appeals upheld Verizon’s claim that the FCC did not have the authority to require carriers to enforce net neutrality under the current legal framework. But the court, recognizing the open Internet principle, made it clear to the FCC that it could be regulated by changing the Internet’s status from “information service” to “common carrier.” Accordingly, in February 2015, the FCC voted 3:2 to classify Internet broadband as a common carrier, formally giving legal force to the net neutrality principle.
In addition to the legal loopholes, the principle of net neutrality is also inseparable from the game of party politics. The FCC is made up of five commissioners, and each PRESIDENT has the power to appoint three commissioners, including the chairman, meaning that the FCC’s policy winds could shift radically as the fight between the two parties changes shape. In 2015, during the Obama administration, net neutrality was debated between Democrats and Republicans, with three Democratic commissioners and two Republican commissioners voting 3:2 to uphold the principle. In 2017, president Donald Trump took office and began reappointing the FCC. Ajit Pai, a Republican, chaired the agency, and immediately vowed to overturn Internet neutrality.
In a speech before the December 14 vote, Pai argued that the Clinton-era deregulation of the Internet had successfully stimulated the growth of the Internet industry in the United States, with a significant increase in domestic broadband coverage. In a free environment without government intervention, Internet companies provide consumers with better services through market competition. Rules passed by the FCC in 2015 will limit competition, reduce incentives for operators to invest and hurt innovation. The 3-2 vote was repeated, with the exact opposite result from three years ago.
Channel operators’ “House of Cards”
With the repeal of net neutrality rules, online streaming platforms will be most directly affected. According to a study published in March 2016 by Sandvine, a Canadian Internet policy research institute, the top three Internet traffic users in the US are Netflix (NFLX), YouTube and Amazon Video. Eliminating net neutrality could give network operators direct control over users’ browsing experience and control over streaming.
This concern is not exaggerated. Since 2012, before net neutrality was established, there have been reports from third parties that Internet operators arbitrarily control and slow down the loading speed of some websites, potentially dealing a fatal blow to streaming media, which relies on video clarity and loading speed.
Take Netflix and Comcast, the largest network operator in the United States, for example. Before 2014, Netflix users using Comcast networks suffered from slow video loading, which seriously affected the viewing experience. At its slowest loading point, in December 2013, Netflix users couldn’t even watch normal 720p video on comcast-supplied networks, opting instead for VHS resolution.
Netflix held talks with Comcast in 2014 and earlier that year agreed to pay a premium for faster Internet access. After the preliminary agreement, Netflix’s load times on Comcast jumped 65%. While those talks fell apart in 2015 over net neutrality principles, The additional costs were passed on to Netflix customers: Shortly after the initial agreement was reached in May 2014, Netflix announced that it would raise its monthly fee to $9.99 from $7.99.
Netflix’s embrace isn’t just a victory upstream over downstream in the Internet industry. In 2007, NBC, one of America’s big three television networks, joined with Disney and three other companies to create Hulu, a streaming platform to compete with Netflix. That might seem to have increased competition, but with Comcast’s purchase of a majority stake in NBC from General Electric in 2009, Hulu has a potential advantage that Netflix has struggled to match: If its new owner, Comcast, can provide Hulu with higher loading speeds, Hulu could attract users based on distribution rather than quality and drive them away from Netflix. As net neutrality becomes a thing of the past, network operators are likely to create unfair competition in this way and instead become the rule-makers of the Internet entertainment industry.
Media industry running into monopoly era?
For nearly half a century, America’s telecoms and Internet operators have followed a monopolistic business model. That’s because Internet services require a lot of infrastructure investment, raising the bar to entry, and even deep-pocketed companies like Google have opted to develop their own wireless networks rather than build them.
Under US antitrust law, operators cannot be sanctioned as long as they do not command more than 70 per cent of the market over a wide area. As a result, the major U.S. carriers split up their territories in such a way that even though they are competing nationally, they can monopolize each other in their own territories, leaving customers with no real choice.
To make matters worse, several giants are constantly seeking mergers and acquisitions, and market control is further strengthened. In February 2014, Comcast tried to buy Time Warner Cable, the third-largest U.S. Internet operator, but the justice Department intervened.
Comcast is not alone in its strategy to move from upstream to downstream. In 2016, AT&T, the largest mobile communication operator in the United States and the second largest network broadband operator, announced its plan to acquire Time Warner, the parent company of Time Warner Cable and the third largest entertainment company in the world, which owns influential media such as HBO and CNN. On Nov. 18 of that year, the Justice Department filed an antitrust lawsuit to block the deal. Makan Delrahim, the Justice Department’s Republican antitrust chief, said in a statement: “This merger will hurt American consumers, lead to higher television prices and reduce the availability of innovative entertainment.”
Media consolidation has been going on for decades, long before channel operators entered the media business. Data show that in 1983, 50 companies controlled 90 percent of the MEDIA in the United States. Today, that number is down to six. Now, content giants are merging with channel giants to gain greater control and dominate both upstream and downstream of the industry. With full competition gone and individual creators and consumers utterly disadvantaged, perhaps in the near future three or four groups will carve up the entire US media market, leaving users to pick and choose from a limited selection of content.
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