DC rule: Will telecoms charge Facebook and Google’s YouTube service

Following the DC verdict on Tuesday, will telecoms such as Verizon and AT&T start charging web content vendors such as Facebook, Netflix and Google’s YouTube service?

The answer is “may not be immediately.” But at a later stage Facebook, Netflix and Google’s YouTube service will be prompted to pay to telecom service providers to carry their huge content on their networks. In India, Bharti Airtel raised such demand last year.

Airtel, a leading 3G and 4G operator in India, is keen to charge Facebook and YouTube for carrying their content on its network.

Tuesday’s DC ruling in the case FCC v/s Verizon case will have repercussions in other telecom markets including India as well.

The Wall Street Journal on Tuesday reported that the rejection of the core of the American government’s net neutrality rules is the first step toward a gradual shift in how broadband networks are paid for.

By tossing out the Open Internet rules written by the Federal Communications Commission in 2010, Internet service providers are now free to experiment with new types of arrangements, such as charging content companies like Google or Netflix higher fees to deliver Internet traffic faster, more seamlessly or in greater quantity, or degrading the quality of certain online content unless its creators are willing to pay.

FCC to appeal

FCC chairman Tom Wheeler raised the possibility of appealing the decision, meaning further litigation could delay the effects. It’s also possible that the FCC could decide to reclassify broadband service as a telecommunications service, making it possible for the FCC to re-impose the net neutrality rules. Such an action would face tough opposition, however.

The ruling is a victory for Verizon and other Internet service providers that are seeking new revenue streams. Netflix and Google’s YouTube service account for about half of all downstream traffic on fixed networks, according to Internet traffic analytics and management firm Sandvine. Several cable executives have said they would be interested in charging such heavy users for the bandwidth consumed when delivering their services.

Verizon response

“Today’s decision will not change consumers’ ability to access and use the Internet as they do now.  The court’s decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet, which provides consumers with competitive choices and unblocked access to lawful websites and content when, where and how they want. This will not change in light of the court’s decision,” said Randal Milch, Verizon’s executive vice president, public policy, and general counsel.

The D.C. Circuit Court of Appeals issued its much-anticipated decision in Verizon vs. FCC.  The court rejected Verizon’s position that Congress did not give the Federal Communications Commission jurisdiction over broadband access.

At the same time, the court found that the FCC could not impose last century’s common carriage requirements on the Internet, and struck down rules that limited the ability of broadband providers to offer new and innovative services to their customers. The court upheld the commission’s disclosure rules.

In June, cable major Liberty Media Chairman John Malone said that “Reed has to bear in his economic model some of the cost of the capacity that he’s burning,” in reference to Netflix CEO Reed Hastings.

Response from Google and Netflix

Google and Netflix pointed to a statement from the Internet Association, which wrote, “We look forward to studying the D.C. Circuit’s opinion and working with the FCC and policymakers on the Hill to protect Internet freedom.”

Comcast won’t be able to immediately take advantage of the new freedom. To get government approval for its acquisition of NBC Universal, Comcast agreed to abide by the Open Internet rules until 2018 regardless of the outcome of this case.

Verizon DC rule

AT&T response

AT&T pointed to a statement from Broadband for America saying that “We have built our Internet services on this foundation of openness. Today’s decision does not change that commitment.”

Net neutrality advocates fear that if Internet service providers are allowed to prioritize and discriminate against online content, they might degrade websites owned by competitors. For instance, Verizon offers its own online movie streaming service through Redbox Instant and not offer Netflix the same level of service unless it pays up.

Verizon has insisted it isn’t interested in blocking content. Rather, it is hoping to unlock a new marketplace by offering premium services to companies willing to pay more to deliver content faster or more seamlessly to end users.

The wireless industry had been largely exempted from net neutrality rules, because the government determined it was a less mature network and companies should be allowed more freedom to manage traffic.

Last week, AT&T set up a program under which content companies can pay the cost of data delivered to subscribers. That would let a movie studio, for example, push previews of new films to wireless users and cover the cost of the data so it doesn’t land on users’ bills. The move, billed as Sponsored Data, could foreshadow similar offerings in home broadband.

The court’s ruling is likely to encourage Web firms to continue investing in telecom infrastructure as a hedge against the newfound power of Internet service providers. Companies such as Google and Facebook have been buying fiber cables, and Google has already built and operates a broadband network in Kansas City and has plans to expand to Austin, Texas and Provo, Utah.

Net neutrality mandates that providers can’t discriminate in delivering their Internet services. It bars broadband providers — mainly cable TV and phone companies — from blocking Internet content or slowing down access to online content in any discriminatory manner.

The ruling could give broadband providers more room to charge content companies, say Netflix, higher rates to deliver their content at higher speeds to their customers.

The court, however, also said the FCC has general authority over how companies provide broadband services, and no doubt there’s a long way to go on this issue. The ruling also could be appealed to the U.S. Supreme Court.

The largest providers on Tuesday pledged that they would not restrict customers on the web, but consumer advocacy groups worry that Internet network owners may begin charging content providers such as Netflix, Facebook or sports broadcaster ESPN for faster Internet speeds, Reuters reported.

President Barack Obama, whose 2008 campaign platform included net neutrality, will continue to work with the FCC, Congress and the private sector to preserve a free and open Internet, the White House said on Tuesday.

“The President remains committed to an open Internet, where consumers are free to choose the websites they want to visit and the online services they want to use, and where online innovators are allowed to compete on a level playing field based on the quality of their products,” the statement said.

editor@telecomlead.com