You may have read some of the headlines or seen the trending hashtag #FreeTheInternet. Everyone’s talking about net neutrality. It may be a hot topic, but few people actually understand the true consequences of the proposed regulation repeal. We must first understand what exactly net neutrality is if we are to use our financial fluency knowledge to understand what’s at stake.
What is net neutrality?
In 2015, the Federal Communications Commission (FCC) passed regulation to force all Internet Service Providers (ISPs) to treat all data on the internet the same. Specifically, ISPs could not charge users different amounts, alter the connection speeds of different sites, or discriminate of any sort. However, the FCC recently proposed to repeal this regulation, once again allowing ISPs to treat its customers differently depending on payments or personal relationships.
Think about it like this: imagine an airplane. Right now, we are riding on a plane where every seat costs the same, provides the same leg room, and even allows every rider to have the same view outside the plane. As you can see, we are all equals on this plane. However, under the proposed reform, we would add first class to our plane (in fact, we’d probably add several more tiers of classes rather than the real-life scenario of only first class). And to make matters worse, you have had some issues with the airline before, so they made sure to give you the seat with the least amount of legroom.
If net neutrality laws are repealed, ISPs will be able to treat their customers like this airline. ISPs can offer the largest companies, like Netflix (NFLX) and Disney (DIS), incentives to purchase the fastest speeds in order to attract more viewers to their streaming sites. The largest companies will be able to pay these fees while all smaller sites with similar content will lose their customers due to the leaders of the industry. Not only can they offer faster connection to the companies who pay the most, but they can also make sure your content is slower than everyone else’s.
But how will this affect our marketplace? Let’s use our financial fluency tools to take a deeper look.
We have already seen the immediate impact of this proposed reform in the recent AT&T (T) bid to acquire Time Warner Cable (TWX). The Justice Department recently filed a lawsuit to block AT&T’s proposed $85.4 billion bid due to monopoly concerns. ISPs can now treat its customers differently, therefore AT&T would be able to slow down Time Warner content on streaming sites that do not pay its highest fees. With the entire internet no longer being treated equally, the Justice Department must be extra wary of potential monopolies taking advantage of the market. If we see the proposed net neutrality reform pass, one would hope regulators will put mergers and acquisitions in the industry under more scrutiny as a result of these monopoly concerns – but there are no guarantees.
Although we cannot confidently bet on the smaller sites losing customers as many of them are not publicly traded or discussed, we can bet on the opposite. Tech giants like Netflix, Facebook (FB) and Alphabet (GOOGL) will be able to pay for the fastest delivery speeds, so they will all see a bump in users. They are already industry giants, however, they will only grow under the reformed regulation since they are the richest companies. Only the wealthiest can afford first class while the rest of us are relegated to economy.
Net neutrality has far-reaching impacts from the speeds of the shows we watch to the expansion of some of the internet’s largest sites. The vote on the proposed repeal will take place on December 14th., and it will greatly impact the fairness and democratic nature of the internet. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.