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Updated Feb. 27, 2015: The net neutrality debate has finally come to a head...
The Federal Communications Commission (FCC) approved new net neutrality rules in a 3-2 vote yesterday, Feb. 26.
From now on, Internet service providers (ISPs) like Comcast Corp. (Nasdaq: CMCSA) and Verizon Communications Inc. (NYSE: VZ) are prohibited from speeding up access to some websites just because those sites are willing to pay for a faster connection.
Instead, the Internet will be treated as a public utility, like telephone services. Customers will be able to browse websites equally - from large corporate sites to your sister's cooking blog - without ISPs throttling load times of those they wish to leverage.
The Feb. 26 decision followed a Feb. 4 Wired op-ed in which FCC Chair Tom Wheeler came out in full support of net neutrality. Wheeler's position came as a surprise to some. He is a former lobbyist for cable and cellphone industries.
"This is the closest the agency's come to a mic drop in a long time," daily newsletter The Skimm quipped after the move.
That's not an overly dramatic assessment.
You see, the FCC's weighty decision marks the most significant rewrite of Internet rules of all time.
Here we dig into exactly what the net neutrality debate is.
The Net Neutrality Debate Took Seed in January 2014
A Jan. 14, 2014, decision by the U.S. Court of Appeals for the District Columbia Circuit set the stage for a hot net neutrality debate over the past year. The court ruled ISPs are free to manage traffic as they see fit, without interference by the FCC.
ISPs didn't hesitate to take advantage.
Giant providers like Comcast and Verizon intentionally slowed their service for U.S. consumers watching Netflix Inc. (Nasdaq: NFLX) content.
Their plan was to leverage money from the video streaming company - and it totally worked. In late February 2014, Netflix paid Comcast an undisclosed sum to take the handcuffs off its data for a number of years.
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That's not all. Since the ruling, the big ISPs - particularly AT&T Inc. (NYSE: T) - have submitted a slew of patents that try to capitalize on the FCC's limitation.
Crucially, the court's decision left wiggle room for the FCC.
You see, the FCC has the power to reclassify ISPs as "common carriers." Common carriers are private companies that sell their service to everyone on the same terms, regardless of location and other differing factors. This power ties back to the fact that Congress originally created the FCC to regulate phone companies, to make sure people had equal access to phone service at reasonable prices. The same idea applies to utilities like water and electric.
Reclassification of ISPs as common carriers is a big deal. That's what has set up so much dissonance among ISPs, Capitol Hill, and the public - and billions of dollars are at stake.
A Look at Both Sides of the Net Neutrality Debate
Net neutrality opponents fear the reclassification of ISPs as common carriers will open the door for government control and socialism.
"The threats from Washington to stifle freedom, entrepreneurship, and creativity online have never been greater," Senator Ted Cruz (R-Texas) wrote in an op-ed for the Washington Post on Nov. 12. "Washington politicians want the money, and they want more and more control over our speech."
Another net neutrality con is the reclassification of broadband as a utility could stifle growth - think infrastructure, enhancements, and innovation. A company's going to be less incentivized to improve its service if there's little or no return on investment (ROI).
In fact, Comcast said the decision yesterday "is certain to lead to years of litigation and regulatory uncertainty and may greatly harm investment and innovation." The company added it would reexamine its own broadband "investment plans" in light of the new rules.
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Advocates disagree with this view. They argue that oligopoly is not free enterprise - the concentration of power in the ISP world has done little for pricing or growth.
Instead, those for net neutrality argue that all Internet traffic should be treated equally. They cite ISP behavior toward Netflix last year, saying it proves ISPs have zero compunction about unfairly regulating data flow to extort money from Internet-based companies.
On Nov. 10, 2014, U.S. President Barack Obama issued a statement that called for "the strongest possible rules" to protect an open Internet. He wanted to see the FCC classify broadband services as utilities. That's why President Obama called Thursday's vote "a win for the open Internet."
Several organizations and Internet companies agreed with the president. "The net neutrality debate is about who picks winners and losers online: Internet service providers or consumers. Today, the FCC settled it: Consumers win," Netflix said in a statement soon after the FCC's decision.
The Net Neutrality Debate Is Still Far from Over
The ISPs stated Thursday they will fight the FCC's decision in court. That means the net neutrality debate is here to stay in coming months.
Stay tuned to Money Morning for updates. And don't forget to share your opinion on net neutrality at our Facebook page, here - we want to hear from you!
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