What Is Net Neutrality, and Why the War of Words?

An image of a pair of glasses on a newspaper Credit: Shutterstock photo

You know that an issue has heated to boiling point when the opposing sides roll out the hyperbole. That is why the issue of net neutrality has now been defined as either a) a threat to the survival of the Internet as we know it, or, 2) yet another socialist plot to undermine American capitalism.

Deciding which it is will be important to us all, as consumers and as investors. Unfortunately, the decision in this case belongs to three members of a US Court of Appeals who this week began hearing arguments in a case brought by Verizon ( VZ ) against the Federal Communications Commission (FCC).

Although Verizon is the name brand in the case, the decision is of equal importance to AT&T ( T ), Comcast (NASDAQ:CMSCA) and Time Warner ( TWX ), the companies that together provide most Americans with broadband Internet service.

Their argument is that the FCC does not have the authority to require broadband providers to give their customers equal access to all legal Internet content. That is, the providers must maintain "net neutrality," according to a document issued by the FCC in 2010.

For example, AT&T may not offer some content providers or consumers "express lane" broadband delivery for a premium price. That would mean that shoestring startups would get inferior delivery speed, a virtual kiss of death.

Or, Comcast cannot give the speediest delivery to its own CNBC.com, while relegating smaller media outlets to the slow lane. And Time Warner can't fast-lane Hulu but punish Netflix ( NFLX ), or vice versa, depending on which of those video services carried its own programming.

None of the above has ever happened. (Okay, it happened once. Comcast apparently slowed delivery of a site accused of permitting downloading of pirated content.)

And that makes some question why there's all this fuss about a hearing in Washington. ZDNet makes the point in a headline: "Nonsensical Net Neutrality Trial to Begin."

It's a fair question. But it's also possible that the broadband providers never favored some content to the detriment of other content because they were expressly forbidden to do so by the FCC. And if they have never considered doing it, why did they hire lawyers to argue that the FCC has no authority to make the rule?

But let's move on to the hyperbole, because it illustrates the worst-case scenarios of both sides of the argument in black and white, and because it's more fun.

The Case for Net Neutrality

The argument in favor of continuing the net neutrality rule is made in a "mockumentary" sponsored by a coalition of organizations.

"The Internet Must Go" is a short film that follows a misguided market researcher for the telecoms. He tries to persuade people to oppose net neutrality so that these four powerful American corporations will be free to package the Internet as they choose, effectively selecting the programming that their subscribers can get. Think cable television model.

The market researcher eventually is made to understand that net neutrality is an essential element of the Internet, one that has enabled penniless entrepreneurs to compete with the biggest brands in America-and win.

The Case Against Regulation

Those who are not in favor of net neutrality say they oppose any attempt to regulate the Internet. More accurately, they oppose any attempt to regulate the companies that deliver the Internet.

Forbes.com contributor Wayne Crews argues that regulation is "fundamentally hostile to property rights in infrastructure, and in turn, hostile to consumer welfare."

The anti-regulation forces argue that businesses built the infrastructure that delivers the Internet, at considerable cost. Regulating it risks eliminating incentives for them to expand and improve their product, and for other private enterprises to jump into the game and offer new and better services.

And that explains why this issue has become a political hot button. President Barack Obama favors net neutrality. Many Congressional Republicans oppose it.

The arguments actually being presented to the appeals court are quite different.

Verizon argues, in part, that the FCC has no power to regulate its business, and is violating Verizon's First Amendment rights to exercise "editorial discretion."

The response, in support of the FCC, is that a broadband provider "is no more the publisher or speaker of third-party content than is the postal service delivering letters or the maker of the soapbox on which a speaker stands."

A decision in the case is not expected for several months. And whichever way it goes, the issue may wind up being debated all over again-in Congress. The debate over net neutrality is adding pressure for a reconsideration of the FCC, and what its role in the Internet era is.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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