Small ISPs and Net Neutrailty

Network_neutrality_poster_symbolLast week a small ISP asked me if they should be concerned about the potential end of net neutrality. It’s clear that the new FCC chairman is either going to reverse the net neutrality order completely or hobble it significantly. My response to the question comes in several parts.

First, net neutrality has had virtually zero impact on small ISPs. It is inconceivable to me that a small ISP could somehow find a way to violate the basic principles of net neutrality. It’s not something a small ISP can do on their own and they would have to somehow make a deal with a content providers that would give them the ability to discriminate against customers or against other carriers.

If anything, not having any real market power can be turned into a marketing advantage. Small ISPs should be advertising the fact that they are the one ISP in the market that does not spy on customers. Small ISPs generally offer bandwidth with few strings attached – customers are free to use what they buy in almost any manner.

If net neutrality goes away the real impact is going to come when the big carriers begin offering products that give them an unbeatable market advantage. We already have a hint at what such products are like by looking at the cellular carriers. It’s clear that AT&T and Verizon are each heading down a path where they can offer cellular customers free access to certain video content while charging all other data use against stingy data caps. And, with net neutrality going away, industry analysts expect them to step this up and begin offering exclusive content to their cellular customers that they can’t get elsewhere.

But that’s not the end game. The product that net neutrality is aimed to protect us from is what is called a curated web. Consider, for example, that some of the content providers join together to partner with AT&T. This could be traditional programmers like ESPN or newer content providers like Facebook or YouTube. These companies could help to subsidize customer data plans to entice people to buy a curated web product.

Such subsidies could mean cell plans that significantly less expensive than normal cellular service, but which comes with all of the web access baked-in. The content providers would encourage you to only use their portal. They would control which browser you use. They would control your search engine. And they would advertise specifically to you and collect everything they can about your preferences, buying habits, social contacts, etc. A curated cellphone product would severely curb a user’s ability to get to other content.

Such a product could become popular if it bundles in things people already like such as Facebook, YouTube and other popular web sites. The upside to the content providers is that they have exclusive control of you for purposes of data gathering and advertising – and they ought to be willing to pay for that right. And customers are going to love the savings.

You might ask, “Why worry about cellphone plans? I don’t compete against them.” Well, there is nothing to stop curated web plans from coming to landline broadband as well. Comcast might have a normal broadband product at $60, but a curated one at half that. A company like Comcast could offer multiple curated web products – perhaps one from Facebook, a sports package from ESPN, another that focuses on Star Trek and science fiction, and so on.

These curated plans don’t sound bad if somebody comes out with one that you would find of interest – and that is the danger. People are likely to want such plans if it saves money and has a lot of the content they already use.

But curated web access has several big problems. First, they give the ISP that offers them a major market advantage over any competition in the market. It’s hard for anybody else to compete against a web product that has been paid down to be under market rates by a content provider like Facebook. Second, the curated web will stifle new web content providers. It’s easy to think that companies like Facebook and Google are so large on the web that they can’t be supplanted by something else. But it has only been a few years since when the web was dominated by companies such as AOL, Yahoo and others. It’s almost in the nature of the web that people’s tastes in web content changes over time, sometimes rapidly. The next Google or Facebook is never going to get traction if a huge chunk of the web is curated by the current content giants. In that environment we might still be seeing a Facebook-curated web a century from now – and that would be an innovation killer.

But, to circle back to the original question: Small ISPs are not harmed today by net neutrality. But if it’s taken away, the big ISPs have already given us hints on what they’ll do – and it is those actions that will ultimately disadvantage small ISPs along with anybody else that wants a web which constantly innovates rather than one that would stagnate.

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