The FCC’s “fast lane” rule is awful for the Internet—just ask the FCC

FCC Chairman Tom Wheeler is in damage-control mode today after word leaked that potential new "net neutrality" rules are anything but neutral.

The proposal would formalize pay-for-play arrangements in which streaming video companies and other types of Web services pay Internet service providers for a faster path to consumers over the "last mile" of the network.

A statement issued by Wheeler responded to what he called "reports that the FCC is gutting the Open Internet rule." The chairman says that idea is "flat out wrong. [Today], we will circulate to the Commission a new Open Internet proposal that will restore the concepts of net neutrality consistent with the court's ruling in January. There is no 'turnaround in policy.' The same rules will apply to all Internet content. As with the original Open Internet rules, and consistent with the court's decision, behavior that harms consumers or competition will not be permitted."

But Wheeler didn't deny that his new proposal will allow the types of "fast lane" arrangements that the FCC repeatedly warned against in its 2010 Open Internet Order. That order was recently struck down by a court decision, forcing the FCC to write new rules and justify them using different legal authority.

The FCC could have reinstated all the rules in that order by reclassifying ISPs as common carriers, but it chose not to. On the plus side, Wheeler says the new rules will prevent "blocking of lawful content" just as the old ones did. But payments in exchange for an Internet fast lane will be allowed as long as they're "commercially reasonable," a much lower standard than the one adopted in 2010.

ISPs will totally take advantage of this, says 2010 FCC

What are the consequences of this decision? Let's ask the 2010 version of the FCC, led by previous commissioner Julius Genachowski. Here are some relevant quotes from the Open Internet Order. ("Edge providers" are companies that offer services over the Internet, such as Netflix or Skype.)

[I]f permitted to deny access, or charge edge providers for prioritized access to end users, broadband providers may have incentives to allow congestion rather than invest in expanding network capacity.

Broadband providers would be expected to set inefficiently high fees to edge providers because they receive the benefits of those fees but are unlikely to fully account for the detrimental impact on edge providers’ ability and incentive to innovate and invest, including the possibility that some edge providers might exit or decline to enter the market... Moreover, fees for access or prioritized access could trigger an “arms race” within a given edge market segment. If one edge provider pays for access or prioritized access to end users, subscribers may tend to favor that provider’s services, and competing edge providers may feel that they must respond by paying, too.

Fees for access or prioritization to end users could reduce the potential profit that an edge provider would expect to earn from developing new offerings, and thereby reduce edge providers’ incentives to invest and innovate. In the rapidly innovating edge sector, moreover, many new entrants are new or small “garage entrepreneurs,” not large and established firms. These emerging providers are particularly sensitive to barriers to innovation and entry, and may have difficulty obtaining financing if their offerings are subject to being blocked or disadvantaged by one or more of the major broadband providers.

If broadband providers can profitably charge edge providers for prioritized access to end users, they will have an incentive to degrade or decline to increase the quality of the service they provide to non-prioritized traffic. This would increase the gap in quality (such as latency in transmission) between prioritized access and non-prioritized access, induce more edge providers to pay for prioritized access, and allow broadband providers to charge higher prices for prioritized access. Even more damaging, broadband providers might withhold or decline to expand capacity in order to “squeeze” non-prioritized traffic, a strategy that would increase the likelihood of network congestion and confront edge providers with a choice between accepting low-quality transmission or paying fees for prioritized access to end users.

The fact that Internet users have few choices of broadband providers makes pay-for-play even worse than it would be in a competitive market, the 2010 FCC reasoned:

Although these threats to Internet-enabled innovation, growth, and competition do not depend upon broadband providers having market power with respect to end users, most would be exacerbated by such market power. A broadband provider’s incentive to favor affiliated content or the content of unaffiliated firms that pay for it to do so, its incentive to block or degrade traffic or charge edge providers for access to end users, and its incentive to squeeze non-prioritized transmission will all be greater if end users are less able to respond by switching to rival broadband providers. The risk of market power is highest in markets with few competitors, and most residential end users today have only one or two choices for wireline broadband Internet access service.

[T]hose that can switch broadband providers may not benefit from switching if rival broadband providers charge edge providers similarly for access and priority transmission and prioritize each edge provider’s service similarly. Further, end users may not know whether charges or service levels their broadband provider is imposing on edge providers vary from those of alternative broadband providers, and even if they do have this information may find it costly to switch.

Broadband providers have incentives to interfere with third-party Internet services that compete against their own TV and phone offerings, the FCC noted. To top it all off, there's no reason to believe that ISPs will use fees from content providers to lower prices to customers, the commission said:

By interfering with the transmission of third parties’ Internet-based services or raising the cost of online delivery for particular edge providers, telephone and cable companies can make those services less attractive to subscribers in comparison to their own offerings.

Some commenters contend that, in the absence of open Internet rules, broadband providers that earn substantial additional revenue by assessing access or prioritization charges on edge providers could avoid increasing or could reduce the rates they charge broadband subscribers, which might increase the number of subscribers to the broadband network. Although this scenario is possible, no broadband provider has stated in this proceeding that it actually would use any revenue from edge provider charges to offset subscriber charges.

Fast forward four years, and now the FCC is trying to justify a proposal that allows Internet fast lanes.