Net Neutrality and What It Really Means

Net Neutrality and What It Really Means

So often issues are brought to Americans and sold with partial truths or some agenda. If the media is doing their job, they should give an impartial view of such legislation. Unfortunately it seems we have a media that is as polarizing as our congress which means that no one really gets the truth until it is to late. If you are on the left, you ignore and villainize the right, if you are on the right, you ignore and villainize the left.  It should not be this hard, but when we depend on listening to the narrations of the left, right, or the press on either side, we get legislation such as Net Neutrality.

Why is this bad you may ask, after all it “keeps the internet free and open”. Sure a great story line, easy to sell, and the press jumps on board both feet in.

What if I said the way the government implemented Net Neutrality will:

  1. Increase you taxes on your broadband bill.
  2. Increase you broadband rates.
  3. Slow your speed down.

Would you support it?  I doubt it, but in reality this is what will happen.  I come from the industry and have prepared arguments to the FCC on a host of issues on behalf of consumers ISP users.  So why would I make seemingly opposite arguments to what was sold to the consumer?

First, a reminder of what happened.  The FCC ruled in favor of Net Neutrality and choose to enforce it using one of the most complex and tax heavy legislation called The Telecommunications Act of 1996.


From the FCC’s Press Release:

The Order provides the strongest possible legal foundation for the Open Internet rules by relying on multiple sources of authority including both Title II of the Communications Act and Section 706 of the Telecommunications Act of 1996. At the same time, the Order refrains – or forbears – from enforcing 27 provisions of Title II and over 700 associated regulations that are not relevant to modern broadband service. Together Title II and Section 706 support clear rules of the road, providing the certainty needed for innovators and investors, and the competitive choices and freedom demanded by consumers, while not burdening broadband providers with anachronistic utility-style regulations such as rate regulation, tariffs or network sharing requirements.First, the Order reclassifies “broadband Internet access service”—that’s the retail broadband service Americans buy from cable, phone, and wireless providers—as a telecommunications service under Title II. This decision is fundamentally a factual one. It recognizes that todaybroadband Internet access service is understood by the public as a transmission platform through which consumers can access third-party content, applications, and services of their choosing. Reclassification of broadband Internet access service also addresses any limitations that past classification decisions placed on the ability to adopt strong open Internet rules, as interpreted by the D.C. Circuit in the Verizon case. And it supports the Commission’s authority to address interconnection disputes on a case-by-case basis, because the promise to consumers that they will be able to travel the Internet encompasses the duty to make the necessary arrangements that allow consumers to use the Internet as they wish.

The Telecommunications Act of 1996 provides a wide range of rules on how our current Telecommunications is governed that is not really important unless you are a high cost lawyer or own a Telecom company.  What is important, however, to the average consumer is that now, for the first time ever, internet service is considered a Telecommunication Service.  So what, why does that matter?  It matters because ever local, state, and federal agency has taxes in their jurisdiction for telecommunication services.  In fact, the taxes are so complex, so burdensome, and so vastly different from state to state that if you provide Telecommunication Services you need an advanced tax team and multi-million dollar tax software to do proper billing.  Internet service has always been exempt from these taxes due to the internet tax freedom act.  This allowed the internet to grow in its infancy without the burden of taxes.

Option InvestingNow that internet traffic is deemed a Telecommunication Service the first tax you will almost certainly see is the USF or Federal Universal Fund Fee.  This is a tax on Telecommunication services to supply money to build telecommunications to underserved areas and schools.  This can be a fixed fee or up to 18% if the full amount is passed on to consumers by the ISP.

The next taxes you may see if your ISP chooses to pass them along are time and use taxes.  This can be assessed by how much time you spend on the internet, the distance between you and your ISP provider’s network, or any other host of calculations.  Depends on what states will do.

The next taxes you may see will be gross receipt taxes, sales taxes, or other local taxes based on your activity.

Now, it will ultimately be up to the ISP provider to either increase rates, pass the tax directly to you, or choose to pay the taxes without impacting your rates.  I would like to say they would just absorb the rates, however, the rates are substantial when you count local, state, and federal taxes.  I was involved with a tax dispute from the county of Los Angeles that wanted to asses a certain time and use tax on internet usage for the third largest ISP provider in the US.  The taxes to be assessed were in the multi-millions and would have resulted in higher rates (which there were not willing to do) or layoffs.  What eventually happened is that the taxes were not deemed valid since the internet traffic was not a telecommunications service.  That was one county, in one state.  Imagine this door being opened for all counties and states, this is a money grab that will be in the billions.  I encourage you to take a picture of your bill today and compare next year to see the differences.

01_64x64So that answers 1 and 2, but how will it make your service slower?  Well, this is more of a hypothetical and may not happen, but it is certainly a risk.  The issues that is really at hand when they talk about slow lanes, fast lanes, and throttling, is who pays for the access and bandwidth?  Ultimately the internet is not free to support, the telcos have to build the infrastructure to handle bandwidth needs.  There really has not been a problem as companies would pay for certain infrastructure to the telcos and exchange bandwidth via peering with other companies that had bandwidth.  It is complicated but the system works.

The problem comes with new technology and companies like Netflix.  When a technology is developed that takes an enormous amount of bandwidth it puts a strain on the whole system until the system can catch up.  Sometimes this may require throttling, fast lanes, slow lanes, etc.   What the average person does not know, is that a company like Netflix to stream movies across the US takes an enormous amount of infrastructure, multiple delivery networks (CDN’s), and massive point to point circuits to spread out the impact to any given site.  The users then strain every access point across the US in every market to access the content.  Think of it this way, if you live in a neighborhood that has one access point and a few hundred people going through that point, traffic might be fine as long as no one goes over 5megs of traffic.  Then one day a person moves in and decides to run HD content 24/7 to two tv’s in every room of their house while streaming a live podcast.  This takes all the bandwidth from the neighborhood (while they pay the same rate you do) and everyone feels the impact.  The only solutions are:

  1. Throttle his speed so all customers can access the internet.
  2. Make the high usage home pay for a second access point.
  3. Raise everyone’s bill so that a second access point can be built.
  4. Do nothing and everyone suffers slower speeds.

The idea behind Net Neutrality says you cannot do 1 or 2, so you have to do three or four.  I believe what we will see is a combination of 3 and 4.  In some cases it will not make sense for the Telcos to expand infrastructure which will result in slower speeds in highly strained networks.

You see, the issue is really not about Free Internet, it is about who pays.  The Telcos, You, or the high bandwidth users.  Someone has to pay, you don’t think companies like Cisco build network gear out of the kindness of their hearts do you?

The issue is complex and it is easy to favor companies like Google and Netflix over ATT and Verizon.  This is a big boy match where one side wants open internet they don’t have to pay for (Google, Netflix, etc..) and one side wants the power to control costs (ATT, Verizon, etc.).  What the consumer is going to get is a bunch of new taxes, oh and the new taxes will hit Netflix and Google very hard and that is why I believe Google changed its mind late in the game about Net Neutrality.

The sad thing about the whole situation is that most of these things could have been discovered by any good reporter just asking insiders from both sides, instead, they just reverberate talking points that sound good.

Not sure about you but I am tired of the “you have to pass it to know what is in it” mentality.

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