Practical Ecommerce

An End to Net Neutrality Could Impact Ecommerce

An inability to regulate some of the Internet’s most basic infrastructure could, in theory, make it more difficult for small and mid-sized retailers to compete in the near future.

A Federal Communications Commission (FCC) rule making notice from May 2014 has sparked a passionate debate about the concept of net neutrality, and the FCC’s ability to regulate broadband Internet service providers (ISPs).

Many believe that under the proposed rules, or in the absence of rules, broadband ISPs could and would treat connections to websites differently based on whether or not the ISP liked a website or network or had a business relationship with a particular website or network.

As an example, in 2007 Comcast customers discovered that it was throttling (intentionally slowing down) the Internet connection speeds for peer-to-peer networks — i.e., networks of computer systems. Effectively, Comcast had decided that it did not like this sort of traffic and was purposefully making these types of services harder to use. The company was, apparently, giving the broadband capacity it was taking from peer-to-peer networks  to other Internet connections, which it believed the majority of its customers would prefer. The FCC tried to stop Comcast on the principle of net neutrality, but eventually, courts decided that the FCC could not tell Comcast how to manage its broadband network, leading to the recent rounds of FCC open Internet rulemaking.

How an End to Net Neutrality Could Impact Ecommerce

Net neutrality is a concept or principle that simply states that all data transmitted on the Internet should be treated the same, and that Internet infrastructure providers like broadband ISPs, should not discriminate against any kind of data source or any kind of data and should not charge different prices for services based on the user, provider, or content.

In this way, Comcast’s peer-to-peer network throttling stands in opposition to net neutrality.

Hypothetically, in the absence of regulations or laws that require net neutrality, ISPs could begin to charge some websites for faster connections to customers.

Imagine for a moment what this might be like if it was applied to telephone communications.

Let’s say that there are two hardware stores in town, Hardware A and Hardware B. For years, when you telephoned either hardware store to ask if they had a particular nut or bolt, you had a reasonable sounding connection.

One day the telephone company makes a deal with Hardware A. In exchange for a monthly fee, Hardware A would be guaranteed a crisp-sounding telephone connection all of the time.

Most of the time, calling the hardware stores would still be the same, but during peak call times, to ensure that it has enough bandwidth to keep its promise to Hardware A, the telephone company throttles connections to Hardware B. Customers who call Hardware A have a clean sounding connection, but when you call Hardware B there is a lot of background noise and sometimes the clerk on the other end is hard to understand. Over time, customers would have a better experience calling Hardware A, and might stop trying to call Hardware B.

In the same way, in the absence of a net neutrality requirement, a broadband ISP could have a relationship with large retail websites like Amazon or Walmart, guaranteeing them the best available broadband speeds during peak selling seasons like Cyber Monday. Since the ISP would be unlikely to invest money into new infrastructure, it would need to throttle connections to other websites in order to meet its paid obligations to those large retail websites.

In theory, connections to small and mid-sized retail sites could be relatively slower than connections to large, fee-paying sites, over time, customers would have consistently better experiences on the larger websites, not because of content, price, or service, but because of Internet connection speeds.

Would that Really Happen?

ISPs will almost certainly begin charging some popular sites for guaranteed broadband performance or, perhaps, even for access to customers in the form of usage fees. In fact, the mother of examples is Netflix, which at certain times of the day represents a third of all broadband Internet connections in the United States. Netflix is in direct competition with some broadband ISPs, which are often cable television providers, and ISPs have already said publicly that Netflix should pay for its popularity.

Overtime, it is likely that other high traffic sites, including sites like Amazon, could be required to pay for guaranteed broadband speeds and, therefore, for access to customers. Unless ISPs added new broadband infrastructure to support these guarantees, it could be possible that some other sites would be slowed. It is also possible that sites with available funds could pay for preferred access to customers and get priority over small businesses.

But is that really fair? Since customers are paying for broadband Internet service, shouldn’t those customers get to choose how they use their particular connection?

Is Broadband a Telecommunication Service or an Information Service?

If you think about broadband Internet access like you think about landline telephones, the answers to the questions above should be fairly obvious. Telephone customers should be able to call whatever business they like without the telephone company charging those companies fees for being popular, manipulating the connection quality, or blocking numbers.

It would be more acceptable to receive an occasional “all circuits are busy” message than it would to have the telephone company decide which calls get connected and at what quality level.

In fact, if the FCC had classified broadband Internet access as a telecommunication service, there would be no debate, the FCC, which clearly supports net neutrality given its own statements, could simply regulate ISPs just like it regulates any “common carrier” telephone provider.

But telecommunications laws that were written long before the Internet really took off and broadband service was as popular and common as it is today classified broadband Internet connections as an information service that cannot be regulated in the same way as a telecommunications service.

In fact, this difference in classification is, perhaps, the primary reason that Comcast won its peer-to-peer throttling case.

Members of the U.S. Supreme court, including liberals and conservatives like Justice Ruth Bader Ginsburg, Justice Clarence Thomas, and Justice Antonin Scalia, have expressed concern about the information service classification.

In a dissenting opinion in the 2005 case of the National Cable & Telecommunications Association versus Brand X Internet Services, Justice Scalia points out that the argument hinges on the difference between a telecommunications service and an information service. Scalia also pointed out that broadband Internet service perfectly fits the legal definition of a telecommunication service.

Thus, the real issue is not this most recent proposed FCC rule, but rather how the broadband industry as a whole is classified.

Summing Up

As long as broadband Internet service is classified as an information service, it will be difficult for the FCC to enforce net neutrality.

In the absence of net neutrality requirements, broadband ISPs are likely to begin charging popular sites like Netflix for use. Unless broadband ISPs add new infrastructure it is possible or even likely that paying sites will be prioritized above non-paying sites.

Eventually, the end of net neutrality could make it more difficult for small and mid-sized ecommerce business to compete.

Armando Roggio

Armando Roggio

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  1. Sean BP July 24, 2014 Reply

    Net neutrality is important for small e-commerce businesses and is (rightly) receiving some attention now.

    However, an issue which isn’t getting the attention I believe it deserves is the increasing international fragmentation of the internet. China, Ian, Egypt, Australia etc all have censorship and/or firewalls which (with varying degrees of effectiveness) isolate “their” internet from the wider web. Russia just passed laws requiring all data on Russian citizens to be hosted in-country by September 2016.

    I can see a scenario where 5 years from now, the internet will be made up of dozens of single-country intranets, and if e-commerce businesses want to trade internationally, it’ll be something of a black market operation with a limited pool of customers technologically savvy enough to use the likes of Tor.

  2. David Pavlicko July 24, 2014 Reply

    The only thing net neutrality will accomplish is metered billing for the ISPs. Personally, I’d rather the internet remain outside the regulation of the government.

    At this time, the internet is pretty much wide open, i.e. you can post anything you want and you can access pretty much any content you’d like.

    I think the best way to look at this argument is by using common sense: the more internet bandwidth you (or services like Netflix or YouTube) use, the more they should pay. We don’t expect to use 5 times the amount of electricity without paying for it, but we do expect the ISPs to operate this way.

    Don’t get me wrong, I don’t want to pay more for my broadband service either, but that’s what we have competition for!

  3. Carlos Rivera July 24, 2014 Reply

    Wow! Great breakdown of how net neutrality preserves the broadband experience. Nice to know the classification is the root of the problem.

  4. Kirby July 30, 2014 Reply

    Nice break down of the issues Armando. The Hardware example is a great way of showing the potential harm a multispeed internet could cause, especially for small eCommerce businesses.