Efforts to expand social entrepreneurship in the United States have met yet another roadblock. New Internet regulations proposed by the Federal Communications Commission (FCC) now threaten the success of small business owners in the U.S. and abroad.
The FCC voted 3-2 along party lines Thursday to scrap its 2015 Open Internet Order, which required internet service providers to treat all websites equally, banning them from blocking, slowing down or speeding up access to certain content. Now, Internet service providers (ISPs) like Verizon and Comcast are able to charge websites for faster download speeds for their customers.
This will most certainly cause serious problems for small business owners, especially start-up Internet companies, and it is important for stakeholders in social enterprise to understand the connection between net neutrality and entrepreneurship.
Net neutrality is defined as legal requirements for broadband Internet providers to “treat all Internet traffic the same, regardless of the source.” This definition comes from a January 2014 court ruling in the United States that marked the beginning of recent public debates surrounding Internet policies. The ruling, issued by the United States Court of Appeals for the D.C. Circuit, found that the FCC did not have legal authority to regulate Internet bandwidth providers like Verizon, and more specifically, could not prevent these companies from demanding higher prices for faster load speeds, also known as “paid prioritization.”
In the case of Verizon v. Federal Communications Commission, the FCC argued that the Open Internet Order ultimately struck down by the court, was intended to “preserve and facilitate the ‘virtuous circle’ of innovation that has driven the explosive growth of the Internet.” Verizon objected to the anti-blocking rules included in the Order which prohibit ISPs “from impairing or degrading particular content.”
Ultimately, the court ruled in favor of Verizon, not because the FCC’s rules were unnecessary, but because according to the court, the FCC technically did not have legal authority to regulate broadband companies due to Verizon’s legal classification as an “information service.”
Previously, in 2010, the same court ruled in favor of Comcast, even after the FCC accused the Internet provider of interfering with subscribers’ access to certain peer-to-peer networks. Again, the reason was the same. The FCC did not have authority to regulate, because (thanks to much lobbying from cable and wireless providers) these companies are classified as “single, integrated information services.” Previously, broadband providers were classified as “carriers.” According to the Telecommunications Act of 1996, only carrier classification would give the FCC authority to prevent paid prioritization.
Between the 2010 and 2014 Appeals Court decisions, the FCC could have reclassified broadband companies as carriers, but it failed to do so. After the Verizon v. FCC case in January of 2014, the FCC was expected to finally address the issue of reclassification. However, the recent repeal explicitly abandons reclassification efforts and instead allows Internet providers to give some Internet traffic preferential treatment, signaling the end of net neutrality in the US.
What does this mean for entrepreneurs?
Video-streaming provider and US corporate giant Netflix has been firm in its stance against fees to deliver their video and other data to consumers. Netflix has had several intense meetings with advisors at the FCC over the past few years, stating that allowing these fees will spur innovation. Other large Internet corporations such as Google and Amazon have also received much media attention for their opposition to the FCC’s decision.
Netflix, Google and Amazon, however, can afford to pay the fees associated with paid prioritization. Startups cannot. Without equal treatment from ISPs, startups will be forced to compete with large corporate websites that can afford faster load-times for their customers. It should also be noted that with bandwidth fees, entrepreneurs have little chance of succeeding to provide new and better video-streaming, search engine or social networking companies.
In a letter to previous FCC Chairman Tom Wheeler, Senator Ron Wyden of Oregon writes, “Startups should not find themselves unable to get a foot in the door.” His letter argues that by sanctioning paid prioritization, the FCC is allowing ISPs to “dictate who succeeds and who fails online.” The letter was signed by an additional 10 Senators and shows promise of Congressional action to redefine ISPs.
A Global Perspective
The European response to Net Neutrality provides yet another reason why people living in the EU are more likely to pursue entrepreneurial endeavors than those in the US. The European Parliament voted on rules to protect Net Neutrality, including several amendments that closed the “specialized services” loophole (similar to paid prioritization in the US), ensuring that European ISPs cannot become gatekeepers to online content.
In many developing countries, such as India for example, there are no formal rules to enforce net-neutrality. According to a Times of India article from earlier this year, despite lack of formal rules, “ISPs in India mostly adhere to the principal of net neutrality. There have been some incidences where Indian ISPs have ignored net neutrality but these are few and far between.”
As high-speed Internet and Internet-based companies become more prevalent in India and other developing countries, net neutrality will become increasingly important to entrepreneurs and the organizations that finance them. In emerging markets the Internet is already a crucial tool for business owners. Clients of modern financing options such as crowdfunding and microfinance include not only local merchants, but also small business owners, mid-size business owners, sustainable technology firms and Internet retailers, to name a few examples.
Access to a free and open Internet is imperative to promoting an advantageous environment for entrepreneurs, small businesses and financing institutions. If nations want to promote small businesses and overall economic growth, a solution would be to follow the European model of net-neutrality.
Update, 19 December 2017: State Governments are already opposing the Federal repeal through legislation. For example, New York Attorney General Eric Schneiderman said he is suing the FCC to block the repeal from going into effect.