Published by LawTechie - January 19, 2010 - LawTechie

The FCC’s recent net neutrality proposal carries a great potential to aid the business sector and, as with most government initiatives, it also carries an equally great risk of screwing everything up. Here’s what small business owners should know:

Net neutrality in a nutshell: Internet service providers (ISPs) cannot discriminate among their users in deciding how much internet bandwidth (download/upload speed) each user gets.

What this means for businesses is that under a net neutrality regime, an ISP cannot slow down the upload speed of Business A in relation to Business B simply because Business A provides services which use more bandwidth. Real world example: Verizon cannot slow down YouTube.com in relation to NYTimes.com just because YouTube uses up a ton more bandwidth with its relatively larger services (uploading videos vs. uploading text).

Is this a good thing? Yes and no.

If you are a business on the internet and your services use a lot of bandwidth (like YouTube or Skype), then you definitely don’t want the ISPs to slow you down or, even worse, ask you to pay a premium to keep your services at the same speeds as other websites. In this case, net neutrality is good because it prevents ISPs from discriminating against your business.

So that’s the theory. What does this mean in the real world of supply and demand?

Bandwidth is an exhaustible commodity: its supply is limited to the volume of cables and computers which form the backbone of the internet’s infrastructure. Net neutrality would shift the burden of increasing the size of the internet’s infrastructure exclusively on the ISPs.

So if Business A uses too much bandwidth compared to Business B, but the ISP is neither able to lower the access speed to Business A nor does it have the money to expand infrastructure, then Business A’s huge bandwidth usage will come at the expense of Business B. Or, if the ISP decides to spend money and expand the infrastructure, it may decide to raise that money by charging its customers (internet users) more for their service plans – even if some of those customers never visit Business A. This would essentially force some consumers who don’t use a particular service to pay for it anyway.

Increased Government Regulation

Another area of concern is that net neutrality, at its core, is another form of government regulation. As it stands, the FCC currently does not have the power to regulate the internet. The proposed net neutrality rules would grant the FCC that power.

While reasonable minds will differ about the efficacy of the government’s past (and current) regulatory schemes, a quick look at just about any government agency website (e.g., www.fcc.gov) shows us that for all its potential goodwill, the federal government is not exactly a beacon of the latest web technology. Are our policymakers sufficiently tech-savvy to efficiently regulate something as complicated and all-encompassing as the World Wide Web?

Small business owners will need to weigh the benefits of the cost-shift discussed above against the very real possibility of overbearing and too-widely-tailored government regulation. Some might recall the affects that FCC regulation had on the telecom industry – resulting in disastrous job losses of the 2000-2001 telecoms crash.

Net Neutrality may help big business at the expense of small business.

One final consideration for small businesses: Small businesses have somewhat less to gain from net neutrality than their big business competitors. For example, a small video-hosting-based start-up will use far less bandwidth than a site like YouTube. Net neutrality would essentially grant the bigger company more e-real-estate just for being the bigger company by preventing ISPs from any sort of discrimination based on size.

Where e-real-estate is finite, and if the ISP cannot afford to or simply chooses not to expand, how will the small guy find the e-room to grow and compete?

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.

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