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I'd like to welcome Kevin warbach to knowledge at Wharton thanks for being here with us again Kevin's a professor
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of legal studies and business ethics here at Wharton and we're going to talk
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about the recent uh Federal Communications Commission decision on net neutrality uh the idea of net
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neutrality was approved by a 3 to2 margin on the five member board uh right along party lines and um what that
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decision means I think and you can provide more detail is that the big internet service
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providers like Comcast and Verizon um they'll be barred from providing high-speed services to companies who
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might be willing to pay an extra toll for those services so uh there's no FASTT tracking that's going to be
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allowed under this decision um and uh all companies will have equal access to to the Internet so there's a couple
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things about that so that means no blocking no throttling slowing down uh no paid prioritization and um this seems
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to protect the idea of open internet I I should point out that on the other side
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of the coin consumers can still pay extra for faster incoming service right this is about sort of pushing out rather
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than the service that comes in but uh my question is what are the big business implications for this decision well the
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first thing to keep in mind is the FCC adopted open internet rules and essentially as you said they prohibit
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certain kinds of business practices going forward um so it's not that your internet service will change
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dramatically tomorrow because of these FCC rules this is basically going to the possibility that Broadband access
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companies might discriminate um they might uh tell certain service providers um you can't uh reach customers or you
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have to pay extra to reach customers or they might throttle or slow them down um
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if that happens the FCC is in a position to act so from a business standpoint um this uh ensures that companies that
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want to provide services on the internet um small companies big companies content
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providers application developers and so forth will still have an unfettered opportunity to go online reach customers
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and potentially build a very big business um the other thing it does is it tells the Broadband access providers
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the companies as you said like Verizon and AT&T and Comcast that certain practice
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are off the table um there's been a lot of talk over the several years that this
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has been under discussion that somehow that will prevent them from investing or will destroy their businesses the
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reality is uh the day after the FCC chairman announced that he was planning to adopt these particular rules the
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stocks of the cable industry went up um and so while there's a lot of concern
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about government regulation and so forth now many of the companies cable vision and t- mobile and Sprint uh their
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Executives have come out and said you know what at the end of the day this really doesn't affect our business that
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much so if the stock went up um then does that mean that it's actually good for business or does it mean that a
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little bit of the previous uncertainty has been has been ended and so people feel more comfortable investing yeah I
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think the stock went up partly for other factors and and partly just because uh the negative had been to the extent that
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investors were concerned had already been priced into the stocks um and also it's it's really easy to get scared
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about the big bad government might do something um but what the FCC has made very clear is that they are not going to
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engage in direct price regulation they they've explicitly use what's called
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forbearance which is a legal tool they have under the communications act um to uh state that they are not going to
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enforce certain rules even if they're on the books um so uh ultimately an open
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internet is good for everyone um and ultimately frankly the the Broadband access providers want to see that as
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well um there are going to be business disputes there are going to be conflicts uh there are going to be issues uh but
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most of them actually go beyond the Discrimination issues that the net neutrality order is about um that's
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partly why this is actually important um because the reason I think that the Broadband access companies were so
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strongly opposed to This legal Theory the FCC used um which is basically to reclassify broadband access under the
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same Provisions that apply to telecommunication Services the reason they were opposed is that their
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long-term strategy is to transition as they should uh to being internet-based companies and ultimately that would get
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them totally out from under the FCC unless the FCC applied this set of rules so that does that make
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them regulated Monopoly or what what what under tile two what does that mean yeah a lot of words get thrown around
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people talk about whether this is regulating the Internet it's not people talk about this as turning the internet
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into utility that's not right um these companies aren't monopolies there is
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competition for Broadband um there's not enough competition for Broadband in the
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United States especially for high-speed Broadband it's a very concentrated market and there's opportunities for
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that to change at the margins one of the other things the FCC did in the same meeting was overturn some state laws
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that actually got in the way of cities competing where there wasn't sufficient
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Broadband competition building their own Municipal networks the FCC is now trying
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to break down barriers so there's more competition uh but for the moment the
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competition is limited um and even when there is some level of competition it's
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true I can choose between Verizon FiOS or comcast for my Broadband where I live even where that's the case they're big
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companies that have a lot of control uh and once I sign up for them any company whether it's uh Google or Netflix or
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Facebook or Etsy or any of these companies that want to reach me they have to go through that Broadband
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company so uh the communications act uh has regulation for these companies because they're in a a strong bottleneck
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position over a fundamental input for the information economy what about for consumers uh you
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explained for businesses what the implications may be and for consumers what are we looking at that might be
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different well again uh nothing is going to be fundamentally different because of
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these decisions um the question is what business models might get adopted um what kinds of pricing policies might get
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adopted um and what kinds of practices might happen in the future um and the argument against these rules is that
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Broadband companies won't invest to speed up their networks that only if companies can pay to get faster service
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will there be FAS service that hasn't been shown um and it stands the reason
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that uh if people want to get access to this content in these services and applications um that the companies will
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provide access to let that happen um people can still pay for faster broadband service none of this is saying
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that everything has to be exactly the same it just has to do with discrimination so at the end of the day
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um the issues that consumers I think are most concerned about the perception prices are too high
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um bad customer service there been lots of incidents with Comcast in particular these rules don't address that directly
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um but what they do is provide jurisdiction for the FCC so for example there's been discussion of what's called
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um zero rating different pricing practices that exempt certain services from um prices uh and from uh usage caps
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um the FCC will now have jurisdiction to address those practices if and when they
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are adopted but right now the way Broadband works today is the way broadband's going to work tomorrow this
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also affects mobile services um what are the implications of that or are there implications to that in the fcc's 2010
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rules which were the prior net neutrality rules that were overturned in court it basically cut a deal uh and it
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said other than the blocking rule which says you just can't completely block
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traffic the Discrimination rules don't apply to mobile um and there was really
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no good policy reason for that it was again it was a deal to get some support from the industry the FCC has now gone
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back and said look technically mobile and wired internet service are different there are more congestion issues for
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mobile um but the idea that you can't unreasonably discriminate that you can't
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uh throttle or slow something down just because uh you don't like the company or
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you want to prevent them from competing that doesn't make sense whatever the
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platform is so that's what the FCC has said they said that that mobile and fixed internet are now in the same basic
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bucket so we're acting as if this is settled law or rules but it isn't because there will be court cases um
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what are going to be the big challenges how long is this going to take be before
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it's actually settled uh the industry has already said it's going to sue there
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will be litigation um in all likelihood uh we're looking at 2 to three years
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before this gets through the uh first Court uh and then in all likelihood whoever loses the Supreme Court um so um
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this is not something that we will have certainty on for a while when we last spoke uh which was almost a year ago
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actually about this topic uh you talked about competition the fact that there isn't enough competition in this space
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you alluded to it earlier and at that time U what you also alluded to here was that there some competition could come
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from municipalities and from Wireless Services almost a year has gone by has there been any uh movement on that or is
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that still an interesting possibility that remains to mature uh well as I said the FCC finally has taken action on
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Municipal competition which for a long time was an issue that they didn't act
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on there are all sorts of state laws that have been passed that that really hamstring cities from competing um
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there's also something that the FCC chairman has said that he intends to pursue which is um making it easier for
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private companies that want to build say competing fiber optic networks like Google is starting to do in some areas
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and if few other companies are doing uh to make it easier for them to get access
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to telephone polls and conduits these sort of Nitty Gritty issues that actually have a huge amount to deal with
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the viability of competition um there's another set of issues that that would
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seem not to be related but it's the price of getting access to video so if you want to offer a competing fiber
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broadband service you have to offer a bundle you've got to offer the so-called
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Triple Play because that's what people expect but it actually is far more expensive for a new entrant to get
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access to the programming all the channels than it is for an established player so that's also something that um
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the agency hasn't acted on but I think they may act on um we've seen Google
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enter a number of new markets with fiber so I think in the last year we've seen
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movement in that direction but the reality is um there's no way anyone can wave a magic wand and say poof there's
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another high-speed Broadband provider across the entire United States um it's
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an incremental process City by City Wireless keeps getting better but it's never going to be exactly the same as
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Wireline service so um there certainly are ways we could have more competition um one thing the FCC has not done and
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has not given any indication that it wants to do is require the incumbent Network operators to share their
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networks that's how competition works almost everywhere else in the world not
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the direction we've gone here not the direction we're likely to go here so
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yeah the competition issue is going to be with us for a long time what haven't
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we talked about around this that's important for uh viewers to know um I think again you hear a lot of
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hyperbole on both sides of this and it really is important for people to calm down there's an important principle here
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which is that the internet has been an extraordinary vehicle for both economic activity as well as political activity
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and speech and Innovation because it's an open network um and when this debate
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started years ago um the Broadband companies would say look we built the pipes we control if we want to
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discriminate we should be able to discriminate now if you listen to Executives at companies like Comcast and
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variz and what they say is we don't agree with these rules we think they're
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too regulatory we're concerned what the FCC might do with price regulation but
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we agree the internet should be open we agree that discrimination unreasonable discrimination doesn't have a place we
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can debate about certain practices where company wants to pay for better service
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as opposed to service being reduced but the basic notion now is widely accepted um and so uh neither outcome here was
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going to dramatically change the internet um the other piece that's important for people to realize is um
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this was a pretty shocking reversal by the FCC from where they started a year ago um this idea of classifying
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Broadband as telecommunications under title two of the communications Act was something the FCC chairman was not
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inclined to do and I and others who are experts said not going to happen uh it did happen um and it happened partly
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because lots and lots of individuals as well as lots and lots of innovative companies wrote to the FCC went in and
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met with the FCC um and with the support of lots of very effective Advocates convinced the FCC to change its mind um
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so I think it's important people to realize that um public input does matter
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input from small companies and startups does matter I think there were 4 million
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comments well there were four million comments but it wasn't just the uh rubber comments of people clicking a
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button um there were VCS and startups and lots of companies that spent their time going to Washington or meeting with
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the FCC elsewhere um I was at the FCC now almost 20 years ago when we were first looking at the internet I would go
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fly out to Silicon Valley and get this reaction of like who are you stay away from us and I would say you know what
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you'd be much better off talking to us you'd be much better off telling us what
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you want telling us how we can avoid making mistakes than saying stay away from us we don't want to talk to you um
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so it's gratifying to see that starting to happen and I think it is important
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for people to realize that um government can work and can actually listen to people um but as I said the issue is not
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over um so um this is something that's going to be going on for some time thanks very much for joining us thank
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you [Music]