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