The outgoing chairman, Julius Genachowski, made many very good and important decisions, but he also made a rather terrible one that may darken Wheeler’s term. Genachowski spent years and much political capital negotiating net-neutrality rules that everyone could live with, only to enact them in a way that is highly vulnerable to a court challenge. That challenge (brought, cynically, by Verizon after it negotiated the rules it wanted) may soon invalidate years of work and create industry chaos.
The net-neutrality rules now in place reinforce the Internet’s original design principle: that all traffic is carried equally and without any special charges beyond those of transmission. Among other things, the rules are a pricing truce for the Internet; without them, we can expect a fight that will serve no one’s interests and will ultimately stick consumers with Internet bills that rise with the same speed as cable television’s.
Unfortunately, like American Presidents who hope to avoid the politics of the Middle East, the F.C.C. may ultimately have no choice but to get involved in this fight. But one very important thing has changed since last time. Cable operators like Time Warner and Comcast, if they think carefully, should come to understand that they now need a net-neutrality rule more than anyone.
Ask a cable operator what makes its life miserable, and the answer is immediate and obvious: programming fees. Such fees have roughly doubled over the past decade during a period of near-flat inflation and economic stagnation. Sports is the most outrageous example: what ESPN charges cable operators keeps growing, and is now approaching five dollars per customer. The actual cost of providing the entire Internet to cable customers, which is something like a few dollars a month, is less than that. It is a lose-lose situation for nearly everyone (except athletes). The real victims are consumers, especially low-income consumers, who ultimately foot all the bills but cannot control the costs.
If programming costs are the worst thing in cable, the best part of the business is selling broadband. Cable broadband, which costs almost nothing to provide once the infrastructure is built, has little real competition, and operators can charge between forty and sixty dollars for the product, yielding margins that analyst Craig Moffitt describes as “comically profitable.” Margins greater than ninety per cent are a sweet business no matter what you’re doing, and what cable operators have to realize is how crucial net neutrality is to making those margins possible.
An important aspect of the Internet’s original design is that many prices were set at zero—what have been called zero-price rules. The price to join the network is zero. The price that users and sites pay to reach others is zero: a blogger doesn’t need to pay to reach Comcast’s customers. And the price that big Web sites charge broadband operators to carry their content is also zero. It’s a subtle point, but these three zeros are a large part of what makes the Internet what it is. If net neutrality goes away, so does the agreement to freeze prices at zero.
by Tim Wu, New Yorker | Read more:
Photograph by Andrew Harrer/Bloomberg/Getty
