Net Neutrality and Internet Media Monopolies

March 30, 2014

Should any one company be able to control the internet? Should all websites be treated equally, or should companies be able to pay to have their sites load faster?  Two student readings and discussion questions explore the debates over net neutrality and the Comcast-Time Warner merger. 

To the Teacher:

Should any one company be able to control the internet? Should all websites be treated equally, or should companies be able to pay to have their sites load faster?
 
In February 2014, telecommunications mega-corporations Comcast and Time Warner Cable announced that they had agreed to merge. Public interest advocates expressed concern that a merger between the two largest cable and internet service providers in the United States would represent a monopoly.
 
The merger also deepens the ongoing debate over "net neutrality"—the idea that all internet data should be treated equally by internet service providers. A recent court ruling puts net neutrality in jeopardy, raising worries that a mega-conglomerate such as Comcast-Time Warner might choose to abandon its commitment to providing its millions of customers with unrestricted access to web content.
 
This exercise consists of two readings intended to encourage students to think critically about the issues of net neutrality and internet media monopolies. The first reading provides students with background on the concept of net neutrality, as well as information on the latest legal challenges it has faced. The second reading takes a closer look at the Comcast-Time Warner merger, considering its potential implications for net neutrality. Questions for discussion follow each reading.
 


 

Student Reading 1
Net Neutrality: What Is It? Why Does It Matter?

In principle, anyone can sit down at a properly connected computer and access the internet, choosing between millions of different web pages to view. On face, this seems like a simple proposition. Of course, the reality is much more complex.  To be able to connect to the internet, you've got to have the necessary infrastructure in place. This includes hardware such as servers, wires, modems, and routers.  Internet Service Providers (or ISPs)—companies such as Comcast, Verizon, and Time Warner—own and maintain the bulk of this infrastructure, and customers pay them to use the infrastructure to access the internet.
 
But just because these companies own much of the hardware needed for you to access the internet does not mean that they should control how the World Wide Web works.
 
Now we enter the heated discussion about "net neutrality." Coined by Columbia University law professor Tim Wu, "net neutrality" refers to the principle that all internet content should be treated equally by service providers.  Questions in the net neutrality debate include:
 

  • Does the ISP companies' ownership of internet infrastructure mean that they should be able to control what websites customers visit after purchasing a connection?
  • Should ISPs be able charge website owners for making their content available to consumers or for loading their pages faster than other sites?
  • Should access to the internet be a human right or should it be treated like any other business affair?

 
The Obama administration has generally supported the idea of net neutrality, as has the Federal Communications Commission, In 2010, the FCC approved a set of rules for internet companies based on the concept of net neutrality, known as the "Open Internet rules."
 
In a January 15, 2014, article, Doug Gross of CNN.com discussed how net neutrality affects an average person's experiences on the internet:
 

Everybody who accesses the internet does so through an internet service provider. And these providers have been pushing for the ability to dole out that access to us on their own terms.
 
What does that mean? For one, companies like Verizon, who sued the FCC over the rules, would be able to pick and choose who gets the best access.
 
So, for example, they might start charging big fees for websites to get in the "fast lane." Those fees presumably would be no problem for the web's monster moneymakers but tougher to take for the little guys.
 
Then, all of a sudden, you're starting to get two internets - a quick, smooth highway for the major players and a slow, bumpy trail for everybody else.
 
The providers could also just blatantly play favorites. So imagine AT&T, a major provider, making traffic quicker on the websites of smartphone companies that use its mobile service and slower on the sites of phone makers who don't. We're not saying they'd do that, of course. But, theoretically, they could.

 
While the internet thus far has operated according to the principle of net neutrality, this could change in the future. As Adi Robertson of the technology blog theverge.com reported, a federal circuit court issued a decision in January 2014 that struck down key provisions of the FCC's Open Internet rules. Robertson wrote:
 

A federal appeals court has struck down important segments of the FCC's Open internet rules, determining that the agency doesn't have the power to require internet service providers to treat all traffic equally. The DC circuit court has ruled on Verizon v. FCC, a challenge to the net neutrality rules put in place in 2010, vacating the FCC's anti-discrimination and anti-blocking policies, though it preserved disclosure requirements that Verizon opposed — in other words, carriers can make some traffic run faster or block other services, but they have to tell subscribers.
 
The problem isn't that the court opposed the FCC's goals, it's that unlike older telecommunications providers, ISPs aren't classified as "common carriers" that must pass information through their networks without preference. By enforcing net neutrality, the court found, the agency was imposing rules that didn't apply to carriers.

 
Critics of the ruling argue that it could lead to fundamental changes in how customers access the internet. The court's decision could very well lead internet companies to charge more for access to particular sites. As Nina Ippolito of PolicyMic.com commented in a January 14, 2014 article:
 

It may sound alarmist, but the appeals court's decision really could lead to a tiered internet wherein VoIP (read: Skype) and streaming video are billed as premium services (that is, in addition to any charges that you already pay for access to Netflix or Hulu Plus), or where ISPs like Verizon and Time Warner Cable shut off access to specific sites as part of contract disputes, much as they do as cable providers today. Just as Time Warner Cable blocked some of its cable subscribers' access to CBS for a full month last year, the company could simply choose to block access to sites like Facebook or Tumblr, or charge an additional fee for subscription access to them.
 
Fortunately, Tom Wheeler, the current head of the FCC, appears to be a proponent of the free and open web as we know it, and has already announced that he's considering an appeal of the D.C. district court's decision, and, "all available options... to ensure that these networks on which the internet depends on to provide a free and open platform for innovation and expression."

  
The district court's ruling will likely prompt FCC officials and Open Internet activists to work towards a new set of rules to govern what internet companies can and cannot do. And ISP companies are likely to continue to fight for fewer restrictions on their behavior.
 

For Discussion:

  1. Do students have any questions about the reading? How might they be answered?
  2. What are Internet Service Providers? What role do they play in the functioning of the internet?
  3. What is net neutrality?
  4. How does net neutrality affect your experience of the internet?
  5. What do you think: Is net neutrality a good idea? Explain your position.
  6. Internet companies argue that net neutrality limits their ability to do business in the way they see fit. They contend that decisions about how internet services are provided should be left to the market. What do you think of this argument? Are public regulations of business activity justified in this case? Why or why not?

 


 

Student Reading 2
Media Monopolies: Should we be Concerned About the Comcast-Time Warner Merger?

In February 2014, telecommunications mega-corporations Comcast and Time Warner Cable announced that they had agreed to merge. Comcast, the largest cable and internet provider in the country, will purchase Time Warner Cable, the second largest such company, for $45 billion in stock. The new, merged company would manage over 60 million cable and internet subscriptions.
 
Public interest advocates say that a merger between the two largest cable and internet service providers in the United States would create a monopoly.  Critics of the merger also fear that it could pose a threat to net neutrality.
 
Historically, U.S. law has limited the formation of monopolies. The logic of these laws is that if a single company controls too great of a share of a given industry, it will squash fair market competition—with consumers suffering as a result.  Under US law, the merger has to gain approval from the Federal Communications Commission and either the Department of Justice or the Federal Trade Commission. (The FTC usually examines cable mergers while the Justice Department handles media mergers.)  The approval process might last many months or a year.
 
Comcast and Time Warner executives have defended their deal, noting that the companies do not serve the same markets. As Forbes.com staff writer Maggie McGrath reported on February 13, 2013:
 

[I]n an open memorandum, Comcast executive vice president David Cohen called the merger a "friendly transaction," one that is "strongly pro-competitive and is firmly in the public interest." In a separate statement, Comcast chairman and CEO Brian Roberts said that merger creates an exciting opportunity for everyone involved, sentiments that were echoed by Robert Marcus, Time Warner's chairman and CEO....
 
In a conference call with members of the press, CEOs Roberts and Marcus stressed that there is no overlap in the market share of the two businesses and that real competition exists even with the merger of the two companies. Marcus cited wireless providers like AT&T, Verizon, Sprint and T-Mobile as competitors; the executives also believe alternative online streaming options, like Google's Google Fiber streaming service (to name one) provide consumers with choice, and Time Warner/Comcast with competition.

 
Critics of the merger counter that the deal could hurt customer service, since internet subscribers will be left with few alternatives to turn to if they are unhappy. Both companies are already known for their poor customer service, and joining forces is not likely to change that. As Huffington Post chief financial writer Mark Gongloff noted on February 13, 2014: 

The $45 billion merger announced Thursday might be a win for both companies, but it will be no victory for their combined 30 million [internet] customers, who are already among the least- happy customers in all of Corporate America.
 
The two companies last year were the lowest-scoring cable companies in the American Customer Satisfaction Index, mainly because of the weakness of their customer service. That made them the least-loved companies in one of the least-loved industries for customer satisfaction....
 
The history of mergers suggests customer service might only get worse for these two companies....
 
A BusinessWeek study of 28 mergers between 1997 and 2002 found that customer-satisfaction ratings dropped significantly after the unions, with the effect lasting for years....
 
Satisfaction ratings do tend to snap back eventually, as companies scramble to keep customers from fleeing. But after a long history of industry consolidation, Comcast and Time Warner Cable have so little competition that their customers might have nowhere to flee.
 
"[I]f this deal goes through, customers...will probably see prices rise, with no corresponding improvement in service," Harvard Law School professor Susan Crawford wrote last month, when the merger was still just a rumor.

 
The proposed merger also raises big concerns about the future of net neutrality. Although Comcast has agreed to abide by net neutrality until 2017 as a condition of a previous merger, legal challenges to the net neutrality principle may free the company to change its position in the future.
 
As Roger Yu and Mike Snider of USA Today reported on March 6, 2014, Comcast has financial reasons to defect from net neutrality:
 

While market size is a concern, merger opponents also are worried about the combined company's influence on content providers and other suppliers. Comcast owns NBCUniversal, 30 cable networks, 26 local TV stations and a stake in streaming service Hulu.
 
"There's a lot of content out there, but your internet and cable company is the gateway to all that content," writes Craig Aaron, CEO of media watchdog Free Press, on SaveTheinternet.com. "It would have both the incentive and the power to limit access to competing content on the distribution platforms it owns."
 
In buying a majority stake in NBC Universal, Comcast agreed in 2011 to several FCC mandates that last seven years, ranging from broadening internet access to low-income households and not discriminating against third-party programs that seek access to Comcast's distribution channels. Comcast says it'll extend these concessions to [the new company formed by its merger with Time Warner].
 
In a letter last week to FCC Chairman Tom Wheeler, Sen. Al Franken (D-Minn.) wrote that Comcast has "a history of breaching its legal obligations," including the NBC Universal-related concessions. 

 
Not long after the announcement of the merger, Comcast and the video streaming service Netflix struck a deal under which Netflix will pay for Comcast to connect directly to Netflix's servers and thus speed up content delivery. Defenders of net neutrality see this as a problematic sign of things to come. As Yu and Snider write:
 

Open internet proponents see it as the first overt example of the pay-for-play practice that could invite abuse from ISPs.
 
Netflix is, by far, the largest internet bandwidth hog, occupying nearly one-third of North American data traffic, according to technology firm Sandvine.
 
Netflix, like other content providers, uses third-party companies to store and move its content to ISPs. Once ISPs receive the content at their front door — think of the ISP as a large castle receiving delivery carts at the drawbridge on its moat — they then transmit data to consumers.
 
Netflix has sought Comcast to connect directly to its own servers to speed streaming, eliminating the middlemen. Comcast had refused the overtures until the new agreement emerged, forcing Netflix to pay for the privilege.

 
With net neutrality facing legal challenges, the Comcast-Time Warner merger raises questions for consumers: Will the largest internet companies demand that customers pay more for access to specific websites in the future? Will website owners be forced to pay to have their sites load quickly? If the principle of net neutrality is eroded in coming years, the answer to these questions could be yes.
 
 

For Discussion 

  1. Do students have any questions about the reading? How might they be answered?
  2. Historically, why has the government been concerned about monopolies?
  3. According to the reading, what are some reasons that consumer advocates believe Comcast-Time Warner might operate as a monopoly? How do the business's defenders respond?
  4. Comcast and Time Warner spokespeople argue that the merger will create an economy of scale that will allow them to provide better services to their customers. Do you think that this is a compelling reason to approve of the merger, or do you think that concerns about monopoly power outweigh this?
  5. Do you think larger internet companies are more or less likely to respect net neutrality?
  6. Libertarians and other free market advocates argue that government laws against monopolies are outdated and that market should be allowed to regulate themselves. What do you think of this argument? Defend your position.