President Obama recently came out with his position on net neutrality, arguing that the FCC should regulate Internet service providers (ISPs) like utilities to ensure the FCC can enforce a fair and free Internet.
It didn’t take long for FCC chairman Tom Wheeler to chime in with his perspective. And for now it appears that he might be going rogue on net neutrality. Or, at the very least, he is certainly not going to simply go along with President Obama’s will.
“I am an independent agency,” Wheeler repeatedly told a gathering of executives from Internet companies such Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO).
While Wheeler and the President may disagree on how to proceed regarding net neutrality, they both agree on the independence of the FCC. The White House conceded that “ultimately the decision is theirs alone.”
So now Wheeler, a former lobbyist for the telecommunications industry, is in an interesting position. Certainly his background as a representative for the very industry that stands to benefit the most from a lack of net neutrality leads many – including myself – to question his ability to act in the best interests of taxpayers. But Wheeler also helped President Obama raise millions of dollars during his presidential campaign and has been a longtime ally.
President Obama campaigned in 2008 on net neutrality, insisting that he put rules in place to protect an open and free Internet. And he certainly put Wheeler in charge of the FCC knowing net neutrality would come up during his tenure.
It’s unlikely that anything will come of this right away; however, a major political showdown is brewing.
Many Republicans, including the high-profile senator from Texas, Ted Cruz, have come out against net neutrality. President Obama appears to be positioning the Democrats as the champions of net neutrality, a position widely supported by tech companies and individuals throughout the world.
The argument for net neutrality is that even if the FCC only goes so far as to allow ISPs to charge companies like Netflix (Nasdaq: NFLX) for Internet “fast lanes,” the whole concept of an open and equitable Internet could be compromised.
If ISPs are allowed to create these “fast lanes,” will it make the experience of using the “slow lane” so terrible that users will be basically forced into upgrading? Will ISPs start blocking data transfers between users and companies that don’t pay into the “fast-lane” system?
The FCC insists it won’t allow such a scenario to happen. But allowing these “fast lanes” is a slippery slope, a loophole that ISPs like Verizon (NYSE: VZ) and Comcast (Nasdaq: CMCSA) are sure to exploit to the greatest extent possible.
Under Obama’s plan, these ISPs would be regulated as utilities. While this might limit the ability of these companies to profit from selling different Internet speeds to different customers, regulation also means dramatically higher barriers to entry for potential competitors.
This kind of regulation might be a short-term headwind for ISPs but it would ultimately be a good thing for their long-term business prospects. In the meantime, the uncertainty will likely weigh on ISP stocks.
Tom Wheeler may operate an “independent agency” but he is certainly going rogue from the President who appointed him when it comes to net neutrality.
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