Viewpoint: Here's What's Wrong With Today's Net Neutrality Proposal

On Wednesday, Federal Communications Commission chairman Tom Wheeler gave a broad outline of his forthcoming net neutrality proposal.

The news is mostly good. Wheeler says his proposal will reclassify broadband service under Title II of the Communications Act, giving the FCC the legal authority to prohibit broadband providers from blocking or slowing down services they don't like or letting certain companies pay extra for priority treatment.

That will ensure a level playing field for internet companies, and that's good—but for most Americans, the new rules really won't affect their internet experience at all.

The reason is that overt content discrimination by broadband providers is very rare and possibly non-existent. Disputes over throttling do occur, such as when Netflix accuses companies like Comcast of purposefully slowing down its service. But these conflicts involve something called "interconnection" or "peering," a necessary practice whereby sites like Netflix and Youtube, which use a disproportionate share of a provider's resources, pay for extra capacity.

The FCC has promised to give these agreements closer scrutiny to determine if they're "just and reasonable," but it's unclear what that standard means or how regulators would decide what's fair and what isn't. As a result, Dan Rayburn, principal analyst at Frost & Sullivan and owner of StreamingMedia.com, doesn't see the new rules making a real impact on how broadband providers do business.

"I think it's funny that the three big rules are no blocking, no throttling, no paid prioritization," says Rayburn. "That's all great, but do we have a single instance of an ISP doing any of those things?"

The real problem

In fact, while net neutrality has become a pet issue of the technorati in recent years, it won't solve the one thing that plagues most Americans: lousy service. Compared to their counterparts in other industrialized countries, U.S. internet users pay far more for far slower internet speed.

Why has America fallen behind? The answer is a simple lack of competition: FCC data from 2013 shows 55% of American households have no choice in their broadband provider, and the agency has said Comcast will be the only broadband provider for nearly two-thirds of consumers if the company's merger with Time Warner Cable is approved. When consumers have no choice, ISPs have little incentive to invest in better service.

In reclassifying broadband, the FCC could have created a much more competitive environment by mandating something called "last-mile unbundling." The reason the U.S. has virtually no broadband competition is because any aspiring provider would need to build it's own immensely expensive fiber network. Last-mile unbundling would force existing service providers to lease their infrastructure to competing companies, removing this roadblock and opening the competition floodgates.

Unfortunately, chairman Wheeler's statement explicitly states "there will be no rate regulation, no tariffs, no last-mile unbundling," so many Americans will still have virtually no choice of service providers. In that regard, this announcement just affirms the sad status quo.

The silver lining

Despite Wheeler's decision, President Obama is clearly aware competition is an issue. His plan to encourage municipalities to start their own public broadband providers could give consumers real choice, and motivate major ISPs to better serve their customers or risk losing them. There's even evidence municipal internet leaves users with better service than last-mile unbundling can provide.

But while Obama's municipal internet plan is great in theory, it will take a long time for cities to create their own ISPs, and it's unclear whether the FCC has the authority to remove legal hurdles that bar many areas from creating an internet public option.

In the end, it boils down to the fact that Chairman Wheeler had the power to enable more broadband competition in the near-term with the stroke of a pen, and he chose not to do so. As a result, his net neutrality rules can hardly be considered a true win for internet users.

A previous version of this article said a Comcast/Time Warner Cable merger would increase the number of consumers with no choice in broadband providers to two-thirds of Americans. The FCC says a merger would indeed result in two-thirds of U.S. households having only one broadband provider, but this is not likely to be an increase.