New FCC Proposal on Net Neutrality is Disastrous for Startups, Consumers and the Economy


“According to recent news reports, the Commission is considering adopting a rule that authorizes discrimination by ISPs and permits them to charge terminating access fees to technology companies. We believe such a rule, if adopted, would crush startups,and therefore undermine American technology entrepreneurship, innovation, and job creation.”

This is the first paragraph of comments we filed with the FCC today. The FCC’s widely reported net neutrality proposal authorizes web-content discrimination by enabling companies to pay Internet Service Providers for access to a faster lane, whole relegating those without the ability to pay to the slow lane.

This proposal marks a significant departure from the principle of Net Neutrality, which grants all content providers the equal ability to provide their offerings to consumers, and gives Internet users the equal ability to see any content they choose.

This proposal would place an incredible burden on small, high-growth companies. In so many ways, the deck is already stacked in favor or larger, well-funded business, and this is yet another barrier to entry. This framework will unequivocally empower the companies that can pay, at the expense of the next generation of disrupters.

As Fred Wilson pointed out back in January, in this new world order “telcos will pick their preferred partners, subsidize the data costs for those apps, and make it much harder for new entrants to compete with the incumbents.”

The innovation ecosystem -- so essential to job creation and economic growth -- benefits from low costs of innovation, not an environment where multiple ISPs can impose above-cost, unconstrained access fees on startups. Entrepreneurs rely on an open internet to build their companies, and investors rely on the certainty of an open internet to invest billions of dollars in edge providers to power the innovation ecosystem.

Startups rely on not being blocked, discriminated against, or subject to fees for access and preference. If some or all ISPs block a startup, the startup would be unable to reach a portion of users in the market. This is a particular problem for startups whose products rely on network effects -- those that become more valuable with more users -- such as social networks, e-commerce platforms connecting buyers and sellers (or drivers and riders), sites for user-generated content (including reviews, photos, or micro-blogs), and payment networks. If blocked by some ISPs, these companies will be less likely to win in the market, even if consumers would otherwise prefer their services.

Any arguments that suggest startups welcome the “right” to negotiate to pay fees for access or outbid giant incumbent edge providers for special preferences are divorced from the reality of entrepreneurship

For the last decade, the largest cable and phone companies have argued that network neutrality is “a solution in search of a problem.” That assertion is false.

We know that net neutrality solves a real problem. In countries without net neutrality, including several European nations, there has been widespread discrimination and blocking for many years. And even in the US, where the FCC has to this point supported net neutrality in principle, there have been violations. These include:

  • Comcast interfering with peer-to-peer technologies, including some of the most popular technologies online;
  • Apple blocking the application Skype on the iPhone, which was subject to a contract with AT&T, a carrier that competes with Skype;
  • Verizon, AT&T, and T-Mobile blocking Google Wallet, while all three companies are part of a competing mobile payments joint venture called Isis; and
  • Comcast’s disputes with Level 3 and Netflix over termination fees and congested transit.

We cannot overstate how devastating this pay-to-play model will be for startups, the innovation economy, the open internet, and for consumers.

In our comments to the FCC, we support the Chairman’s previously stated desire to adopt strong rules on disclosure, blocking, and discrimination, but we believe the Chairman cannot adopt such rules under the jurisdictional theory he favors: Section 706 of the Telecommunications Act that grants the FCC jurisdiction over “deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.”

We now know the obvious: he cannot pursue real nondiscrimination rules under Section 706.

Rather than permit widespread discrimination and fees that would crush entrepreneurship, he should choose a different jurisdictional theory known to legal eagles as Title II. Title II would reclassify Internet service as a public utility much like phone lines. Reclassification must be remain on the table and be seriously considered.

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