Net Neutrality, Part II: The OTT-Dominant Era (2013 – 2017)

In my last blog post, I briefly covered the origins of Net Neutrality: from the initial days of Netflix streaming in early 2007 to the announcement of a “light-touch regulatory framework” in 2010. This week, we’ll cover two other critical points in the Net Neutrality matchup: 2015 and 2017.

K.O. or Technical Knockout?

Round 2 of the Net Neutrality showdown brought with it a new FCC Chairman: Ajit Pai, appointed in 2016. Many have blamed Pai for repealing former Chairman Genachowski’s 2010-era “light-touch regulation.” But if we take a closer look at the sequence of events, it seems to reveal that Pai was actually targeting what he perceived as a “heavy-handed” approach to 2015-era regulations—and not Genachowski’s “third way.”

In 2017, Pai claimed his approach would restore the proper “light-touch [regulatory] framework that was in place until 2015” for the FCC. So, what transpired between Genachowski’s original approach and Pai’s return to form?

In early 2015, the FCC was controlled by another chairman: an appointee named Tom Wheeler. Prior to his tenure at the FCC, Wheeler had an extensive background in a fairly regulated industry, over-the-air (OTA) broadcast television—and his appointment was cheered by the broadcast community, led by the National Association of Broadcasters (NAB).

A 2015 reclassification by the FCC brought broadband services under the same regulation as traditional telephony services, with each now being classified as Title II of the Telecommunications Act. No longer would broadband be non-regulated; instead, it would be treated as a commodity or utility.

Pai was an FCC commissioner at the time. Prior to the reclassification vote, Pai is quoted in The New York Times as saying that the internet itself was not broken; in his view, since there was “no problem to solve,” there was no need to reclassify broadband as a Title II utility.

Wheeler countered that internet-access decisions should not be left to the ISPs, and that universal access to broadband was “too important to let broadband providers be the ones making the rules.”

In response to the FCC regulatory framework, various ISPs—including those that owned cable television franchises—tried a myriad of approaches to fend off the inevitable decline of linear cable television viewership. One such approach was instituting data caps: some as low as 300 GB per month. Consumers disliked the idea of a data cap for home internet service, with some claiming it was the result of the same companies owning ISPs and wireless carriers.

Strengthening Wheeler’s case for reclassification was a 2016 ruling in the United States Court of Appeals for the District of Columbia Circuit. Two of the three judges sided with the FCC as to the essential, utilitarian nature of broadband access and its underlying infrastructure. Wheeler found the ruling a victory to “ensure the internet remains open.”

When Pai was appointed FCC Chairman, he worked quickly to remove the Title II classification for broadband services, dismantling what he considered Wheeler's “heavy-handed, utility-style regulation of broadband internet access.” What’s more, he offered his own “third way” approach.

“The FCC also adopted robust transparency requirements … that will empower consumers as well as facilitate effective government oversight of broadband providers’ conduct,” Pai wrote in a blog post on the FCC website, noting that “the FCC’s action restored the jurisdiction of the Federal Trade Commission to act when broadband providers engage in anticompetitive, unfair or deceptive acts or practices.”

Just Add Live: OTA vs. OTT

There is a precedent for a “light-touch regulatory framework” in the confluence of OTA broadcasters and cable television distribution. Collectively known as “must carry” rules, these rules require the local franchisee’s cable-television distribution platform to carry OTA channels in that same local market.

But today we live in the era of over-the-top (OTT) live streaming: wherein live-linear TV networks are streamed to laptops, mobile phones, set-top boxes or internet streaming devices, such as the Roku, AppleTV or Amazon Fire. And the “must carry” rules that apply to OTA channels don’t yet apply to OTT streaming.

Internet Service Providers (ISPs) and pure-play OTT service providers—such as AT&T, Hulu, Sling and a growing host of other companies with no real footprint in a regional cable operator’s territory—are offering “skinny bundles” of premium cable-television channels across the internet. But an unresolved question remains: Must local OTA broadcast channels also be carried as part of the online-only, “skinny bundle” approach?

In my local market, for example, which consists of northeast Tennessee and southwest Virginia, there are no local channels carried on DirecTV Now (AT&T’s skinny-bundle, OTT version of its satellite television subsidiary, DirecTV). That means a user looking for ABC, CBS, NBC or Fox must rely on a separate OTA digital antenna.

The issue gets even murkier when a cable operator also owns an ISP, as would be the case with Charter Spectrum or Comcast. These cable operators might logically argue that the OTA must-carry rules apply to OTT “skinny bundle” delivery—especially for their rivals that have no physical infrastructure in a local market.

Such a rule might present a financial barricade to OTT-only competitors who seek to market to every household in the United States simultaneously. Yet that argument might also then strengthen the utility argument, lessening the value of the ISP’s own data pipes. So cable operators have fought these rules in federal court for more than a decade—to avoid being reclassified as utilities, and subjected to the regulations that come along with that classification.

And that brings us back to the essence of the Net Neutrality debates: Will today’s ISPs, including some that own traditional media outlets and very large cable-television delivery footprints, allow competitors to send content across the cable operator’s own ISP, without some form of additional fee or performance penalty?

That itself seems up for debate. And it’s why the 2018 debates on Net Neutrality ring as true, and are as critical, as those in 2010 and 2015.

We’ll talk about the practical implications of Net Neutrality, including the role of HTTP-based streaming, file obfuscation and Deep Packet Inspection, in our third and final blog post.