Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

I'm sorry to be the bearer of bad news: The internet is not a fair place. And the current fight over "net neutrality" is not going to change that. 

For those of us whose eyes glaze over at the mention of net neutrality, here's the basic principle: Companies such as Comcast Corp. and AT&T Inc. that sell internet connections shouldn't be able to give some of the digital data flowing through their broadband pipes faster access to people's computers, phones and TV sets, nor should they cause internet blockages for others. 

During the Obama administration, the Federal Communications Commission made legal changes to bar such business tactics. In theory, the regulations let the internet's little guys compete on equal footing with the titans. Netflix Inc., for example, isn't allowed to pay your broadband provider for a faster lane into customers' homes compared with the tiny rival that can't afford tolls to ensure its videos are crystal clear. 

Internet Pipe Fitters
The majority of Americans buy their home internet service from a handful of large telecom companies
Source: Bloomberg Intelligence and SNL Kagan
Note: The customer counts for AT&T and Verizon include both fiber internet and DSL subscribers. Figures for Cox and Altice are from 3Q 2016; others are from 1Q 2017.

Last week, however, the FCC gave preliminary approval to scrap that approach and instead apply "light touch" regulation of internet providers, in the words of FCC Chairman Ajit Pai. He says companies that sell broadband don't engage in preferential treatment of internet data, and regulations shouldn't be imposed on them because of hypothetical risks of abuse. 

Expect months or years of fighting over this in Washington and on the TV airwaves, where comedian John Oliver has made net neutrality his personal (and very funny) cause. But no matter what happens at the FCC, the ideals behind net neutrality are essentially dead already. Whatever the law says, the notion that all digital data are created equal is pure fiction. 

The reality is big technology companies such as Netflix and Google's YouTube already have a big advantage in reaching homes because they have the money and technical expertise to make sure their videos stream without hiccups. And the fact is internet providers have plenty of legal tactics to steer customers to their preferred programming. The sharks -- both broadband providers and tech titans -- always win over the minnows. 

Let me tackle these in more detail. Netflix employs something like 4,700 people, and racked up $852 million last year on technology expenses, in part to ensure every video pixel arrives on computers or TV set as quickly as possible under any conditions. Because Netflix is better at the complications of streaming video than nearly all competitors, the company effectively has preferential access to your home internet regardless of what the broadband providers do.

Traffic Hogs
Web services from big companies such as Netflix and Google account for the majority of internet use during peak evening hours in North America
Source: Sandvine
Note: These figures are the composition of internet download traffic, as collected by Sandvine in a March 2016 measurement period.

Likewise, Netflix and other rich companies pay internet service providers to connect directly into the providers' broadband plumbing. These "paid peering" fees are perfectly legal even under the stricter regulations the FCC is seeking to unravel.

Netflix makes these financial arrangements because plugging directly into broadband networks is an effective tactic to speed web videos' path into people's homes. It's the same reason many Wall Street firms have computer servers in the same buildings as those of stock exchanges, to make sure their trades are conducted without even milliseconds of lag. Your brother-in-law’s mobile video startup probably can't afford peering fees, so he is at an internet speed disadvantage. 

Net-neutrality backers also are worried that telecom companies can give their own video-calling options or online TV packages speedier paths into people's homes and slow down rivals such as Skype or Hulu. But those telecom companies don't need to clog broadband speeds to give their own programming or internet services a leg up. They can press their financial advantages instead. 

Just look at AT&T. It gives people who have its high-end mobile phone service discounted subscriptions to AT&T's DirecTV Now online TV service. And it doesn't count the streaming video against the data caps for AT&T smartphone customers. Regulators do not bar telecom companies from giving their own internet services such an advantage. Nor did the FCC stop the telecom providers from accepting fees to give access to certain websites or apps without customers worrying about their data costs.

AT&T doesn't need to slow down competing web video services to use its internet connections to its own advantage, or to the advantage of its paying partners. AT&T can simply make some digital data more financially appealing than others. 

Many Americans have as much affection for their internet and mobile providers as they do for toe fungus. While I'm not on the side of the telecom companies that have fought net neutrality rules tooth and nail, it's also true that keeping stricter government regulations probably won't change America's broadband reality: The rich and powerful dictate the internet’s winners and losers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. I'm not picking on Netflix. They are a useful example of a company with a lot of money and talented employees.

  2. Deep pocketed companies such as Google and Microsoft also have built their own cross country or undersea broadband pipes, which means their online services zip along the internet faster than most other web traffic. 

  3. Pai ended an FCC review of some of these business practices, known as "zero rating." 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net