Net neutrality passes, but leaves paid prioritization issue open

Call it a cautious win for the online video industry: After a commission meeting marked by strenuous dissent from its Republican commissioners, the FCC voted 3-2 to adopt net neutrality rules that classify broadband as a service under Title II of the Communications Act of 1934 and Section 706 of the Telecommunications Act of 1996.

For OTT video, net neutrality rules play a critical role in future growth. The Open Internet order will prevent ISPs from blocking or throttling lawful data. But as the Wall Street Journal notes, today's vote doesn't completely settle one issue for large online video providers like Netflix (NASDAQ: NFLX): defining paid prioritization.

Even though the FCC said that ISPs also won't be able to charge a fee for preferential treatment of one's traffic on their last-mile networks, the issue isn't entirely clear.  

"While the rules would prevent Verizon (NYSE: VZ) from charging Netflix for faster service across its network, they will allow it to charge for higher-capacity connections at the front gate," WSJ said in an article ahead of the vote.

The order allows for an exception around "reasonable network management." The commission noted that it won't tolerate abuse of this exception, but did not specify exactly what would be considered reasonable management and what would be considered out of line.

"The rules themselves create confusion because of their ambiguity. An ISP contemplating a new offering cannot know whether the FCC will decide that the service 'harms consumers or edge providers,'" noted a blog post by Gary Bolton, VP of marketing for networking equipment vendor ADTRAN.

Streaming Media analyst Dan Rayburn also questioned what the FCC might consider reasonable. "What is the baseline that will be used to define what is fair, and what isn't? Apparently that is up to the FCC and from what I am told, the new rules provide no definitions or methodology at all of how those words will be put into practice," he wrote.

Netflix has been especially vocal about the way its streaming data is handled, particularly by Internet service providers, and particularly at the network edge. It resolved ongoing interconnection problems by paying major ISPs including Comcast (NASDAQ: CMCSA), AT&T (NYSE: T), Verizon and Time Warner Cable (NYSE: TWC) to help resolve them. The FCC's vote won't mean an end to the fees Netflix has to pay to connect to ISPs networks more efficiently.

Still, Netflix seemed satisfied with the results of Thursday's vote, though it sounded a cautious note about enforcing the rules.

"Today's order is a meaningful step towards ensuring ISPs cannot shift bad conduct upstream to where they interconnect with content providers like Netflix," the company said in a statement released shortly after the vote. "Net neutrality rules are only as strong as their weakest link, and it's incumbent on the FCC to ensure these interconnection points aren't used to end-run the principles of an open Internet."

In any case, rules governing an open Internet give companies a basis on which to bring complaints to the FCC--something they haven't had in the past. Even as Internet commerce and innovation took off, online video providers existed in a gray zone when it came to issues like data throttling, blocking and paid prioritization.

In a related move, the FCC also voted to preempt laws that restricted the deployment of municipally-funded broadband in North Carolina and Tennessee. That move opens communities in those states to the possibility of better broadband access when private companies don't meet their needs.

For more:
- WSJ has this story
- see the FCC release
- read this ADTRAN blog post
- and this Streaming Media post

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