A federal appeals court last week struck a blow -- though not necessarily a fatal one -- against "network neutrality" by ruling that the Federal Communications Commission had exceeded its authority in a 2010 decision to protect the openness of the Internet.
The concept behind network neutrality is to prevent Internet service providers such as Comcast, AT&T and Verizon from being able to discriminate in favor of or against specific traffic. Under the FCC rules, these providers had to treat all traffic equally whether it came from their own company (such as video from Comcast or Internet phone service from AT&T or Verizon), a business partner or a competitor. Without this rule in place, it could become legal for these providers to create a pricing structure that treats content providers differently, depending on their business relationships. In theory, a fully unregulated Internet could even allow Internet service providers to ban certain traffic simply because it's not in their business interest to carry it.
Whether this is a good thing or bad thing depends on whom you believe and where you sit. If you're Netflix (NFLX), Amazon, Google (GOOG) or Apple (AAPL), it could mean -- at least theoretically -- that you now have to beg for permission from an ISP to deliver your bandwidth-intensive video programming to its customers.
Consumers might not be able to access some of their favorite services, or those popular services could be even easier to access because they have struck a deal with an ISP for faster delivery. The decision could also be bad news for startups that don't have the resources to pay for speedy delivery of their content.
Doing away with network neutrality is certainly a good deal for the ISPs because they get more control over their own networks and increased opportunity to profit from their multibillion-dollar investments by charging content providers for preferential treatment.
The biggest worry -- as my colleague Troy Wolverton pointed out Wednesday in this newspaper -- is that the Internet will start to look a bit like cable TV, where the providers, not the customers, get to chose what programs they will carry. For a month last year, Time Warner Cable subscribers were unable to watch CBS programs because the cable company and TV network couldn't reach an agreement over how much Time Warner Cable would pay for CBS programs. (Disclosure: I am a technology analyst for CBS News.)
In theory, an Internet service provider like Comcast, which is also a cable company, could decide to prevent its customers from watching Netflix because it competes with its own service, or AT&T customers could be denied access to Vonage or other Internet phone companies because they compete with AT&T's phone service. In a completely unregulated environment, ISPs could go even further, banning content they found unsuitable, even customer comments or editorials that went against its interests.
Even before last week's court ruling, AT&T tested the waters by announcing earlier this month a "sponsored data program" whereby companies could pick up the data charges for content so customers could access it without it counting against their cellphone data plan limits. Public Knowledge, a consumer advocacy group, called on the FTC to open "a thorough investigation into AT&T's scheme," arguing that it could give some companies an unfair advantage because customers could get their content without paying data charges they would have to pay for data from companies that didn't enter into a similar agreement with AT&T.
I doubt that any of the major ISPs will be brazen enough to try to block major content or service providers like Netflix, Amazon or Vonage, or start exercising editorial judgment over content from others that's carried over their networks. But they are likely to create preferential arrangements so their own content or the content of their business partners gets a faster ride on the network.
There are lots of ways they could do this. They could create faster channels to deliver their content or could take advantage of technologies such as the new home Internet gateways recently announced by Akamai and Qualcomm to preposition their or their partners' content on hard drives or flash memory at customers' homes. That way, when they're ready to watch that content, it can be delivered instantly at the highest possible resolution while other content has to be streamed in more slowly via the Net, perhaps at a lower resolution.
Of course, this is not the final act in this ongoing drama. The FCC could take further action, Congress could intervene with clarifying legislation or the matter could be decided by the U.S. Supreme Court.
Contact Larry Magid at email@example.com. Listen for his technology chats on KCBS-AM (740) weekdays at 3:50 p.m.