FCC Decision on Net Neutrality: What Does this Mean for the Software Industry?

The Federal Communications Commission (“FCC”) adopted new rules today on the issue of net neutrality, affirming the government’s right to increase its regulatory powers over the Internet.

In a press release issued to announce the new rules, the FCC identified the following as the key provisions of the rules to be adopted:

• Application of the rules to all methods of accessing the Internet;
• Institutes a ban over three practices determined to harm the Open Internet: (i) blocking access to legal content, applications, services, or non-harmful devices; (ii) impairing or degrading lawful Internet traffic on the basis of content, applications, services, or non-harmful devices; and (iii) favoring some lawful Internet traffic over other lawful traffic for consideration;
• Establishes that internet service providers cannot “unreasonably interfere with or unreasonably disadvantage” consumers in selecting, accessing, and using the lawful content, applications, services, or devices of their choosing;
• Ensures that the FCC will have the authority to address questionable practices by internet service providers on a case-by-case basis and provides guidance as to how the FCC will provide the standard in practice;
• Requires broadband providers to disclose in a consistent format promotional rates, fees, surcharges, and data caps, as well as packet loss as a measure of network performance, and network management practices that can affect services;
• Requires internet service providers to engage in reasonable network management that is primarily used for and tailored to receiving a legitimate network manages rather than business purpose;
• Authorizes FCC to hear complaints and take enforcement action upon any determination that the “interconnection activities” of internet service providers are not “just and reasonable”;
• Reclassifies broadband service as a telecommunications service over which the FCC has regulatory authority; and
• Specifically authorizes the FCC to allow investigation of consumer complaints, protect consumer privacy, ensure fair access to poles and conduits in order to deploy new broadband networks, protect the disabled, and bolster universal service fund support.

USA Today reports that the new FCC regulations will be published in the Federal Register in a few weeks and become law sixty days after publication.

As anyone who has followed the net neutrality issue is aware, today’s move by the FCC is considered highly controversial.  While the Obama administration has characterized the net neutrality debate as a “fairness” issue in order to increase Internet access for all, opponents have warned against the dangers of allowing the government to exercise greater regulatory powers over the Internet.  CBS is reporting that it conducted a recent poll on Americans’ views on the issue, and that a majority of Americans they polled were against the concept of net neutrality.   However, industry groups have been far from unified on the net neutrality issue. Netflix and Twitter have been reported to have supported the net neutrality vote, as has the NTCA Rural Broadband Association.   Comcast has also been reported to have gone on record as supporting net neutrality.   However, several major internet service providers apparently oppose the FCC’s actions and are reportedly prepared to take legal action to challenge the new rules.

So, what does the move today mean for the software industry?  While there has been minimal commentary on the subject, the implications are largely going to be in the cloud and SaaS space, which is completely Internet-dependent.  There is no question the greater access to the Internet and fewer limitations over bandwidth are all positive developments for online software companies, as they could result in a larger potential customer base.  On the other hand, greater government regulation over the Internet will likely translate into more government regulation over cloud-based and SaaS business activities and practices, which will inevitably result in greater compliance and legal costs for those companies, which will have to address FCC rule making, investigations, and legal actions.  All in all, while the move should in theory be beneficial to the software industry, like with many big ideas, the practical consequences of the FCC action will likely not prove to be beneficial to the software industry as a whole.

In the meantime, the expectation is that we will see legal challenges filed to block the enforcement of these rules, so perhaps the only certainty is that the FCC action will provoke a legal battle over the future of net neutrality.  Clearly, the action today puts front and center the debate over who should have the authority to exercise control over the Internet.

Kristie Prinz

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