Here’s some free advice for the cable and phone companies licking their wounds after they failed to derail the FCC’s net neutrality rules on Thursday: Forget about it. Move on. It will pay off in the long run.
Giving up isn’t in their nature. Comcast, Verizon and fellow Internet service providers (ISPs) hired some of the best legal, lobbying and PR talent that money could buy to pummel opponents in the typically closed-door battles over laws and regulations. But net neutrality is different. They can hope only to win a Pyrrhic victory if they reflexively wield their K Street clout and battle the FCC over the issue in the courts or in Congress.
The public cares about the open Internet rules in a way that few could have imagined a year ago. By continuing to attack the FCC, ISPs will reinforce their reputations as old-fashioned gatekeepers. And it’s dangerous to be seen as an enemy of the freedom that exhilarates people who love the Internet – as Hollywood discovered when lost its battle over the Stop Online Piracy Act (SOPA).
Not surprisingly, ISPs immediately put up their dukes Thursday. Regulators didn’t just outlaw content blocking and throttling, and paid prioritization. The agency reclassified the Internet as a public utility, giving the FCC clear legal authority to respond if an ISP violates the rules.
The changes “do more harm to the vibrant Internet ecosystem than good,” Comcast EVP David Cohen says. National Cable & Telecommunications Association CEO Michael Powell – who, as former FCC chairman, is all too familiar and comfortable with the insiders’ game – charged that the agency had engaged in “heavy-handed government regulation in a space celebrated for its free enterprise.”
The problem with the arguments is that when people celebrate free enterprise in the Internet, they typically think of companies such as Netflix, Kickstarter, and Tumblr that happen to support net neutrality.
More to the point, they don’t think of cable and phone companies, which they hate even more than government regulators. Consumers experience the ISPs as monopolies or duopolies that all too frequently charge too much for lousy-to-mediocre service. These companies receive some of the lowest scores of any businesses in the American Consumer Satisfaction Index. The basic blocking and tackling to keep subscribers satisfied remains a work in progress after years of promised improvements.
“We want customer service to be our best product,” Comcast CEO Brian Roberts told analysts this week. “We have not always lived up to that.”
What do cable and phone ISPs hope to gain by battling the FCC? They say that they’ll follow net-neutrality principles on their own. If that’s right, then they won’t violate the new rules, and nothing changes.
The most powerful argument that opponents of the FCC decision make is that regulators eventually might try to set rates – despite the agency’s clear promise to not do so. More than that, they’d have to develop a price-setting infrastructure, and then set fees too low for anyone to collect a generous return. The mere fear that this could happen supposedly will keep investors on the sidelines.
“Broadband networks don’t have to be built,” FCC Commissioner Ajit Pai warned on Thursday. “Capital doesn’t have to be invested here. Risks don’t have to be taken. The more difficult the FCC makes the business case for deployment, the less likely it is that broadband providers big and small will connect Americans with digital opportunities.”
Hold on. Broadband is the hottest product that cable and phone companies sell. Demand grows every day, and likely will do so for years. Most providers face little or no competition, especially for high-speed services. Broadband also is hugely profitable. Cash flow margins typically exceed 60 percent, about twice the rates for pay TV, J.P. Morgan estimated last year.
For cable, at least, operators’ riskiest investments are behind them; they already did the dirty work of converting their coaxial lines from one-way service into a two-way. They offer broadband over the same lines they also use for video, phone and business services – and they pay nothing for Internet content.
The fear raisers also seem to be crying wolf when you look at the signals investors are sending. Over the last year, as it increasingly became clear that regulators would enact tough open Internet rules, stock prices showed “no appreciable correlation between the net neutrality fight and [cable] sector investment,” research firm SNL Kagan says. When analysts including MoffettNathanson Research’s Craig Moffett raised concerns about potential price setting, downturns in cable stock prices “generally have been minor and short-lived, often on the order of just a day or two.”
Even if cable and phone execs believe their ominous talk about bankers and Wall Street, they have to understand that they have more to fear by alienating Main Street. It would take more lobbyists than even Comcast can afford to counter the power of one comedian such as John Oliver, whose call to action on his HBO show helped inspire a record 4 million people to ask the FCC to act on net neutrality.
And it’s not as though the insider game has worked out well for the ISPs so far. Comcast kicked things off in 2007 when it interfered with BitTorrent transmissions. When the FCC tried to punish the company for violating its 2005 “Internet Policy Statement,” the cable company persuaded a D.C. appeals court that the FCC lacked the authority to act. When the FCC returned in 2010 with net-neutrality rules designed to meet those objections, Verizon also charged that regulators had gone too far. It, too, prevailed at the court in January 2014.
The FCC had the backing it needed to say “enough” once the public started to pay attention. Comcast and Verizon will live with far tougher regulations than they would have had if they had told their legal eagles to back off years ago. If Congress passes a law to overrule the FCC, then President Obama will veto. And even if a court finds a problem with the rules, then the companies’ legal victory would be poisoned with a PR nightmare.
Better to replace hubris with humility and concede defeat. It won’t hurt business. It might even help. The companies could use this as an opportunity to get on the right side of history and hand an olive branch to the people who matter most to their futures. No, not their lawyers, lobbyists, and PR teams. Their customers.