Monday, December 20, 2010

Call It the Netflix Rule: FCC Says "We Will Not Bless Paid Priority Rules" in Net Neutrality Order 12/20/2010 San Francisco - Call it the Netflix Rule. 

It is the attempt by a now working majority of FCC commissioners to establish a rule that prohibits "paid prioritization" of Internet traffic, yet allows for the increased revenues necessary to recapitalize the American national broadband infrastructure in the face of surging usage.

That huge uptick in usage is most clearly produced by 4G mobile broadband applications and by online video content providers. The most prominent in the latter category is Netflix, Inc. (NASDAQ: NFLX) current darling of both Wall Street and on demand video consumers.

That rule will be seen in the text of the final network neutrality Order which will be voted on -- but still not issued as a public document -- at the Commission meeting of tomorrow, December 21.

That rule, and the degree to which it is accepted or challenged by the two major camps at sword points over net neutrality issues -- application and content producers vs. service providers -- has become the single most critical question in American telecom policy since the passage of the federal telecom Act of 1996. Netflix, which is now seeing a surge of customers move to online viewing, stands to be the biggest single near term winner if the Commission can enforce its stated ban on paid prioritization.

Paid Prioritization Not "Blessed" in Order
Senior officials of the Federal Communications Commission today vehemently stated that the anxiously awaited network neutrality rules will in no way allow for so called paid prioritization of digital traffic by Internet service providers (ISPs).

Speaking on background during a conference call of this afternoon, two senior appointed staff officials of FCC made clear that the network neutrality Order expected to be voted on in the affirmative by all three Democratic commissioners at the Commission's open meeting of tomorrow, will not allow or otherwise give incentive for ISPs to charge for certain types of traffic over others. 

Multiple analysts, reporters, public interest groups, and trade associations have been stating their belief that such "paid prioritization" would be allowed, following the circulation to his four colleagues by FCC Chairman Julius Genachowski of the secret draft of the Order on the first of December.

"It is categorically false," stated one of the two senior staff officials on the call "that the order will bless paid priority rules." Staff did however state that the language in which such practices will be prohibited will leave the door open to some conceivable practices which the Commission would not find "unreasonable" going forward. 

Paid Prioritization "Unlikely to be Reasonable"
"The Order explains it is unlikely to be found reasonable" in any response by the Commission to a complaint brought in the future, stated the officials. "Someday might it be reasonable?" asked the official rhetorically. "That is left open, with a very high bar" being set by the Order against any ISP attempting to levy such prioritization conditions on traffic.  

How and what is defined as "paid prioritization" is one of the most essential items in the Order, especially in relation to those practices that ISPs will be allowed. "The order does discuss the issue of broadband providers giving choices for services," further stated the FCC senior official. 

Previously the senior staff member had stated, in introducing the broad outlines of the Order, that the document has changed since Genachowski's December 1 submittal, with "changes providing a little more certainty around the definition of broadband services."

Will Wall Street investors and Silicon Valley VCs see the Order as allowing for capital flows back to ISPs needing to upgrade their access and transport networks, while still giving the protections for neutral access to those networks required by application developers and content providers? 

We will only know once the American public can finally see the actual text of the Order, and see how application developers, capital markets, ISPs, and equipment manufactures eager to sell gear to carriers react.
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