Net Gain … or Loss?

Caron Proschan is in agreement with Yogi Berra’s thoughts on foresight: “It’s tough to make predictions, especially about the future.”

But her thoughts are a little different and clearly more somber. “It’s hard to predict what the impact would be on e-commerce companies’ revenues, but for our own direct-to-consumer website, it would certainly be harder to compete without increasing our costs,” says Proschan, who is CEO of Simply Gum, which sells gum and mints on the internet.

Proschan is talking about life without net neutrality, the rules the Federal Communications Commission (FCC) voted to repeal in December. In a nutshell, the FCC rescinded rules  — established in 2015 — that reclassified internet service providers (ISPs) as common carriers under Title II of the Communications Act of 1934. Title II prohibits “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.”

Since the vote, many e-tailers like Proschan have been left scratching their heads about what an internet without net neutrality might mean for their businesses. Among the more serious concerns is that large telecommunications companies like AT&T and Verizon will block or throttle content or enter into paid prioritization — a pay-to-play scenario. 

“If the user experience on a small site is worse than on a large site, you can easily imagine how consumers may gravitate away from many of the smaller, up-and-coming companies — which would result in less discovery, less exploration, and less diversity of content,” Proschan says. “If the end of net neutrality truly creates fast and slow lanes on the internet, it would be an unfortunate outcome for consumers. I suspect there may be opportunities for larger companies with larger budgets, but for smaller companies like ourselves, it’s hard to see how we’ll really be able to capitalize on this in any sort of meaningful way.”  

Confirming — and Easing — Fears

As uncertainty hangs in the air, one thing is certain: you don’t have to search far to find folks who’ll quickly confirm or ease Proschan’s fears.

Jim Gerace, a spokesperson for Verizon, says he’s sorry some folks are concerned about possible inequities in e-commerce without net neutrality. “The short answer to all these questions is our plans are no different today than they were yesterday. We have nothing more to add about it,” he says.

Indeed, that last sentence is true. Gerace didn’t respond to this follow up question: If nothing will change, why did Verizon support a repeal of the rules? 

Comcast also supported repealing net neutrality, calling the 2015 rules “a politically guided and motivated decision” that slowed the pace of advancement and limited choices in the marketplace. 

In fact, Comcast blamed net neutrality for “stunting the rollout” of its Stream TV, the in-home, IP-based cable service, due to “an unnecessary protracted FCC investigation.”

And the company practically swears it won’t block, throttle, enter into paid prioritization, or discriminate against lawful content. 

David Cohen, senior executive vice president and chief diversity officer at Comcast, writes in a blog, “These fundamental tenets of net neutrality are also key components of our core network and business practices — they govern how we run our internet business. Our internet service is not going to change. Comcast customers will continue to enjoy all of the benefits of an open internet today, tomorrow, and in the future. Period.”

AT&T echoes basically the same message in blog posts. 

But proponents of net neutrality say those companies — as Proschan’s comments suggested — do stand to profit without net neutrality. And plenty believe they’ll make that profit by doing exactly what they say they won’t do.

Jennifer Flanagan, vice president of marketing at Adtaxi, a digital marketing firm in Denver, says that, without net neutrality, ISPs very well could create a pay-to-play environment either prioritizing content from websites who pay to be in a fast lane or charging subscribers to access specific content. 

“Assuming ISPs install some version of paid prioritization, the only real winners are the ISPs themselves — and you could also argue the same for any large internet or media company that can afford to pay the fees to put them in the fast lane,” Flanagan says. “These fees would likely be passed on to advertisers, increasing the cost for the same inventory, and limiting opportunities for small- to medium-sized businesses to advertise in this space.”

Ryan Singel, media and strategy fellow at the Center for Internet and Society at Stanford Law School, agrees and says without net neutrality, “Ad agencies and online retailers can expect ISPs will find ways to make getting to ISP customers more expensive via access fees where, say, Comcast charges all companies to reach their customers — or charging for faster lanes.”

Singel says, for example, a digital ad provider would pay for both access and fast lanes for each major ISP so that ad auctions happen fast and ad delivery speeds stay high. 

“For smaller providers, these charges will likely start upstream — aimed at the companies that help smaller retailers be online, such as their hosting providers and the hosting provider’s middle-mile connections,” Singel says. “Long-term, those fees will benefit those who are already in the position to afford them, namely the biggest companies.” 

Those large players could afford to pay fees to ISPs and that could force smaller companies and startups to also have to pay simply not to be slow, Singel says. “That’s unlikely to cause a consumer backlash, but it’s bad for the marketplace long term. A better strategy long term is for the industry to fight back against the fees in a united fashion,” he says.

net neutrality rules

Consumers’ Concerns

Whether there’s a consumer backlash or not, Flanagan says she believes an internet without net neutrality could lead to fewer internet users.

“In cases where the ISPs increase fees on consumers, it’s likely we’d see a decrease in the total internet population — and that population would likely be more affluent and be geographically located in cities versus rural areas,” she says.

Flanagan cites a study from the Institute for Self-Reliance that says nearly 40 percent of the U.S. population — largely in rural areas of the country — has access to only one ISP, limiting the competition that would generally keep prices down. 

“In these cases, many families will be forced to cut internet access or deal with a cap on data that drastically limits their ability to access certain sites — especially those with video,” Flanagan says. As for ad agencies and advertisers trying to reach those consumers, Flanagan predicts no net neutrality will present “a wide range of challenges.” 

Some insiders say an end to net neutrality — when added to Congress’ reversal of the FCC’s broadband privacy rules last March — means ISPs would be able to share and sell consumers’ data, such as web-browsing history and application usage, unless consumers specifically opt out. 

Flanagan says it’s possible that marketers could leverage this data to more accurately target and engage with consumers. 

“Marketers would need to be cautious — just as they need to be currently with other personalization technologies — so they don’t irritate consumers,” she says. “Personalization is key to marketing. Delivering the right message to the right consumer at the right time tends to drive strong results. But over-personalization, or using personalization in the wrong context, or just straight up getting personalization wrong can be embarrassing and destructive to a brand.” 

Flanagan continues, “Consumers will be impacted in a number of ways, from the removal of internet privacy protections to increased costs for internet access or poor user experience based on slower load times for specific sites. Just as with businesses, the end of net neutrality will create a world of ‘haves’ and ‘have-nots’ with unequal access to information on the internet — generally divided by geography and wealth.”

Another net neutrality proponent is Chetan Saxena, chief operations officer at ISHIR, a consulting firm headquartered in Dallas that offers digital marketing services, among others. He believes an internet without net neutrality could lead to an ugly — even dystopian — future where the internet “will become a weapon in the hands of elites” rather than being a tool in the hands of the people. 

“Without net neutrality, digital marketing would be like a beginning of the depletion of the ecosystem,” Saxena says. “Without neutrality, it [the internet] will soon turn into something very similar to any large media house in cahoots with elites. And elites can regulate the rate of expansion for a particular site, such as Google, a blog, a startup video sharing site and … make its dependents suffer in equal proportion.”

Saxena says he sees a future where oligopolies “with deep pockets and spending capacities could emerge in every industry and niche, bringing a tough time for startups and the general public at large. This move could further raise the entry barrier for digital agencies, as a consequence of the shrinking of their customer base.” 

Silver Linings

Could life sans net neutrality be as bad a Saxena predicts? Not everyone sees it that way. Shelly Palmer, CEO of the Palmer Group, an advisory and creative services firm in New York, says as something of a silver lining, this regulatory shift could open up a wide-range of opportunities for agencies, advertisers, and marketers. 

“This could be a perfect opportunity to pair programmatic creative with programmatic media buying,” Palmer says. “There will be hundreds of different rate plans targeted at specific cohorts. There will also be opportunities to create new consumer and brand experiences that include unlimited bandwidth or free bandwidth offers.”

Palmer predicts the restoration of this version of “internet freedom” will change the media distribution landscape dramatically. “It will be the perfect place for new creative ad units and offers,” he says. “Think about how your brand can be positioned as a trusted, needed content companion. It’s an unintended consequence, but the FCC is about to give a lot of smart marketers an opportunity to shine.”

Palmer says he sees net neutrality as being about paying for infrastructure “that needs to double its capacity every 30 months to carry voice and data — someone has to pay for it.”

Palmer adds that net neutrality is more of a business-to-business issue than anything else. “Consumers will have to deal with numerous offers and pricing — they already do,” he says. “If it really gets out of hand, the people will force Congress to get involved.”

And without Congress passing a law on net neutrality, Palmer says the FCC will continue changing its position and rules as each administration appoints a partisan ​chairperson. “An act of Congress is required. When will it happen? Your guess is as good as mine,” he says. 

To Palmer, all of the “This is the end of the internet” hyperbole is just that. “The internet isn’t ending. A few big businesses are going to fight over who gets to charge who for what. Consumers will see their pricing fluctuate as the market allows,” he says. 

Palmer believes the question people should ask is this: “What scares you more: market-driven corporate greed or big government?”  He says some think that self-regulated corporations are not going to do right by the American people. 

“This may be true, but corporations also have boards and shareholders that want returns — so competition and the marketplace are very good governors,” Palmer says. “Some people think that government should regulate the internet because the public needs to use it for everything. This idea is harder to justify since the infrastructure was built by people willing to risk capital because they believed there would be a return on their investments. Both sides are argued passionately.”

He adds, “Everyone should decide what they think is best and let their elected officials know. America is a constitutional republic. We elect our leaders and they make our decisions for us. Unless you tell them how you want to be represented, you don’t get to weigh in on this fight.”