The following article was originally published in Kiplinger ALERTS, a forward-looking e-mail and online service that delivers timely forecasts and intelligence on more than a dozen key factors that affect the economy, your business and your investments.
by John Miley
Fierce competition in mobile broadband. A steady decline in cable subscribers. New technology that drives down data prices. Hugely expensive infrastructure costs. An uncertain road to next-generation 5G wireless.
Those are just some of the challenges wired and wireless broadband providers are facing. Now those telecom firms are breathing a sigh of relief and gearing up to launch new services and enter new markets in a big way. Regulatory rollbacks will benefit web providers. But the path forward won’t be easy.
The Federal Communications Commission is poised to ditch utility-style web regulations passed in 2015 when Democrats controlled the panel. The rules, which were based on telephone regulations adopted in 1934, banned web providers from blocking or throttling content, and barred so-called internet fast lanes (unless they were granted a special waiver).
Web providers, such as Comcast, Verizon and AT&T, said the rules were heavy-handed and would harm investment in broadband networks. Net neutrality—as the policy is known—advocates argued the rules were the only want to prevent providers from blocking websites or slowing down certain content.
Another regulation rollback will help web providers enter the digital ad market. Earlier this year, the Republican-controlled Congress approved reversing an FCC rule that would have made it harder for broadband firms to collect, use and sell personal browsing history. President Trump signed the resolution in April as part of his deregulation push. It has riled privacy advocates and caused states to consider their own broadband-privacy laws.
Protests from consumer advocates, tech giants and congressional Democrats will do little to change things. A coordinated online rally to defend net neutrality this week had a hard time grabbing attention as the on-going Russian saga and other news dominated headlines.
Many online companies that lobbied hard for the 2015 net neutrality rule have displayed less vigor this time around. Netflix, for instance, acknowledges that the change won’t hinder its business prospects. A trade group that includes Facebook, Google, Microsoft and Amazon, warned that without strong net neutrality rules “the next generation of ground-breaking websites and apps will never come to be.” Yet critics argue that innovation thrived before the FCC rule took effect in 2015.
Expect wired and wireless firms to roll out fast lanes for data-intensive services such as virtual reality gaming and remote health-care assistance. But strong and growing competition in the consumer broadband market will ward off anti-consumer behavior, for the most part. Web providers won’t block legal content or slow down certain sites, for example. (Business broadband and other specialized web services were exempt from net neutrality regulations.)
Lighter touch regulation will help spur more investment in next-generation 5G wireless service. The FCC’s net neutrality was roundly criticized by companies developing 5G technology. “There is concern about the willingness to invest in expensive new network capabilities” with the FCC’s utility-style rule in place, Brian Hendricks, head of policy and government relations at Nokia, said at a conference last October. Hendricks was talking about data “prioritization,” or favoring some digital bits over others. In a world with 5G, playing data favorites will be important. Autonomous vehicles, for instance, need a “fast lane” for speedy, instant connections to ensure safety.
Web providers also want to get into the advertising game and will feel more unfettered with a Republican-led FCC. The scuttled FCC broadband privacy rule would have been a big roadblock to broadband sellers’ efforts to mine personal data. Entering the ad business is a key strategy among telecom firms. AT&T and Time Warner, which want to merge, have plans to roll out targeted ads that combine broadband data with other personal information.
But Google and Facebook dominate digital ads. The two Silicon Valley tech giants account for two-thirds of the $83-billion-per-year digital ad market and land most of the spending growth. Other fast-growing apps, especially Snapchat, are gaining ad dollars, but are still tiny in comparison.
Google and Facebook have a sprawling network of online assets. Google has its eponymous, dominant search engine; video-sharing site YouTube; a mobile operating system, Android, with two billion users; and is hugely successful at placing ads online. Facebook’s main social media service has two billion monthly users, but it also owns the photo-sharing app Instagram, which has more than 700 million monthly users, plus messaging apps Facebook Messenger and WhatsApp, which combine for two billion-plus monthly users.
“If anyone can challenge Google’s and Facebook’s dominance, it would be internet service providers,” says Hal Singer, an economist at Economists Incorporated, who studies telecom issues. “But even with their access to customer data, it will be hard to make inroads.” Less red tape will help Comcast, Verizon, AT&T, Time Warner Cable, CenturyLink and other internet providers rev up efforts to make money off a treasure trove of personal data.
The debate around net neutrality and web regulations will linger, though. Online activists will continue to try to drum up support and trade groups will have a field day raising funds as the issue drags on. It’s not hard to draw the ire of customers fed up with cable companies. The FCC will soon approve the proposed reversal of the 2015 net neutrality rule, giving another reason for web activists to dust off their keyboards and protest.
The only way to end the net neutrality debate for good: A bipartisan law outlining consumer web protections and clearing the way for next generation 5G service. Some Republicans are calling for just that and would enshrine some net neutrality concepts into law. Rep. Marsha Blackburn (R-Tenn.), the chair of the Subcommittee on Communications and Technology, said recently she “definitely” expects Republicans to “do something” on net neutrality. But Democrats won’t agree anytime soon. They still want internet service classified as a utility.
Internet regulations are far down the list of congressional priorities, even though many people on Capitol Hill agree that the Telecommunications Act of 1996 could use an update.
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