The Dangerous Uncertainty Over Net Neutrality

Last month, the FCC released a proposal for new rules concerning the open Internet, and now the public has four months to provide comment. Those proposed rules pay a lip service to an open Internet — something we strongly support — but their substance tells a different story. One of the most dangerous aspects of the proposal is the resulting uncertainty that startups and investors would face. Unfortunately, until and unless we have real net neutrality rules in place, that uncertainty is unavoidable.

As any business owner will understand, when you’re trying get a startup off the ground, any uncertainty can be dangerous — enough to spook investors and stunt growth. In this way, startups and other business owners are already feeling the impact of the net neutrality debate.

Jamie Wilkinson is the co-founder and CEO of VHX, an online video distribution company that helps artists connect directly with their audience. Watch Jamie explain how the uncertainty over net neutrality is already affecting his business.

Startups Speak: Jamie Wilkinson from Engine Advocacy on Vimeo.

So, a speedy solution is required here. But it must also be the right solution.

FCC Chairman Wheeler’s current proposal is not the right solution. The Chairman has stated his preference to rely on Section 706 to implement so-called open Internet rules. While this sounds fine, this year’s Verizon v FCC decision makes that legally impossible. As a result, the Chairman’s proposed rules would result in years of litigation. Likely to be overturned, we’d be left exactly where we are today.

Instead, the Internet needs to be reclassified under Title II as a “common carrier” (like telephone lines, roads, highways, and trains). Only once the FCC has done that can it ensure a true open Internet and deliver the certainty startups need.

In a recent letter to the FCC, Venture Capitalist Brad Burnham explained that without the certainly Title II reclassification brings, Union Square Ventures (and other VC firms) will not invest in Internet startups like they have been to this point:

“Investors like us will need to extract a risk premium before supporting an unproven service, which will hurt the creators who are ultimately responsible for innovation. Worse, investors like us will decide not to risk our partners’ capital at all to back an applications layer start-up, because an incumbent could easily copy the basic elements of a new service and beat them in the market by paying for a faster connection to consumers. We will also be very reluctant to fund companies building services that compete with current or future offerings of the cable or telecommunications companies that can directly impact a consumer’s experience of a new service.”

Not only would the proposed rules allow for pay-to-play schemes, but they would allow ISPs to make “commercially reasonable” deals to prioritize certain content. This violates the concept of net neutrality, and — potentially even worse — determining what is and is not “commercially reasonable” would require the kind of legal budgets and lawyers on staff that startups just don’t have. If you’re a startup and an ISP proposed a “commercially unreasonable” deal, would you have the time and resources to bring a case at the FCC? This added layer of uncertainty is another reason we cannot support Chairman Wheeler’s proposal.