Newly anointed Federal Communications Commission Chairman Tom Wheeler said this week that it would be OK for Internet service providers to charge Netflix and other companies for a faster lane to consumers.

Wheeler's stance is surprising given that it appears to contradict the FCC's Open Internet Order, passed under his predecessor in 2010. That order, which sets out the country's network neutrality rules, says that fixed broadband providers may not "unreasonably discriminate" against any type of traffic. The order specifically calls out pay-for-play arrangements as being potential violations.

"[B]roadband providers that sought to offer pay-for-priority services would have an incentive to limit the quality of service provided to non-prioritized traffic," the rules state. "For a number of reasons... a commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the broadband Internet access service connection to a subscriber of the broadband provider (i.e. 'pay for priority') would raise significant cause for concern. ... [A]s a general matter, it is unlikely that pay for priority would satisfy the 'no unreasonable discrimination' standard."

The Open Internet Order is being challenged in court by Verizon. A Verizon win would let ISPs block content or charge providers for a faster lane to customers. But the rule is still in place, at least until the US Court of Appeals makes a decision.

Wheeler (a former lobbyist for the cable and wireless industries) spoke positively about the order but said he wouldn't mind if Netflix has to pay for a faster lane to consumers while answering questions Monday after a policy speech at Ohio State University.

"I am a firm believer in the market," he said. “I think we’re also going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that you might receive, my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve. We want to observe what happens from that, and we want to make decisions accordingly, but I go back to the fact that the marketplace is where these decisions ought to be made, and the functionality of a competitive marketplace dictates the degree of regulation."

Wheeler's comment implies that he believes the Open Internet Order already allows such arrangements or that he wants to change it.

The remark came just seconds after Wheeler said, "we stand for an open Internet." He said he expects the court decision on the net neutrality rule to come this month or next month and that he hopes it will at least affirm the FCC's position that ISPs shouldn't be allowed to block content. "We're hopeful that the court will affirm the fact that reasonable means that [we can require] carriers to make sure they provide access," he said.



“ISP subscribers are not hostages to be auctioned off”

The consumer advocacy groups Public Knowledge and Free Press criticized Wheeler's comments.

"[H]e appeared to endorse the opposite of net neutrality: allowing ISPs to charge websites and services in order to reach that ISP’s subscribers," Public Knowledge VP Michael Weinberg wrote. "In other words, giving ISPs the power to pick winners and losers online. This endorsement was all the more unexpected because it followed his explicit endorsement of 'net neutrality' and a speech that touted the FCC's role in protecting the public interest."'

Wheeler should clarify his position because his statement "could possibly be interpreted as endorsing CDNs instead of net neutrality violations," Weinberg wrote.

"ISPs should not be allowed to charge some websites or services extra just so those websites and services actually work," Weinberg continued. "ISP subscribers are not hostages to be auctioned off to Web services. There are all sorts of reasons for this but, just to pick one, in order for this type of 'fast lane' to make sense there needs to be a 'slow lane' that is bad enough to make someone like Netflix need to pay to get out of it. And just to pick two, this sort of pricing structure works to freeze out new innovation from companies that cannot afford to outbid incumbents.

Free Press CEO Craig Aaron and Research Director Derek Turner also called out the "mixed messages" sent by Wheeler:

Say Netflix (which, by the way, is already paying a lot to put its content on the network where you can find it) did cut such a deal with Comcast. Netflix would likely then turn around and raise the prices you pay to cover its costs. But there’s no chance Comcast would lower your monthly bill. It would just line its own pockets. So Wheeler’s vaunted “two-sided market” just means you end up paying Comcast twice. Since the existing market for broadband and cable is already so uncompetitive, any company that wants to reach Comcast’s customers is at its mercy. And the next Netflix out there probably couldn’t afford the new tolls, so it would never have a chance to get into the new priority fast lane. Allowing ISPs to charge for prioritization would encourage artificial scarcity, depress competition, harm online innovation, and threaten the very existence of the open Internet.

As we've written , consumers can already get subpar service from Netflix and YouTube when negotiations between ISPs and video services over peering and caching agreements stall. In one case, Verizon was accused of not upgrading the infrastructure required to let Netflix and other traffic pass freely to consumers' homes.

Those sorts of disagreements affect Netflix and YouTube in an indirect way. While Netflix and YouTube seem to suffer disproportionately because of the high bandwidth requirements of streaming video, peering infrastructure is used to pass all types of traffic between Internet companies. The Open Internet Order specifically excludes paid peering arrangements from its purview, but it is usually interpreted to prevent direct payments from companies like Netflix to ISPs to gain faster access to consumers. Letting ISPs directly charge Netflix (or any other company) for such access would ratchet things up to a new level.

Stay tuned.