Companies that sell network equipment to ISPs don’t want net neutrality

Thirty-three companies that make equipment used by Internet service providers today called on the US to avoid regulating Internet service as a utility. IBM, Cisco, and Intel signed the letter to US Secretary of Commerce Penny Pritzker, along with Alcatel-Lucent, Arris, Broadcom, D-Link, Ericsson, Panasonic, Sandvine, and others.

“The Administration must act to protect against calls for utility-like common carrier regulation that would threaten demand for Internet infrastructure, reduce incentives for investment, hinder innovation and jeopardize [the Internet’s] success,” the companies wrote.

Consumer advocates have called upon the Federal Communications Commission to reclassify broadband as a utility and ban “fast lanes” in which Web services pay ISPs for faster and more reliable access to consumers. The FCC has proposed rules that would require ISPs to provide a minimum level of service to all legal applications, but without banning fast lanes or classifying broadband as a utility under Title II of the Communications Act. The FCC's plan instead relies upon its weaker “Section 706” authority.

Although the network equipment makers did not argue in favor of any net neutrality rules, they wrote that “If the Commission nonetheless determines that it must fashion ISP regulations, we urge it to exercise authority under Section 706 rather than Title II."

Net neutrality proponents and advocates disagree over whether Title II gives the FCC authority to ban fast lanes or "paid prioritization," but no one disputes that the FCC could use Title II to impose stricter regulations on how Internet providers manage traffic.

Guarding profits

If ISPs create different levels of service for different applications, equipment makers could make more money. In 2007, Comcast was caught blocking peer-to-peer traffic using a product from Sandvine, which has long opposed net neutrality rules.

Creating different tiers of service isn’t that costly or difficult, Sandvine co-founder and CTO Don Bowman told Ars today. He pointed to Differentiated Services, a standard technique that decides which packets to drop first in the event a port is full and can’t carry all traffic. “This would be something practically all equipment would support,” Bowman said.

Systems like this could let ISPs provide lower levels of service to companies that don’t pay for prioritized access on their networks.

Net neutrality advocates argue that strong rules are needed in part to protect online video services that compete against the pay-TV offerings from Internet service providers. Internet subscriptions recently outpaced TV service subscriptions at cable companies, with top cable companies having lost more than 500,000 TV subscribers in Q2 2014.

If that decline continues, there could be a smaller market for TV delivery equipment. IBM sells “IPTV and triple play infrastructure” to ISPs, while Cisco sells network management systems ”for IP television (IPTV), broadcast, and cable networks.” Intel recently agreed to sell its IP-based TV service to Verizon.

Those business concerns weren’t mentioned by the network equipment makers in their letter arguing against net neutrality rules. They wrote:

Broadband Internet deployment and adoption grew and flourished in a light-touch regulatory environment that encouraged heavy investment in the infrastructure needed to support the innovative new services that have become the trademark of the Internet economy. When broadband Internet service providers sought to invest billions of dollars over the past decade to develop and deploy advanced broadband services, they turned to the manufacturing industry, which creates and builds all the myriad physical components of broadband infrastructure from routers and servers to amplifiers and fiber nodes...

Proposals to reclassify broadband Internet access as a “Title II” service—today reserved largely for landline telephone service—threaten to remove incentives to invest in broadband growth and improvement. Because Title II allows for so little flexibility and innovation, it would undercut substantially the broadband providers’ incentives to make the investments necessary to fund network deployments and upgrades. Indeed, the Federal Communications Commission’s determination to leave Internet access services largely unregulated incentivized both investment and innovation, and the Internet’s potential as a mechanism for economic growth was realized.

Reclassifying broadband Internet access service as a Title II service would be harmful to the economy and would create unnecessary obstacles to achieving the Administration’s goal of promoting broadband deployment and adoption. A sudden shift from the existing light-touch approach—which has been an unqualified success and the basis for billions of dollars in investments—to the prescriptive regime of Title II would be extremely disruptive to the broadband marketplace. Resources that would normally be spent on building and improving infrastructure would instead be spent complying with burdensome regulatory obligations, and uncertainty regarding future profitability would deter additional private investments. If investment in broadband services declines, it will set off a domino effect of decreased investment and innovation throughout the manufacturing sector and into the economy as a whole. Title II reclassification would likely delay the full potential for additional broadband investment during the uncertainty resulting from further court scrutiny.

Meanwhile, House Minority Leader Nancy Pelosi (D-CA) called on the FCC to reclassify broadband as Title II, writing that "I oppose special Internet fast lanes, only open to those firms large enough to pay big money or fraught enough to give up big stakes in their company." Title II, she wrote, "also gives the FCC certainty to protect consumers from fraudulent billing practices and privacy infringements while maintaining that Voice-over-Internet Protocol calls and other data will reach their destination without interference."

Tomorrow, big Internet companies will lead a symbolic "Internet slowdown" to protest the FCC's net neutrality proposal. Netflix yesterday joined this effort, along with reddit, Kickstarter, Mozilla, BitTorrent, and other companies.

The FCC received more than a million comments on its net neutrality proposal in a first round of comments, with fewer than 1 percent clearly opposed to net neutrality and two-thirds opposed to fast lanes, according to the Sunlight Foundation. The FCC is taking reply comments until September 15. (See proceeding 14-28.)