Streaming Video Without an Open Internet

On February 26, 2015, The Federal Communications Commission voted 3-2 to enact a series of “Open Internet” protections. The three central rules prohibited Internet Service Providers (ISPs) from blocking access to legal content, slowing internet speeds to certain websites, and favoring certain types of internet traffic over others. The 3-2 Commissioner vote was split along party lines; 3 Democrats voting to approve and 2 Republicans voting to reject.

FCC Commissioners are nominated by the President and confirmed by the Senate for 5-year terms. Leadership rules require that no more than three Commissioners come from the same party. Democrat control of FCC leadership is slated to end in May, when Commissioner Jessica Rosenworcel’s term expires. Rosenworcel, a Democrat who voted to approve the February 2015 rules, will likely be replaced by a Republican. If the new Commissioner’s ideology matches that of current Republican Commissioners Ajit Pai and Michael O’Rielly, repealing the Open Internet protections could become a priority.

By the end of 2016, over 22% of all US households are expected to be “cable-free.” Just two years earlier, the percentage of households without pay TV was under 20%. During the second quarter of 2016 alone, approximately 812,000 customers cancelled their pay TV subscriptions – the largest quarterly loss ever. In addition, roughly 2 in 5 US Households subscribe to at least one streaming video service. Before the 2016 Presidential Election, the number of “non-pay TV” households was expected to near 30%. With a reversal in FCC leadership looming, traditional television service may rebound.

According to a January 2016 poll, most “cord cutters” ditched their pay TV services due to cost. Without Open Internet protections, however, streaming video services could soon get much more expensive. Before the February 2015 Rules were adopted, ISPs were accused of throttling speeds to streaming video websites, particularly Netflix. Under current FCC regulations, this practice is prohibited. Instead, many ISPs have implemented restrictions on their customer’s maximum internet usage. These restrictions are known as “data caps.” Under data cap programs, ISPs limit users to a specified amount of data per payment cycle – typically on a per-month basis – and impose penalties for additional usage. Data caps are particularly troubling for streaming video services because users reach their caps much faster with, for example, Netflix than through basic web-browsing.

The February 2015 Open Internet rules limit ISPs from implementing additional restrictions on customer usage. If the rules are either abolished or significantly amended, cord cutting could become prohibitively expensive. Without these regulations, nothing would prohibit ISPs from blocking websites or throttling speeds. It may become common for ISPs to limit Netflix, Hulu, and other streaming video companies to costly subscription packages. Customers unwilling or unable to subscribe can be blocked from accessing these websites entirely. Alternatively, the companies themselves might pay ISPs to remain easily accessible. Netflix and Comcast reached a similar agreement in February 2014. Three months later, Netflix passed the price of their deal onto new customers. Finally, services that broadcast television using an internet connection – known as “over the top” content – such as Sling TV, may be blocked into nonexistence. Perhaps these services can reach deals with ISPs similar to Netflix, but there is little incentive for ISPs, many of whom also offer television services, to bargain.

The expected changes in FCC leadership will surely have many policy implications. Changes to the February 2015 rules alone could reshape the future of internet service in the United States. Cord cutters will certainly be a group affected by these changes. If price continues to be the driving force behind cord cutting, look for many to return to traditional television services.

 

Leave a Comment