On Tuesday, the D.C. District Court of Appeals ruled in favor of Verizon in its fight against the FCC’s Open Internet Order. In other words, net neutrality was killed. It certainly was a blow to Internet freedom activists, but it may be even worse for small online businesses.

So, what is net neutrality? Columbia Law School professor Tim Wu originally coined the term and defines it best: “The idea is that a maximally useful public information network aspires to treat all content, sites and platforms equally.” In other words, net neutrality calls for ISPs to treat all online traffic the same regardless of its source. For example, Verizon wouldn’t be able to give preferential treatment to its own Redbox Instant streaming service over Netflix by making one faster than the other under net neutrality.

Do you think the courts were wrong to kill net neutrality? Will it affect the Internet in any significant way? Let us know in the comments.

We have established that net neutrality is pretty important. So, why did the courts kill it? Well, it’s kind of the FFC’s fault. In 2010, the Commission established the Open Internet Order as a way to regulate ISPs and their behavior. Here are the three rules the FCC set up to govern ISPs courtesy of Wikipedia:

That sounds reasonable enough. Why did the court feel the FCC overstepped its bounds then? Well, it all goes back to the Communications Act of 1996 – an updated version of the original Communications Act of 1934. The law gave the FCC the power to designate companies as either common carriers or something more specific, like cable television operator or ISP. If designated as a common carrier, the FCC is able to heavily regulate those companies. If not, its authority isn’t as strong.

In the case of Verizon and other ISPs, they are not designated as common carriers. Under the law, the FCC doesn’t have the authority to impose the kind of regulations seen in the Open Internet Order on those companies. Here’s what the court had to say on the matter:

As we explain in this opinion, the Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here—that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet—is reasonable and supported by substantial evidence. That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order.

In other words, the FCC screwed up by not designating ISPs as common carriers. Under the law, it just doesn’t have the authority required to enforce net neutrality. Now, it could change all that by reclassifying ISPs as common carriers but that’s easier said than done. While some hope for the FCC to reclassify ISPs, FCC Chairman Tom Wheeler issued a statement saying that the Commission is going to take a wait and see approach. He says that he doesn’t want to enact any new sweeping regulations at this time, but will if the need arises:

The principles provide sufficient guidance to set expectations for both producers and consumers. If something appears to go wrong in a material, not a trivial, way, the FCC will be available to use the totality of its authority for adjudication and enforcement. It will look to the Open Internet Order principles and it will examine the facts in light of the principles.

Do you think the FCC will regulate if push comes to shove? Let us know in the comments.

So, what does this all mean for small online businesses? We don’t really know yet. If ISPs take this ruling to mean they can do whatever they want, it could be disastrous for small businesses trying to reach consumers. The ISPs will construct digital toll gates that only allow those willing to pay through. While the big guys get a fast pass to consumers, the small business that can’t afford the fees will have to take the slow road. Online consumers are notoriously impatient and any perceived slowdown on your site will have them go to a competitor that can afford the tolls.

Interestingly enough, ISPs want you to know that they’re not going to do that. Time Warner Cable issued a statement following the ruling that said they would continue to operate their network as they’ve always done:

“Since pioneering the development of high-speed broadband service in the late 1990s, Time Warner Cable has been committed to providing its customers the best service possible, including unfettered access to the web content and services of their choice. This commitment, which long precedes the FCC rules, will not be affected by today’s court decision.”

While ISPs may not block or slow down services, they may go in another direction that’s far more insidious. At CES, AT&T announced a new initiative called sponsored data that would allow content providers to pay a fee towards not having their content count towards a consumer’s monthly limit of data. While it’s not outright discrimination, it’s setting up something very similar.

Let’s run a scenario: You are trying to choose which music streaming service to use. You can either use the big established player or the small, innovative startup. The big established player may not have as many options, but it can pay AT&T to not have its content count towards your monthly data cap. The small startup can’t afford the fees so its data will count towards your data cap. With that in mind, you’re more likely to use the established player despite the startup having the better product.

Proponents of an open Internet say that net neutrality ensures everybody is on a level playing ground – from the big guys to the small startups. Without it, the ISPs can choose the winners and losers based solely upon who’s willing to pay them more. It’s not good for consumers and it’s not good for the thousands of small online businesses that are increasingly turning to the Internet to sell their product.

Can we trust ISPs to keep the Internet fair and open? Should net neutrality be enforced? Let us know in the comments.

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